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20 Wisdom Points from the Book ‘Superperformance Stocks’

  
  Education
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If you read Jesse Livermore’s “How to Trade in Stocks” from 1940, Nicolas Darvas’s ‘How I made 2M in the stock market” from 1960, Richard Love’s “Superperformance Stocks” from 1977, William O’Neil’s early version of “How to make money in stocks” from the 1990s or Howard Lindzon’s “The Wallstrip Edge” from 2008, you will realize that after so many years, the main thing that has changed in the market is the names of the winning stocks. Everything else important – the catalysts, the cyclicality in sentiment, has remained the same.

Here are some incredible insights from Richard Love’s book ‘Superperformance Stocks’. In his eyes, a superperformance stock is one that has at least tripled within a two-year period.

1. The first consideration in buying stock is safety.

Safety is derived more from the good timing of the purchase and less from the financial strength of the company. The stocks of the nation’s largest and strongest corporations have dropped drastically during general stock market declines.

The best time to buy most stocks is when the market looks like a disaster. It is then that the risk is lowest and the potential rewards are highest.

2. All stocks are price-cyclical

For many years certain stocks have been considered to be cyclical; that is, the business of those companies rose and fell with the business cycle. It was also assumed that some industries and certain companies were noncyclical— little affected by the changes in business conditions. The attitude developed among investors that cyclical industries were to be avoided and that others, such as established growth companies, were to be favored. To a  certain extent this artificial division of companies into cyclical and noncyclical has been deceptive because although the earnings of some companies might be little affected by the business cycle the price of the stock is often as cyclical as that of companies strongly affected by the business cycle. Virtually all stocks are price-cyclical. Stocks that are not earnings-cyclical often have higher price/earnings ratios, and thus are susceptible to reactions when the primary trend of the market begins to decline. This can occur even during a period of increasing earnings.

3.  A Superb Company Does Not Necessarily Have a Superb Stock. There are no sure things in the market

There has been a considerable amount of investment advice over the years that has advocated buying quality. ”Stick to the blue chips,” it said, “and you won’t be hurt.” But the record reveals that an investor can be hurt severely if he buys a blue chip at the wrong time. And even if he does not lose financially, he usually has gained very little, particularly considering the risks he has taken. (more…)

Must Read Quotes For Traders

  
  Education
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“Good investing is a peculiar balance between the conviction to follow your ideas and the flexibility to recognize when you have made a mistake.“-Michael Steinhardt
Do not stay bullish or bearish. Go with the current flow of the market. Be on the team that is making the money.
“There is only one side of the market and it is not the bull side or the bear side, but the right side.” -Jesse Livermore
When putting it all together, it is more than just numbers. Successful traders trade in three dimensions.
“Successful trading depends on the 3M`s – Mind, Method and Money. Beginners focus on analysis, but professionals operate in a three dimensional space. They are aware of trading psychology their own feelings and the mass psychology of the markets. Each trader needs to have a method for choosing specific stocks, options or futures as well as firm rules for pulling the trigger – deciding when to buy and sell. Money refers to how you manage your trading capital.” – Alexander Elder
The money is in the primary market trend, not jumping in and out.
“I think it was a long step forward in my trading education when I realized at last that when old Mr. Partridge kept on telling other customers, “Well, you know this is a bull market!” he really meant to tell them that the big money was not in the individual fluctuations but in the main movements-that is, not in reading the tape but in sizing up the entire market and its trend.” – Jesse Livermore (more…)

Avoid the pitfalls of ‘over trading’ and ‘under trading.’

  
  Education
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* There are basically two types of over trading. Trading too often and trading too many shares/contracts.

* Remember that there really is no good reason to trade constantly, since extreme over-trading creates stress, produces high commissions and can often lead to more losses.

* Market forces do not last forever and time has shown various examples of the law of gravity in the trading market- that whatever comes up must go down. – and vice versa.

* Instead of grabbing every opportunity that comes along (or thinking that it is an opportunity) make sure each trade setup meets the criteria of your trading plan, don’t be over confident or scared of making trades.

* Utilizing a risk calculator to determine the appropriate position size before you enter a trade can help you determine how many shares/contracts you initially buy. You can start off with a small position and add as the trade continues in your favor. It relieves stress to know that the amount at risk for each position you hold is well proportioned to the size of your entire account and this is great asset management.

* Whenever you feel that you did not stick to your trading plan and made a mistake, quickly learn from that and let it go.

12 Things Traders Should Not Do at all

  
  Education
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  1. A big ego that wants to prove they are right by stubbornly staying with a position that is wrong becasue they want to be right eventually so bad.12-Number
  2. A trader that want to prove he is a hot shot by trading big position sizes especially in options or futures.
  3. Not wanting to take a stop loss and instead just hope the trade comes back.
  4. Trading with emotions instead of a trading plan can get very expensive very fast.
  5. Being a bear in a bull market.
  6. Being a bull in a bear market.
  7. Being overly eager to start trading with real money before fully testing out a trading system.
  8. Trading without doing adequate homework on how to win.
  9. Dollar cost averaging down in a trade is many time expensive to fight that trend.
  10. Ignoring the charts and just trading your opinion.
  11. Ignoring the probability of the risk of ruin based on your current position sizing.
  12. Not really understanding the true danger of  ‘Black Swan’ and ‘Fat Tail’ events.

5 Great Quotes From Jesse Livermore

  
Analysis, Education
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1. The only leading indicator that matters

Watch the market leaders, the stocks that have led the charge upward in a bull market. That is where the action is and where the money is to be made. As the leaders go, so goes the entire market. If you cannot make money in the leaders, you are not going to make money in the stock market. Watching the leaders keeps your universe of stocks limited, focused, and more easily controlled.

2. Patterns repeat because human nature hasn’t changed for thousand of years

There is nothing new on Wall Street or in stock speculation. What has happened in the past will happen again, and again, and again. This is because human nature does not change, and it is human emotion, solidly build into human nature, that always gets in the way of human intelligence. Of this I am sure.
All through time, people have basically acted the same way in the market as a result of greed, fear, ignorance, and hope. This is why the numerical formations and patterns recur on a constant basis.
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 humans — and human nature never changes.

3. Your first loss is your best loss. (more…)

Books For Professional Traders

  
  Education
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Yes ,List from our Library 

Note that the literature listed below can easily be found in book stores or via the internet.

TRADING Psychology

The following books and articles target some of the core psychological obstacles that traders face every day and techniques to maximize their trading performance. This is an extremely important part of the reading list, in my opinion.

  • “The Mental Edge: Maximize Your Sports Potential with the Mind-Body Connection” – Kenneth Baum“How Successful People Practice” – James Clear (www.jamesclear.com)
    • I’m a big believer in visualization techniques and the contribution it can make to trading success.  I first used visualization during my years playing hockey.
  • “Zen and the Art of Management” – Financial Times, September 16, 2013
  • “Good To Great” – Jim Collins
    • The book is centered on how companies can go from a position of mediocre to greatness.  Many of the concepts are readily applicable to the trading business and to building yourself into an elite trader.

All the books of Dr. Ari Kiev.:

  • “Trading to Win: The Psychology of Mastering the Markets”
  • “Trading in the Zone: Maximizing Performance with Focus and Discipline”
  • “The Psychology of Risk: Mastering Market Uncertainty”
  • “The Mental Strategies of Top Traders: the Psychological Determinants of Trading Success”
  • “Hedge Fund Masters: How top Hedge Funds Set Goals, Overcome Barriers and Achieve Peak Performance”
  • “Mastering Trading Stress: Strategies for Maximizing Performance”
    • Prior to his passing, I had been organizing a conference with Dr. Kiev.  He revolutionized the hedge fund industry in terms of trader performance

(more…)

5 Wisdom Thoughts For Traders

  
  Education
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  1. Learn to think in probabilities. In some types of analysis, it’s easy to forget that any conclusion is only valid within the range of statistical probability. For instance, if we do valuation work, we might think that is the value, and just wait for price to converge. Technical tools make us face the reality in the market, and that is that markets are not very predictable, and are only predictable within a range of probabilities.
  2. Learn to cut your losses. It’s impossible to say what is the “most important” thing in trading or investing, but this certainly is a candidate. Many methodologies do not have any way of telling you when you’re wrong. For instance, if price is under your valuation and it goes down, the logical course of action is to buy more. At some point, declining prices carry a message, and technical tools can force us to respect that message.
  3. Understand how a market has been trending. This can be as easy as squinting at a price chart and see if it “goes up, down, or is pretty flat”. You don’t need moving averages or indicators to do this–simple visual inspection is enough. However (and this is a huge “however”), do not assume that a market that has been trending in the past will continue to trend in the future. That requires a few more steps.
  4. Understand when the rubber band might be stretched a bit too far. Markets tend to move in waves: directional movements will alternate with pullbacks or flat periods. Sometimes, a market goes a bit too far, too fast and can be set to snap back. Buying a market (or shorting) when it is overextended is chasing, and can open the trader up to some stunning losses. There are simple technical tools that will highlight when markets are perhaps a bit overextended, and can tell us to wait for more favorable conditions.
  5. Enforce discipline. Markets are random, but you cannot be random. The only way to get consistent results out of difficult and competitive markets is to always act with consistency and discipline. Technical methodologies encourage us to face market conditions and to immediately evaluate the results of our actions. There is no better way to drive toward consistent behavior.

Short Skirts and the Stock Market

  
Education, Video
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Financial Market Analysts have studied the “hemline indicator” for decades. Yet there’s an even deeper connection between fashion trends and the economy’s financial health that most overlook. This three minute clip from the new socionomics documentary History’s Hidden Engine reveals the real significance of what’s in style.

3 Important contributors to lack of trading confidence

  
Analysis, Education
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1)  Not putting in the work – When we try to borrow ideas from others, we never really deeply understand those ideas.  The process of independently generating an idea ensures that the idea makes sense to us.  That gives us staying power during temporary periods of adverse price action;
2)  Negative self-talk – When we focus on everything we could have done better and everything we did wrong, we create mini failure experiences for ourselves over time.  Our self-talk reflects our relationship with ourselves.  How can we feel confident in who we are and in what we do if we’re constantly tearing ourselves down?
3)  Not playing to our strengths –  Many traders attempt trading styles that don’t match their personality and cognitive strengths.  Over time that generates frustration and erodes confidence.  Trading frequently when we function best as big picture idea generators inevitably exposes us to noise and randomness.

THE COLLECTIVE MADNESS OF CROWDS

  
  Education
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All I can say about the following is WOW, talk about THE perfect explanation for the reason behind unreasonable and illogical crowded moves in the stock market…

The most striking peculiarity presented by a psychological crowd is the following: Whoever be the individuals that compose it, however like or unlike be their mode of life, their occupations, their character, or their intelligence,the fact that they have been transformed into a crowd puts them in possession of a sort of collective mind which makes them feel, think, and act in a manner quite different from that in which each individual of them would feel, think,and act were he in a state of isolation. There are certain ideas and feelings
which do not come into being, or do not transform themselves into acts except in the case of individuals forming a crowd. The psychological crowd is a provisional being formed of heterogeneous elements, which for a moment are combined, exactly as the cells which constitute a living body form by their reunion a new being which displays characteristics very different from those possessed by each of the cells singly.

…and it was written by a psychologist in 1896!

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