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The Woman Who Made It on Wall Street

  
Education, US Market
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Sallie

Women are the foot soldiers of the business world, but they are rarely the generals. So it’s worth asking why no female has been as successful in scaling Wall Street as Sallie Krawcheck, Bank of America’s (BAC) wealth management chief. While other women struggle to avoid the “glass cliff,” she barely walks into a bank before she is groomed as a future CEO.

Krawcheck is best known for the kind of media adoration you can’t buy—for instance, that famous cover story from Fortune magazine, “In Search of the Last Honest Analyst.” But her rise began well before—and was speedy. In six years Krawcheck went from junior banker at Donaldson Lufkin & Jenrette to chief executive of research firm Alliance Bernstein. She clocked just two years at Citigroup (C) before becoming CFO in 2004. Nine months after a falling-out with Citigroup CEO Vikram Pandit in 2008, she was back in the game with a better deal: Bank of America wooed Krawcheck, just 45, to run its mammoth brokerage. And within six weeks on the job, she was named as a possible successor for its departing CEO. But as successful as she has been in winning over the media, interviews with former colleagues show Krawcheck has been just as effective in winning over her peers, too. Her rise has not been flawless and is still not assured after her troubled turn as Citi CFO. But it is very real.

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Not A One Way Train

  
  Education
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Words of wisdom from Dave Landry’s new book, The Layman’s Guide To Trading Stocks:

Wall Street Myth 1: The market always goes up longer term

It seems to be universally preached that the market “always goes up longer term.” And, all you have to do is buy a diversified mutual fund or index fund and wait. The problem is that markets do not always go up longer term. Well, I suppose it all depends on what you mean by longer term.

Suppose you bought stocks in 1929 at the market peak. Provided you could have held through a 90% loss, it would then have taken you a quarter of a century just to get back to breakeven.

Let’s say you bought stocks in the mid-1960’s. Your return would have been almost zero until the market finally broke out in 1983, which was 17 years later.

When I began this chapter, I was concerned that there might be a “that was then, this is now” mentality. After all, the benchmark S&P 500 wasn’t far below breakeven from the 2000 peak. I thought I was going to have to make a strong case for not buying and holding. Unfortunately for the buy and hold crowd, the market made my case for me. The bear market that began in late 2007 would turn out to be the worst since 1929. By March 2009, the S&P was at 13-year lows. From these lows, the market will have to rally over 200 percent just to get to breakeven.

At more than one cocktail party, I have had people laugh in my face when I tell them that the market can go 25 years or more without going up. This has made for some heated discussions and awkward social situations. I have since learned from Dale Carnegie and my wife Marcy to just nod my head and enjoy my drink. Do not take my word for it, just look at the charts and grab me a Black and Tan while you are at it!

How to Trade in Stocks by Jesse Livermore

  
  Education
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howtotrade
I will just write what  the market is going to do tomorow, for that just have some patience  for time being till then  few quotes from Jesse Livermore’s book How to Trade in Stocks (one of my favorites, originally written in 1940). Pay particular attention to the first quote!

  • “Successful traders always follow the line of least resistance – follow the trend – the trend is your friend”
  • “Wall Street never changes, the pockets change, the stocks change, but Wall Street never changes, because human nature never changes”
  • “Just because a stock is selling at a high price does not mean it won’t go higher” (more…)

Book Review: Hedge Hogs: The Cowboy Traders Behind Wall Street's Largest Hedge Fund Disaster

  
  Education
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I’ve recently enjoyed reading Hedge Hogs: The Cowboy Traders Behind Wall Street’s Largest Hedge Fund Disaster, the story of how Amaranth blew up. It’s essentially a story of one man who was successful for a while and took on unbelievable amounts of risk trading natural gas futures while all of his supervisors, mostly the fund’s owner but some others as well lost all control or even desire for control. The book greatly details the actual trades and talks about many related personages, but it left me puzzled about how the trader who was mostly responsible for this disaster lasted this long. He had made a huge amount of money prior to blowing up, and even though he appeared to be quite intelligent the reasoning behind his trades are either inadequately or perhaps truthfully described as being close to random. He suddenly takes a liking to certain types of spreads and just bets on them evidently without much more than a seemingly unjustified belief that they will widen.

At some point he essentially became the market and and had to keep up the spreads by continuous buying until the fund blew up. The main trader and some others are portrayed as sociopathic degenerates driven by irrational beliefs as well as a strong desire to win at all costs. I would be interested to hear some energy trader’s or any commodity trader’s opinion about the book.

Inside the Brain of Peter Lynch, Investing Genius

  
  Education
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Those readers who have frequented my Investing Caffeine site are familiar with the numerous profiles on professional investors of both current and prior periods . Many of the individuals described have a tremendous track record of success, while others have a tremendous ability of making outrageous forecasts. I have covered both. Regardless, much can be learned from the successes and failures by mirroring the behavior of the greats – like modeling your golf swing after Tiger Woods (O.K., since Tiger is out of favor right now, let’s say Jordan Spieth). My investment swing borrows techniques and tips from many great investors, but Peter Lynch (ex-Fidelity fund manager), probably more than any icon, has had the most influence on my investing philosophy and career as any investor. His breadth of knowledge and versatility across styles has allowed him to compile a record that few, if any, could match – outside perhaps the great Warren Buffett.

Consider that Lynch’s Magellan fund averaged +29% per year from 1977 – 1990 (almost doubling the return of the S&P 500 index for that period). In 1977, the obscure Magellan Fund started with about $20 million, and by his retirement the fund grew to approximately $14 billion (700x’s larger). Cynics believed thatMagellan was too big to adequately perform at $1, $2, $3, $5 and then $10 billion, but Lynch ultimately silenced the critics. Despite the fund’s gargantuan size, over the final five years of Lynch’s tenure, Magellan  outperformed 99.5% of all other funds, according to Barron’s. How did Magellan investors fare in the period under Lynch’s watch? A $10,000 investment initiated when he took the helm would have grown to roughly $280,000 (+2,700%) by the day he retired. Not too shabby.

Background

Lynch graduated from Boston College in 1965 and earned a Master of Business Administration from the Wharton School of the University of Pennsylvania in 1968.  Like the previously mentioned Warren Buffett, Peter Lynch shared his knowledge with the investing masses through his writings, including his two seminal books One Up on Wall Street and Beating the Street. Subsequently, Lynch authored Learn to Earn, a book targeted at younger, novice investors. Regardless, the ideas and lessons from his writings, including contributing author to Worth magazine, are still transferable to investors across a broad spectrum of skill levels, even today.

The Lessons of Lynch

Although Lynch has left me with enough financially rich content to write a full-blown textbook, I will limit the meat of this article to lessons and quotations coming directly from the horse’s mouth. Here is a selective list of gems Lynch has shared with investors over the years:

Buy within Your Comfort Zone: Lynch simply urges investors to “Buy what you know.” In similar fashion to Warren Buffett, who stuck to investing in stocks within his “circle of competence,” Lynch focused on investments he understood or on industries he felt he had an edge over others. Perhaps if investors would have heeded this advice, the leveraged, toxic derivative debacle occurring over previous years could have been avoided.

Do Your Homework: Building the conviction to ride through equity market volatility requires rigorous homework. Lynch adds, “A company does not tell you to buy it, there is always something to worry about.  There are always respected investors that say you are wrong. You have to know the story better than they do, and have faith in what you know.” (more…)

Greed

  
  Education
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 Small excerpt is from the book: ‘Wall Street. Its Mysteries Revealed: Its Secrets Exposed’ published in New York, 1921 by William C. Moore. The book contains short and to the point chapters like: ‘The crowd mind’, ‘How the public speculates’, ‘Mental suggestion’ and‘Market advice’ to name but a few. I chose the one on ‘Greed’ as I consider it great advice and timeless wisdom. Enjoy.

Greed p. 123-124

An avaricious or keen desire for profits is one of the most prevalent causes of failure inspeculation. This weakness is general among traders. They desire “just a little more ” profit. If the stock or commodity bought advances, then that’s proof to them that it will advance further and so they hang on. They usually overstay and thus miss their market. If they fail to obtain the top price and it reacts, then they assure or console themselves by the expression: “Oh, it will come back.” It may “come back” but often it does not, and instead, declines to below the purchase price and frequently results in a loss. The same observations apply to a short sale for a further anticipated decline. It is a good policy to be satisfied with a reasonable profit and be willing to leave some for the other fellow. The market is always there and other opportunities for making profits will present themselves while the greedy trader is waiting to get the last eighth.

Greed leads to disaster in another way. A speculator has started in to buy at the inception of a bull movement. He makes money. The more he makes, the more avaricious he becomes as the market moves forward. His confidence in himself increases until he develops a mental state known in the vernacular as “big head” or “swelled head”. He now has unbounded confidence in himself and “plays the limit”. Soon thereafter the market culminates at the top and the trend reverses, but Mr. Swelled Head is ignorant of this, so continues to buy on set-backs instead of selling on rallies. A drastic slump follows and Mr. B.H. goes to the scrap pile – BUSTED.

Livermore quotes

  
  Education
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Jesse_Livermore_quotesLivermore on irationality

Trying to figure out the “why” of amarket move can often cause great emotional strife. The simple fact is, the market always precedes economic news, it does not react to economic news. The market lives and operates in future time.

 
Livermore on knowing yourself

It is my conclusion that playing the market is partly an art form, it is not just pure reason. If it were pure reason, then somebody would have figured it out long ago. That’s why I believe every speculator must analyze his own emotions to find out just what stress level he can endure. Every speculator is different, every human psyche is unique, every personality exclusive to an individual. Learn your own emotional limits before attempting to speculate, that is my advice to any one who has ever asked me what makes a successful speculator. If you can’t sleep at night, because of your stock market position than you have gone too far, if this is the case then sell your position down to the sleeping level. (more…)

Wall Street Makes It Hard to Earn Legal Living

  
Analysis, Education
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Schroeder_lg_lgAlice Schroeder is the author of “The Snowball: Warren Buffett and the Business of Life”, a former managing director at Morgan Stanley, and is a Bloomberg News columnist. Below is a great opinion piece she wrote for Bloomberg.
Read more here:
A group of university students I spoke to recently asked if it was possible to make a living on Wall Street without compromising your values. I had to tell them no.
Wall Street has many decent, honorable people, but they work in a system that fundamentally compromises people’s ethics. The high pay is like an anesthetic that numbs you from feeling how you are being corrupted. Not only that, many honest people who work there would agree with an even more extreme statement: It’s hard to make a living legally on Wall Street. (more…)

We want to be right

  
  Education
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 Two wrongs don’t make a right in life but in the stock market two wrongs (and plenty more) will help you get on the right road to making money.   The market says the trading game is about making money not about stroking the ego.  The “right” road is the “wrong” road when your on Wall Street.  Hey, if  you doing it to be right, then you’re “doing it wrong!”

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