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The Pitfalls of Speculation

  
  Education
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The question at once asks itself: “How may the top of the market be discerned, and the dangers of the eleventh hour be avoided?” The answer is more or less complex.

It is, of course, necessary above all things to revert to the estimated and fixed value of the stocks traded in and to find out how much above this normal point the securities are selling. This done, common sense, plus prudence, and minus piggishness, may determine the question and dictate the time for liquidation. This action, however, once decided upon must be adhered to with great rigidity, for thousands of traders who thus take time by the forelock have been dissatisfied afterwards by seeing a still greater advance in which they had no interests, and through greed and impatience have re-entered the lists at a most inopportune time.

The trader who realizes his profits, and sees a further advance following his own withdrawal from the market, may console himself with the fact that he has made and secured a profit; that trying to guess the exact extreme of a cycle is hazardous, and that the advance which followed his withdrawal is unsound, being founded on speculation rather than valuation.

But this is a digression from the technical phase of the matter.  So far as it is possible to judge the culmination of the speculative campaign by extraneous appearances, it may be said that a long period of backing and filling, a swinging back and forth of prices at the approximate high level marks the beginning of the end.

The definition of the “top” of the market is that point at which the great traders have almost in unison decided to unload, and per contra, the public has reached its highest level of enthusiasm.  At the beginning of this period the insiders possess and enormous aggregate of stocks which must be sold in such a manner as not to break the market. This operation will take weeks, or even months to accomplish, as any precipitate selling would be disastrous.  The wise element, therefore, sells all the market will absorb without any severe decline, and ceases selling, or even takes the buying side at the first sign of any “softness.” In short, they do all they can to maintain a good feeling and high prices, at the same time parting with the securities as rapidly as possible.

This statement may convey the impression that the shrewd speculators act in unison.  This is true, but not necessarily in the sense that there is any preconceived arrangement between them.  The unison or more or less unconscious, and is founded on the fact that there are only two sides to the market, the right and the wrong side, and that those of the speculative world who have sufficient wisdom and experience to know what is right are working to the same end, while all the inexperienced or unthinking horde are working on theories diametrically opposed to reason or even probability. 

From the SAME AS IT EVER WAS files:

The Pitfalls of Speculation by Thomas Gibson, 1906.

 

9 Wisdom Quotes from George Soros

  
  Education
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George Soros doesn’t need an introduction. He is a living trading legend. Here are some of the smartest things he has ever said about markets. His thoughts are in brown.

1. Perceptions affect prices and prices affect perceptionsGeorge-Soros-gold

I believe that market prices are always wrong in the sense that they present a biased view of the future. But distortion works in both directions: not only do market participants operate with a bias, but their bias can also influence the course of events.

For instance, the stock market is generally believed to anticipate recessions, it would be more correct to say that it can help to precipitate them. Thus I replace the assertion that markets are always right with two others: I) Markets are always biased in one direction or another; II) Markets can influence the events that they anticipate.

As long as the bias is self-reinforcing, expectations rise even faster than stock prices.
Nowhere is the role of expectations more clearly visible than in financial markets. Buy and sell decisions are based on expectations about future prices, and future prices, in turn are contingent on present buy and sell decisions.

2. On Reflexivity

Fundamental analysis seeks to establish how underlying values are reflected in stock prices, whereas the theory of reflexivity shows how stock prices can influence underlying values. One provides a static picture, the other a dynamic one.

Sometimes prices change before fundamentals change. Sometimes fundamentals change before prices change. Price is what pays and until expectations change, prices don’t change. What causes expectations to change? – it could be change in fundamentals or change in prices. So what I am saying is that sometimes prices could be manipulated to change expectations, which will fuel further price momentum in a self-reinforcing way.

3. “Once a trend is established it tends to persist and to run its full course.” – Sentiment changes slowly in trending markets (up or down) and extremely fast in choppy, range-bound markets.

4. “When a long-term trend loses it’s momentum, short-term volatility tends to rise. It is easy to see why that should be so: the trend-following crowd is disoriented.” (more…)

Twenty ‘Ifs’ for a Winning Attitude

  
Education, Life
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  1. If you have the desire, you are halfway there.
  2. If you do your best, don’t mind the rest.
  3. If you can’t control the wind, adjust your sail.
  4. If you are headed in the wrong direction, God allows U-turns.
  5. If you can imagine it you can achieve it. If you can dream it, you can become it.
       
  6. If you don’t stand for something, you’ll fall for anything.
  7. If you aim at nothing, you’ll hit it every time.
  8. If you have much, give of your wealth; if you have little, give of your heart.
  9. If you always do what you always did, you’ll always get what you always got.
  10. If you depend on others to make you happy, you will be endlessly disappointed. (more…)

A Look at 9 Quotes from George Soros

  
Education, Life
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1. Perceptions affect prices and prices affect perceptions

I believe that market prices are always wrong in the sense that they present a biased view of the future. But distortion works in both directions: not only do market participants operate with a bias, but their bias can also influence the course of events.
For instance, the stock market is generally believed to anticipate recessions, it would be more correct to say that it can help to precipitate them. Thus I replace the assertion that markets are always right with two others: I) Markets are always biased in one direction or another; II) Markets can influence the events that they anticipate.
As long as the bias is self-reinforcing, expectations rise even faster than stock prices.
Nowhere is the role of expectations more clearly visible than in financial markets. Buy and sell decisions are based on expectations about future prices, and future prices, in turn are contingent on present buy and sell decisions.

2. On Reflexivity

Fundamental analysis seeks to establish how underlying values are reflected in stock prices, whereas the theory of reflexivity shows how stock prices can influence underlying values. One provides a static picture, the other a dynamic one.

Sometimes prices change before fundamentals change. Sometimes fundamentals change before prices change. Price is what pays and until expectations change, prices don’t change. What causes expectations to change? – it could be change in fundamentals or change in prices. So what I am saying is that sometimes prices could be manipulated to change expectations, which will fuel further price momentum in a self-reinforcing way. (more…)

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