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WHAT WALL STREET CAN LEARN FROM COWBOYS

  
  Education
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James P. Owen, a 40 year veteran on Wall Street, has written a interesting book entitled Cowboy Ethics: What Wall Street Can Learn From the Code of the West.  In it he lists the 10 codes of the working cowboy, explaining how each code can be a source of inspiration for all those involved in Wall Street, from traders to institutions.  Along with the message are beautiful photographs throughout by David Stoecklein.  You could actually classify this as a trader’s coffee table book.  Here are the codes:

1.  Live Each Day With Courage.  Real courage is being scared to death and saddling up anyway, setting aside the fear of the unknown knowing there is work to be done.

2.  Take Pride in Your Work.  Cowboying doesn’t build character, it reveals it.  Stock trading brings out what is already there: pride in the preparation.

3.  Always Finish What You Start.  When you’re riding through hell…keep riding.  Good stock traders, like cowboys, never quit in the face of uncertainty.

4.  Do What Has to be Done.  The true test of a man’s honor was how much he would risk to keep it intact.  Stock trading is about taking responsibility for decisions and results, just like the cowboys.

5.  Be Tough, But Fair.  The Golden Rule was nothing less than a key to survival.  Cowboys always treated others with respect, especially those who differed.  Should we not do the same, whether bull or bear?

6.  When You Make a Promise Keep It.  A man is only as good as his word.  You have no one to trust but yourself and when you have rules they are there for you to follow.  If you do not, then you have broken a promise to yourself.  Same with traders as with cowboys.

7.  Ride For The Brand. The cowboy’s greatest devotion was to his calling and his way of life.  If you have clients, the clients come first; if you have family depending on your discipline, then they come first.  Period.

8.  Talk Less and Say More.  When there’s nothing more to say, don’t be saying it. No room for bragging or boasting out on the range or in the market.  Your work, devotion, and steadfastness speaks for itself.  Enough said.

9.  Remember That Some Things Are Not For Sale.  To the cowboy, the best things in life aren’t “things.”  What matters most on the range and in the trading room is not what money can buy but what can’t be bought.  Reputation is all that really matters.

10.  Know Where to Draw the Line.  There is right and there is wrong, and nothing in between.  Insider trading, whispers, rumors, secret deals behind close doors, and all manner of questionable activities may be all around us but we do not have to embrace them as our own.

Of all the places to learn a few lessons about investing and ourselves, is it not refreshing to find a few on the open range from a time not so long ago?

Lessons from Martin Schwartz

  
  Education
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To succeed in trading one must learn from the best, so it is wise to consider the advice of Martin Schwartz.
I highly recommend you read his book Pit Bull – Lessons from Wall Street’s Champion Trader.
“I took $40,000 and ran it up to about $20 million with never more than a 3 percent drawdown.” (Month-end data)

“By living the philosophy that my winners are always in front of me, it is not so painful to take a loss. If I make a mistake, so what!”
“My trading style was to take a lot of small profits rather than go for one big one.“
“After a devastating loss, I always play very small and try to get black ink, black ink. It’s not how much money I make, but just getting my rhythm and confidence back.”
“The market does not know if you are long or short and could not care less. You are the only one emotionally involved with your position. The market is just reacting to supply and demand and if you are cheering it one way, there is always somebody else cheering it just as hard that it will go the other way.” (more…)

Quote from Victor Sperandeo

  
  Education
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Trader Vic- Methods of a Wall Street Master

In his book Trader Vic: Methods of a Wall Street Master, Victor Sperandeo mentioned:

As an aside, I want to point out that although this period of intensive study helped me immeasurably in my ability to call the markets, it cost me substantially in my personal life. My daughter, Jennifer, was at a crucial formative age (3 to 5), and I spent almost no time with her. I would get home from the office, eat, and go straight back to work in my study. When she came into my office, I would shoo her away impatiently, totally ignoring the fact that she needed her father’s attention and love. It was a bad mistake that both of us are paying for today. If I had to do again, I would draw out the study period and give Jennifer more time.

After reading this paragraph, I have been doing a lot of thinking. I’m not sure if this is a common mistake among traders, I, sometimes, make the similar mistake. We know this business requires a lot of time, effort, attention, but our loved ones require more.

Just being a little bit emotional. Anyway, this book is really a good read. If you haven’t done so, go and get one.

Crash of the Titans

  
Analysis, Education
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For many, many years, Merrill Lynch had good reason to be “Bullish on America.”

With more than 15,000 brokers and $2.2 trillion in client assets Merrill Lynch was the world’s largest brokerage. It clawed its way to the top and revolutionized the stock market by bringing Wall Street to Main Street.

But in September 2008 – at the height of the financial crisis, it ceased to exist as a separate entity when it was acquired by Bank of America

The world, the company, the Street was in shock.

How could this American institution collapse almost overnight?

In his meticulously researched new book, Crash of the Titans: Greed, Hubris, The Fall of Merrill Lynch and the Near-Collapse of Bank of America, Greg Farrell reveals it all in never before reported detail.

In this guest author blog Farrell shares how his book came to be and if you continue on, you can read an excerpt from Crash of the Titans.

Market Truisms and Axioms

  
  Education
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Commandment #1: “Thou Shall Not Trade Against the Trend.”

• Portfolios heavy with underperforming stocks rarely outperform the stock market!

• There is nothing new on Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again, mostly due to human nature.

• Sell when you can, not when you have to.

• Bulls make money, bears make money, and “pigs” get slaughtered.

• We can’t control the stock market. The very best we can do is to try to understand what the stock market is trying to tell us.

• Understanding mass psychology is just as important as understanding fundamentals and economics.

• Learn to take losses quickly, don’t expect to be right all the time, and learn from your mistakes.

• Don’t think you can consistently buy at the bottom or sell at the top. This can rarely be consistently done.

• When trading, remain objective. Don’t have a preconceived idea or prejudice. Said another way, “the great names in Trading all have the same trait: An ability to shift on a dime when the shifting time comes.”

• Any dead fish can go with the flow. Yet, it takes a strong fish to swim against the flow. In other words, what seems “hard” at the time is usually, over time, right.

• Even the best looking chart can fall apart for no apparent reason. Thus, never fall in love with a position but instead remain vigilant in managing risk and expectations. Use volume as a confirming guidepost.

• When trading, if a stock doesn’t perform as expected within a short time period, either close it out or tighten your stop-loss point.

• As long as a stock is acting right and the market is “in-gear,” don’t be in a hurry to take a profit on the whole positions. Scale out instead.

• Never let a profitable trade turn into a loss, and never let an initial trading position turn into a long-term one because it is at a loss.

• Don’t buy a stock simply because it has had a big decline from its high and is now a “better value;” wait for the market to recognize “value” first. (more…)

Lessons from the Wizards

  
  Education
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All successful traders use methods that suit their personality; You are neither Waren Buffett nor George Soros nor Jesse Livermore; Don’t assume you can trade like them.

What the market does is beyond your control; Your reaction to the market, however, is not beyond your control. Indeed, its the ONLY thing you can control.

To be a winner, you have to be willing to take a loss; (The Stop-Loss Breakdown)

HOPE is not a word in the winning Trader’s vocabulary;

When you are on a losing streak — and you will eventually find yourself on one — reduce your position size;

Don’t underestimate the time it takes to succeed as a trader — it takes 10 years to become very good at anything; (There Are No Shortcuts)

Trading is a vocation — not a hobby

Have a business/trading plan

Identify your greatest weakness, Be honest — and DEAL with it

There are times when the best thing to do is nothing; Learn to recognize these times
(Nothing Doing)

Being a great trader is a process. It’s a race with no finish line.

Other people’s opinions are meaningless to you; Make your own trading decisions
(The Wrong Crowd)

Analyze your past trades. Study what happened to the stocks after you closed the position. Consider your P&L game tapes and go over them the way Vince Lombardi Bill Parcells reviewed past Superbowls

Excessive leverage can knock you out of the game permanently

The Best traders continue to learn — and adapt to changing conditions

Don’t just stand there and let the truck roll over you

Being wrong is acceptable — staying wrong is unforgivable

Contain your losses (Protect Your Backside)

Good traders manage the downside; They don’t worry about the upside

Wall street research reports are biased

Knowing when to get out of a position is as important as when to get in

To excel, you have to put in hard work

Discipline, Discipline, Discipline !

Marty Schwartz Interview (1999)

  
  Education
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Day Trader Marty Schwartz spent a number of years in what he felt was a dead-end job as a financial analyst. Finally he quit the comfort of the corporate cotton wool and accumulated $100,000 of which he spent $90,000 to buy his seat on the American Stock Exchange in 1979.

Left with just $10,000 of trading capital, he made over $8,000 on his first trade and in his second year of trading he made $600,000 and $1.2 million in his 3rd year.

It’s interesting to note that he never made money trading until he made a plan, which only happened when his wife Audrey told him to make one.

When asked; “what is the most money you have made in one day?” he replied; “several million”. At one point in the early 1980’s, he was making $70,000 per day trading the S&P’s.

Click here to listen to Marty Schwartz being interviewed in 1999 by Dave Allman on Wall Street Uncut.

NOTE: This audio file will only open if you have RealPlayer installed. You can get it free here

Read Marty’s book: “Pit Bull: Lessons from Wall Street’s Champion Day Trader”

 

Peter Lynch

  
  Education
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Probably you have heard of Peter Lynch. But did you know that in 13 years, from 1977 to
1990, the Fidelity Magellan Fund he managed grew from $20m to a whopping $14b?!
One of his famous buy, Subaru, was already up twentyfold when he bought the stock and he made sevenfold after that.

Quotes from Peter are as follows:
“Go for a business that any idiot can run – because sooner or later, any idiot is probably going to run it.”

“If you stay half-alert, you can pick the spectacular performers right from your place of business or out of the neighborhood shopping mall, and long before Wall Street discovers them.”

“Investing without research is like playing stud poker and never looking at the cards.”

“Absent a lot of surprises, stocks are relatively predictable over twenty years. As to whether they’re going to be higher or lower in two to three years, you might as well flip a coin to decide.” (more…)

Trending Value Metrics by O’Shaughnessy

  
  Education
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James O’Shaughnessy is a well known “value quant” for his book What Works on Wall Street (4th Ed). He has a new column in Marketwatch discussing what he calls  “the top stock-market strategy of the past 50 years.”

According to Jim, using a combination of value and momentum strategies — “Trending Value” — is the best performing strategy since 1963. To capture this, he ranks stocks based on:

• Price-to-Sales
• Price-to-Earnings
• Price-to-Book
• Price-to-Cash Flow
• EBITDA/Enterprise Value
• Shareholder yield (dividend yield + rate of share repurchases)

O’Shaughnessy ranks all of these on a 1-100 basis for his Trending Value portfolio. He works with the top 10% of those ranked stocks with the best composite score. He selects a concentrated portfolio of 25 stocks based on trailing six-month momentum, creating an extremely cheap group of stocks that are on the mend.

Its an interesting ideas, one worth exploring . . .

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