Archives of “siren song” tag

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John Bogle’s 10 Rules of Investing

  
  Education
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“1. Remember reversion to the mean. What’s hot today isn’t likely to be hot tomorrow. The stock market reverts to fundamental returns over the long run. Don’t follow the herd.

2. Time is your friend, impulse is your enemy. Take advantage of compound interest and don’t be captivated by the siren song of the market. That only seduces you into buying after stocks have soared and selling after they plunge.

3. Buy right and hold tight. Once you set your asset allocation, stick to it no matter how greedy or scared you become.

4. Have realistic expectations. You are unlikely to get rich quickly. Bogle thinks a 7.5 percent annual return for stocks and a 3.5 percent annual return for bonds is reasonable in the long-run.

5. Forget the needle, buy the haystack. Buy the whole market and you can eliminate stock risk, style risk, and manager risk.

6. Minimize the “croupier’s” take. Beating the stock market and the casino are both zero-sum games, before costs. You get what you don’t pay for. (more…)

10 Things You Can Learn About the Market from Greek and Roman Times and Myths

  
  Education
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1. There is a critical point in the market, a critical decision that the market gods weigh on a scale like Zeus with his balance scale deciding whether Achilles or Hector will win, that determines the market fate, and it is key and should be the focus of all news stories and market considerations but never is.

2. Never trust anyone but your family and best friend because everyone is disloyal in a pinch. Peleus was left for dead by his father in law after killing his brother in law to become ruler and this led to the Trojan war. Caesar trusted his best friends but they turned on him when an opportunity for power, money, and romance reared its ugly head.

3. Deception is key. The most successful Greek was the Deceiver Odysseus, and he tricked everyone he dealt with as the market tries to trick you with Odyssean power.

4. The goal is always to come home. Odysseus went home, as does the market. The only loyal ones were the wife and son and the best servant. The market retraces and comes home to break even an inordinate number of times.

5. Never mix romance with business or the market. The Trojan was was started by Paris intervening in romance and being swept off his feet by Aphrodite, and Achilles killed tens of thousands and prolonged the war by 10 years when Menelaus stole his mistress.

6. Don’t try to walk with the Gods. Peleus married a half God and married her the last time the Gods and mortals mingled at a celebration and it caused him to be the most distressful of men. Trying to emulate Soros or the other greats is the seed of destruction. (more…)

7 Words for Traders

  
  Education
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  • Think risk first and profit second — Profitable traders view every potential and actual trade through the lens of risk or whether they are willing to truly accept the potential damage to their account as opposed to focusing on the potential reward of trades.7
  • Accept risk — Profitable traders truly accept the associated risks once they decide the potential reward is worth it.  These traders understand that in order to win consistently they MUST experience controlled losses.  They know that if they minimize losses and exercise patience with winners, they can reap incredible profits.
  • Think more/Trade less –  Profitable traders know that their profit on every trade lay in the short distance between their ears.  They understand that the siren song of securities is an invitation to trouble much of the time.  They spend more time assessing a security’s overall chart structure and identifying optimal transaction points rather than focusing on the physical activity of clicking an entry or exit.
  • Stalkers — Profitable traders are disciplined and patient.  They will pass up a good entry to wait for a great one.
  • Decisive — Profitable traders make decisions.  They know that as long as their decisions are framed properly (i.e. from a risk perspective), their first thought is generally the right one.
  • Forgetful — Profitable traders have short memories.  As we were told many years ago on a Wall Street trading desk, “If you have a losing trade, forget it quickly… the chance to profit is coming up.  If you have a winning trade, forget it even more quickly… the chance to give up those profits is coming up… stay in the moment.”
  • Group think — Profitable traders care little for any one trade.  They know they have already taken steps to minimize the impact of any single trade.  Instead they focus on groups of trades as groups are more indicative of their process… which is what’s really important.
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