- “I needed no unusual knowledge or intelligence to conclude that the investment had no downside and potentially had substantial upside.”
- “You don’t need to be an expert in order to achieve satisfactory investment returns. But if you aren’t, you must recognize your limitations and follow a course certain to work reasonably well.”
- “Keep things simple and don’t swing for the fences.”
- “When promised quick profits, respond with a quick ‘no.'”
- “If you don’t feel comfortable making a rough estimate of the asset’s future earnings, just forget it and move on. No one has the ability to evaluate every investment possibility.”
- “Games are won by players who focus on the playing field — not by those whose eyes are glued to the scoreboard.”
- “Forming macro opinions or listening to the macro or market predictions of others is a waste of time.”
- “It should be an enormous advantage for investors in stocks to have those wildly fluctuating valuations placed on their holdings — and for some investors, it is.”
- “Owners of stocks…too often let the capricious and irrational behavior of their fellow owners cause them to behave irrationally as well.”
- “In the 54 years (Charlie Munger and I) have worked together, we have never forgone an attractive purchase because of the macro or political environment, or the views of other people. In fact, these subjects never come up when we make decisions.” (more…)
Archives of “Short” tag
rssThe Difference Between A Good And A Bad Trader: What Brain Imaging Reveals
The age old question: what is the difference between a good trader and a bad trader… aside from the P&L at the end of the day of course.
While luck has always been a major component of the equation, figuring out just what makes one trader successful, while another blows all his funds on a trade gone horribly bad has always been the holy grail of behavioral finance. Because if one can isolate what makes a good trader “ticks, that something can then be bottled, packaged and resold at a massive markup (and thus, another good trade) in the process making everyone the functional equivalent of Warren Buffett.
Or so the myth goes. Alas, the distinction between the world’s only two types of traders has been a very vague one.
Until now. (more…)
Peter Lynch’s Rules
Find your edge and put it to work by adhering to the following rules:
- With every stock you own, keep track of its story in a logbook. Note any new developments and pay close attention to earnings. Is this a growth play, a cyclical play, or a value play? Stocks do well for a reason and do poorly for a reason. Make sure you know the reasons.
- Pay attention to facts, not forecasts.
- Ask yourself: What will I make if I’m right, and what could I lose if I’m wrong? Look for a risk-reward ratio of three to one or better.
- Before you invest, check the balance sheet to see if the company is financially sound.
- Don’t buy options, and don’t invest on margin. With options, time works against you, and if you’re on margin, a drop in the market can wipe you out.
- When several insiders are buying the company’s stock at the same time, it’s a positive.
- Average investors should be able to monitor five to ten companies at a time, but nobody is forcing you to own any of them. If you like seven, buy seven. If you like three, buy three. If you like zero, buy zero.
- Be patient. The stocks that have been most rewarding to me have made their greatest gains in the third or fourth year I owned them. A few took ten years.
- Enter early — but not too early. I often think of investing in growth companies in terms of baseball. Try to join the game in the third inning, because a company has proved itself by then. If you buy before the lineup is announced, you’re taking an unnecessary risk. There’s plenty of time (10 to 15 years in some cases) between the third and the seventh innings, which is where the 10- to 50-baggers are made. If you buy in the late innings, you may be too late.
- Don’t buy “cheap” stocks just because they’re cheap. Buy them because the fundamentals are improving.
- Buy small companies after they’ve had a chance to prove they can make a profit.
- Long shots usually backfire or become “no shots.”
- If you buy a stock for the dividend, make sure the company can comfortably afford to pay the dividend out of its earnings, even in an economic slump.
- Investigate ten companies and you’re likely to find one with bright prospects that aren’t reflected in the price. Investigate 50 and you’re likely to find 5.
DON’T TRADE EVERY DAY
Do not trade every day of every year. Trade only when the market is clearly bullish or bearish. Trade in the direction of the general market. If it’s rising you should be long, if it’s falling you should be short.
Jesse Livermore
This is a corollary of trade only when you have an edge. Don’t take part in the market unless you have an edge. And for most trading strategies, the edge comes from market trends.
In a bull trend, the market tends to rise. A trading edge is possible if you look to buy.
In a bear trend, the market tends to fall. If you are looking to sell, you might gain a trading edge.
When the market has no clear tendencies, it’s much harder to gain an edge. If that’s the case, be sure not to overtrade.
Remember that you are a trader, not a worker. A worker shows up for work every day. A trader shows up only when there’s money to be made.
18+1 Trading Rules for Traders
- NEVER, EVER, EVER ADD TO A LOSING POSITION: EVER!: Adding to a losing position eventually leads to ruin, remembering Enron, Long Term Capital Management, Nick Leeson and myriad others.
- TRADE LIKE A MERCENARY SOLDIER: As traders/investors we are to fight on the winning side of the trade, not on the side of the trade we may believe to be economically correct. We are pragmatists first, foremost and always.
- MENTAL CAPITAL TRUMPS REAL CAPITAL: Capital comes in two forms… mental and real… and defending losing positions diminishes one’s finite and measurable real capital and one’s infinite and immeasurable mental capital accordingly and alway.
- WE ARE NOT IN THE BUSINESS OF BUYING LOW AND SELLING HIGH: We are in the business of buying high and selling higher, or of selling low and buying lower. Strength begets strength; weakness more weakness.
- IN BULL MARKETS ONE MUST TRY ALWAYS TO BE LONG OR NEUTRAL: The corollary, obviously, is that in bear markets one must try always to be short or neutral. There are exceptions, but they are very, very rare.
- “MARKETS CAN REMAIN ILLOGICAL FAR LONGER THAN YOU OR I CAN REMAIN SOLVENT:” So said Lord Keynes many years ago and he was… and is… right, for illogic does often reign, despite what the academics would have us believe.
- BUY THAT WHICH SHOWS THE GREATEST STRENGTH; SELL THAT WHICH SHOWS THE GREATEST WEAKNESS: Metaphorically, the wettest paper sacks break most easily and the strongest winds carry ships the farthest,fastest.
- THINK LIKE A FUNDAMENTALIST; TRADE LIKE A TECHNICIAN:Be bullish… or bearish… only when the technicals and the fundamentals, as you understand them, run in tandem.
- TRADING RUNS IN CYCLES; SOME GOOD, MOST BAD: In the “Good Times” even one’s errors are profitable; in the inevitable “Bad Times” even the most well researched trade shall goes awry. This is the nature of trading; accept it and move on. (more…)
"In Australia shorts are required to report their covered short positions on a daily basis to the market regulator"
Book Review : Jesse Livermore: Boy Plunger
This is a story of triumph and tragedy. Jesse Livermore is notable as one of the few people who ever made it into the richest tiers of society by speculating — by trading stocks and commodities — betting on price movements.
This is three stories in one. Story one is the clever trader with an intuitive knack who learned to adapt when conditions changed, until the day came when it got too hard. Story two is the man who lacked financial risk control, and took big chances, a few of which worked out spectacularly, and a few of ruined him financially. Story three is how too much success, if not properly handled, can ruin a man, with lust, greed and pride leading to his death.
The author spends most of his time on story one, next most on story two, then the least on story three. The three stories flow naturally from the narrative that is largely chronological. By the end of the book, you see Jesse Livermore — a guy who did amazing things, but ultimately failed in money and life.
Let me briefly summarize those three aspects of his life so that you can get a feel for what you will run into in the book:
The Clever Trader
Jesse Livermore came to the stock market in Boston at age 14, and was a very quick study. He showed intuition on market affairs that impressed the most of the older men who came to trade at the brokerage where he worked. It wasn’t too long before he wanted to invest for himself, but he didn’t have enough money to open a brokerage account, so he went to a bucket shop. Bucket shops were gambling parlors where small players gambled on stock prices. He showed a knack for the game and made a lot of money. Like someone who beats the casinos in Vegas, the proprietors forced him to leave.
He then had more than enough money to meet his current needs, and set up a brokerage account. But the stock market did not behave like a bucket shop, and so he lost money while he learned to adapt. Eventually, he succeeded at speculating on both stocks and commodities, leading to his greatest successes in being short the stock market prior to the panic of 1907, and the crash in 1929. During the 1920s, he started his own firm to try to institutionalize his gifts, and it worked for much of the era. (more…)
Livermore on patience
In a narrow market,when prices are not getting anywhere to speak of but move within a narrow range, there is no sense in trying to anticipate what the next big movement is going to be up or down. The thing to do is to watch the market, read the tape to determine the limits of the get-nowhere prices, and make up your mind that you will not take an interest until the price breaks through the limit in either direction. A speculator must concern himself with making money out of the market and not with insisting that the tape must agree with him. Never argue with it or ask it for reasons or explanations. Stock-market post-mortems don’t pay dividends.
Do you wish to gamble blindly in the hope of getting a great big profit or do you wish to speculate intelligently and get a smaller but much more probable profit?
Day Traders : Read These Rules EveryDay-Spend 10 Minutes
- There is no single true path.
- The universal trait is discipline.
- Trade your personality.
- Failure and perseverance are part of every successful trader’s life.
- Great traders are flexible.
- It takes time to become a successful trader.
- Keep a record of your market observations.
- Develop a trading philosophy.
- What is your edge? Big picture tech, change, on the cusp, understand big trend before others, shifts.
- Confidence is important, and you build it from hard work.
- Hard work.
- Obsessiveness.
- Market wizards are innovators, not followers.
- To be a winner you have to be willing to take a loss!
- Risk control. Stop-loss, or reducing position size, limit initial position size, short selling.
- You can’t be afraid of risk
- Some limit downside by focusing on undervalued stocks. (but still can drop.)
- Value alone is not enough. Need catalysts.
- The importance of catalysts.
- Focus not only on when to get in, but when to get out
10 Most Foolish Things a Trader Can Do
The Ten Most Foolish Things a Trader Can Do
- Try to predict the future movement of a stock, and stay in it no matter what.
- Risk your entire account on one trade with no stop loss plan.
- Have a winning trade but no exit strategy to get out, no trailing stop or exhaustion top signal.
- Ask for and follow the advice of others instead of trading with your own trading plan, method, rules, and system.
- Trade your emotions instead of signals: buy when you are greedy and sell when you are afraid.
- Trade your opinions, not a quantified method.
- Do not bother to do your homework on trading, just jump in and trade, you are smart, you will figure it out.
- Short the best and most expensive stocks in the stock market and buy the cheapest junk stocks.
- Put on trades you are 100% sure are winners so you do not even need a stop loss or risk management.
- Buy more of a trade that you are losing money in and sell your winners quickly to lock in small profits.