Archives of “speculation” tag

rss

17th Century Rules of Speculation

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

Rules of Speculation

  1. Never advise anyone to buy/sell shares. Where guessing correctly is a form of witchcraft, council cannot be put on airs.
  2. Accept both your profits and regrets. It is best to seize what comes to hand when it comes, and not expect that your good fortune and the favorable circumstances will last.
  3. Profit in the share market is goblin treasure: at one moment it is carbuncles, the next it is coal, one moment diamonds, and the next pebbles. Sometimes, they are the tears that Aurora leaves on the sweet morning’s grass, at other times, they are just tears.
  4. He who wishes to become rich from this game much have both money and patience.

Note: these rules are from “Confusion of Confusions” by Jose de la Vega in the year 1688. Vega was a successful merchant, poet, and philanthropist residing in the 17th century Amsterdam. This book represents the oldest known hints of technical analysis and his accounts of the Dutch markets in the 17th century.

Risk & Chance

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

Here are some interesting quotes from ‘Risk & Chance’ (Dowie and Lefrere) that have a relevance to trading and speculation more generally:

Henslin (1967) notes …dice players behave as if they are controlling the outcome of the toss.  One of the ways they exert this is to toss the dice softly if they want a low number, or hard for a high number.  Another is to concentrate and exert effort when tossing.  These behaviours are quite rational if one believes that the game is a game of skill. 

As a trader I wish I could figure out what portion of my trading results can be attributed to luck, and what portion to skill. The problem is that trading seems to be a game of both skill and luck, so we spend half our time figuring out just how hard we should be throwing the dice. Splitting skill from luck is a problem for all speculators, but high frequency traders can find out much sooner than low frequency macro traders, who only take a few positions each year. In the latter case, it may be close to impossible to look back to a macro trader’s career and make this determination with any reasonable level of certainty.  

De Charms(1968) stated that “Man’s primary propensity is to  be effective in producing changes in his environment.  Man strives to be a causal agent, to be the primary locus of causation for, or the origin of, his behaviour; he strives for personal causation.

The polar opposite of mastery is helplessness. (more…)

The Psychology Of Speculation – The Disconcerting Effect Of Sudden Losses And Gains

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

Time for another classic trading book excerpt.  The subject is similar to the one in yesterday’s post. It is about limiting losses and ultimately becoming a better trader if you are willing to embark on that never ending journey to better understand yourself. James L. Fraser from Fraser Publishing clearly understood that. The introduction he wrote clearly shows his deep understanding of humanpsychology, trading and speculation. Human behavior never changes. That’s why I am a huge fan of old classics. Buy those books. Read them. Apply the wisdom imparted.

Henry Howard Harper: ‘The Psychology of Speculation – The Human Element in Stock Market Transactions’

Introduction
First privately printed by the author in 1926 and only found in secondhand stores at rare intervals this classic deserves a more wide spread audience. Harper’s human behavior material gives us insights into the handicapping prejudices that ruin our stock market theories and sound resolutions. Especially in our computer oriented age does the average investor seem incapable of calm reasoning , with the result that he often does precisely the opposite of what he had intended doing.

Moreover, Harper’s easy writing style clearly shows you how the correct ideas of theory are turned into the wrong formulas of practice, and how tickeritis, though mentally intoxicating, leads on to poverty. In a contrary way, we seldom see the favorite caprice of the stock market which is to violate precedent, and do the thing least expected of it. You had better believe it for there are no certainties in this investment world, and where you have no certainties, you should begin by understanding yourself.

James L. Fraser (more…)

Observation, Experience, Memory and Mathematics

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #

“Observation, experience, memory and mathematics – these are what the successful trader must depend on. He must not only observe but remember at all times what he has observed. He cannot bet on the unreasonable or the unexpected, however strong his personal convictions may be about man’s unreasonableness or however certain he may feel that the unexpected happens very frequently. He must bet always on probabilities – that is, try to anticipate them. Years of practice at the game, of constant study, of always remembering, enable the trader to act on the instant when the unexpected happens as well as when the expected comes to pass.

“A man can have great mathematical ability and an unusual power of accurate observation and yet fail in speculation unless he also possesses the experience and the memory. And then, like the physician who keeps up with the advances of science, the wise trader never ceases to study general conditions, to keep track of developments everywhere that are likely to affect or influence the course of the various markets. After years of the game it becomes a habit to keep posted. He acts almost automatically. He acquires the invaluable professional attitude that enables him to beat the game – at times! (more…)

Warren Buffett Talks Markets, Healthcare, IBM, And Self-Driving Cars: The Key Quotes From Berkshire's "Pilgrimage"

  
Analysis, Education
#  #  #  #  #  #

With the 52nd Berkshire Hathaway annual meeting – dubbed the “Woodstock for Capitalists” which is “unique in corporate America, a celebration of the billionaire’s image and success” – now in the history books, all that’s left are the quotes and avuncular aphorisms.

While Buffett and Munger covered a wide variety of topics, some headlines made a particular splash, such as Buffett’s statement that markets have a “casino characteristic” and that people “still succumb to speculative impulses”, while ignoring that a far more narrow subset of people will also get bailed out by the government when the speculative impulses lead to massive losses. Speaking of hypocrisy, Buffett also slammed Wells Fargo, of which he is the biggest shareholder, for failing to stop its employees from engaging in the bank’s scandalous cross-selling practices, saying you cannot “incentivize bad behavior”, even as it was Buffett’s support of current management and board that was key to ensuring the re-election of the entire board last month.

None of this had an impact on the thousands of shareholders and “value investors” who conducted their latest annual “pilgirmage” to see and hear the 86-year-old Oracle of Omaha.

 Hundreds of shareholders lined up early outside downtown Omaha’s CenturyLink Center for the meeting. Several said they got there nearly five hours before doors opened around 6:45 a.m.

 “Every year it seems I have to come earlier,” said Chris Tesari, a retired businessman from Pacific Palisades, California who said he arrived at 3:20 a.m. for his 21st meeting. “It’s a pilgrimage.”

While a full breakdown of the day’s main events can be found in the following link, for those pressed for time here is a summary of the key quotes and highlights, courtesy of Reuters:

ON OBAMACARE REPEAL

  • “Medical costs are the tapeworm of American economic competitiveness.
  • “Our health costs have gone up (incredibly) and will go up a lot more … that is a problem this society is having trouble with and is going to have more trouble with. It almost transcends (political party).
  • “If you talk about the world competitiveness of American industry, (health costs are) the biggest single variable where we keep getting more and more out of whack with the rest of the world.
  • “(The Obamacare repeal) is a huge tax cut for guys like me … either the deficit goes up or they get the taxes from someone else.”

ON BERKSHIRE’S DURABILITY

  • “I can’t think of anything that can harm Berkshire in a material, permanent way except weapons of mass destruction.
  • “If that ever happens, there’ll be more to worry about than the price of Berkshire.”

CHARLIE MUNGER ON PUERTO RICO (more…)

Jesse Livermore :Timeless lessons

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #

All through time, people have basically acted and reacted the same way in the market as a result of: greed, fear, ignorance, and hope. That is why the numerical (technical) formations and patterns recur on a constant basis.

The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the person of inferior emotional balance, or the get-rich-quick adventurer. They will die poor.

Don’t take action with a trade until the market, itself, confirms your opinion. Being a little late in a trade is insurance that your opinion is correct. In other words, don’t be an impatient trader.

It is foolhardy to make a second trade, if your first trade shows you a loss. Never average losses. Let this thought be written indelibly upon your mind.

Remember this: When you are doing nothing, those speculators who feel they must trade day in and day out, are laying the foundation for your next venture. You will reap benefits from their mistakes.

When a margin call reaches you, close your account. Never meet a margin call. You are on the wrong side of a market. Why send good money after bad? Keep that good money for another day.

Successful traders always follow the line of least resistance. Follow the trend. The trend is your friend.

A prudent speculator never argues with the tape. Markets are never wrongopinions often are.

Few people succeed in the market because they have no patience. They have a strong desire to get rich quickly.

I absolutely believe that price movement patterns are being repeated. They are recurring patterns that appear over and over, with slight variations. This is because markets are driven by humansand human nature never changes.

When you make a trade, you should have a clear target where to sell if the market moves against you. And you must obey your rules! Never sustain a loss of more than 10% of your capital. Losses are twice as expensive to make up. I always established a stop before making a trade.

I am fully aware that of the millions of people who speculate in the markets, few people spend full time involved in the art of speculation. Yet, as far as I’m concerned it is a full-time jobperhaps even more than a job. Perhaps it is a vocation, where many are called but few are singled out for success.

The big money is made by the sittin’ and the waitin’not the thinking. Wait until all the factors are in your favor before making the trade.

It was never my thinking that made big money for me. It was my sitting…Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after this that a stock operator can make big money. it is literally true that millions come easier to a trader after he knows how to trade than hundreds did in the days of ignorance.

Give up trying to catch the last eighth – or the first. These two are the most expensive eighths in the world.

Without faith in his own judgment no man can go very far in this game. That is about all I have learned – to study general conditions, to take a position and stick to it.

Remember that stocks are never to high for you to begin buying or too low to begin selling.

That is where the tape comes in – to enable you to decide as to the proper time for beginning. Much depends upon beginning at exactly the right time. (more…)

Risk & Chance

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

Here are some interesting quotes from ‘Risk & Chance’ (Dowie and Lefrere) that have a relevance to trading and speculation more generally:

Henslin (1967) notes …dice players behave as if they are controlling the outcome of the toss.  One of the ways they exert this is to toss the dice softly if they want a low number, or hard for a high number.  Another is to concentrate and exert effort when tossing.  These behaviours are quite rational if one believes that the game is a game of skill. 

As a trader I wish I could figure out what portion of my trading results can be attributed to luck, and what portion to skill. The problem is that trading seems to be a game of both skill and luck, so we spend half our time figuring out just how hard we should be throwing the dice. Splitting skill from luck is a problem for all speculators, but high frequency traders can find out much sooner than low frequency macro traders, who only take a few positions each year. In the latter case, it may be close to impossible to look back to a macro trader’s career and make this determination with any reasonable level of certainty.  

De Charms(1968) stated that “Man’s primary propensity is to  be effective in producing changes in his environment.  Man strives to be a causal agent, to be the primary locus of causation for, or the origin of, his behaviour; he strives for personal causation.

The polar opposite of mastery is helplessness. (more…)

Linda Bradford Raschke – 50 Time Tested Classic Stock Trading Rules

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

50

1. Plan your trades. Trade your plan.
2. Keep records of your trading results.
3. Keep a positive attitude, no matter how much you lose.
4. Don’t take the market home.
5. Continually set higher trading goals.
6. Successful traders buy into bad news and sell into good news.
7. Successful traders are not afraid to buy high and sell low.
8. Successful traders have a well-scheduled planned time for studying the markets.
9. Successful traders isolate themselves from the opinions of others.
10. Continually strive for patience, perseverance, determination, and rational action.
11. Limit your losses – use stops!
12. Never cancel a stop loss order after you have placed it!
13. Place the stop at the time you make your trade. (more…)

Go to top