Paul Tudor Jones
Turned $1.5 million into $300 million in five years
“That cotton trade was almost the deal breaker for me. It was at that point that I said, “Mr. Stupid, why risk everything on one trade? Why not make your life a pursuit of happiness rather than pain?”
I had to learn discipline and money management. I decided that I was going to become very disciplined and businesslike about my trading. I spend my day trying to make myself as happy and relaxed as I can be.
If I have positions going against me, I get right out; if they are going for me, I keep them. I am always thinking about losing money as opposed to making money. Risk control is the most important thing in trading. I keep cutting my position size down as I have losing trades. (more…)
Archives of “Wisdom” tag
rssWISDOM FROM BERNARD BARUCH
From the SAME AS IT EVER WAS file: Bernard Baruch, a colleague and friend of Jesse Livermore’s, who made a fortune shorting the 1929 crash, and then who later advised presidents Woodrow Wilson and Franklin D. Roosevelt on economic matters, listed the following investment rules in his autobiography published in 1958 entitled Baruch: My Own Story. These rules are still as applicable today.
1. Don’t speculate unless you can make it a full-time job.
2. Beware of barbers, beauticians, waiters–of anyone–bringing gifts of “inside” information or “tips.”
3. Before you buy a security, find out everything you can about the company, its management and competitors, its earnings and possibilities for growth.
4. Don’t try to buy at the bottom and sell at the top. This can’t be done–except by liars.
5. Learn how to take your losses quickly and cleanly. Don’t expect to be right all the time. If you have made a mistake, cut your losses as quickly as possible.
6. Don’t buy too many different securities. Better have only a few investments which can be watched.
7. Make a periodic reappraisal of all your investments to see whether changing developments have altered their prospects.
8. Study your tax position to know when you can sell to greatest advantage.
9. Always keep a good part of your capital in a cash reserve. Never invest all your funds.
10. Don’t try to be a jack of all investments. Stick to the field you know best.
10 Quotes of Jesse Livermore
When seasoned traders get together, we have a sort of “secret handshake” that the uninitiated may not notice. We ask each other if they’ve read Reminiscences of a Stock Operator. The insiders reply by telling you the number of times they’ve read the book. Novices ask for the author’s name.
Recently, I’ve been rereading Jon Markman’s wonderful annotated version of this Jesse Livermore classic. This special edition even has a forward written by Paul Tudor Jones. As I revisited Mr. Livermore’s wisdom, I realized that so much of the trading baton that I’ve endeavored to pass on to my readers is directly or indirectly the result of the special batons he passed on to me. In considering this, I feel it’s only appropriate to salute the man. Afterall, I have patterned myself after him and my favorite quotes come from this truly extraordinary trader. As Dr. George Lane, the creator of the stochastic oscillator, once told me over dinner, “Gatis, you can never get enough of that good stuff.”
My trading approach is organized into 10 stages that I call Tensile Trading. For this week’s blog, I’ve chosen a few of my favorite Jesse Livermore quotes for each of these 10 stages.
1. Money Management:
* “I trade on my own information and follow my own methods.”
* “The desire for constant action irrespective of underlying conditions is responsible for many losses on Wall Street, even among the professionals, who feel that they must take home some money every day, as though they were working for regular wages.”
2. Business of Investing:
* “I believe that anyone who is intelligent, conscientious, and willing to put in the necessary time can be successful on Wall Street. As long as they realize the market is a business like any other business, they have a good chance to prosper.”
3. The Investor Self:
* “My satisfaction always came from beating the market, solving the puzzle. The money was the reward, but it was not the main reason I loved the market. The stock market is the greatest, most complex puzzle ever invented – and it pays the biggest jackpot…it was never the money that drove me. It was the game, solving the puzzle, beating the market that had confused and confounded the greatest minds in history. For me, that passion, the juice, the exhilaration was in beating the game, a game that was a living dynamic riddle…” (more…)
* “I believe that anyone who is intelligent, conscientious, and willing to put in the necessary time can be successful on Wall Street. As long as they realize the market is a business like any other business, they have a good chance to prosper.”
3. The Investor Self:
* “My satisfaction always came from beating the market, solving the puzzle. The money was the reward, but it was not the main reason I loved the market. The stock market is the greatest, most complex puzzle ever invented – and it pays the biggest jackpot…it was never the money that drove me. It was the game, solving the puzzle, beating the market that had confused and confounded the greatest minds in history. For me, that passion, the juice, the exhilaration was in beating the game, a game that was a living dynamic riddle…” (more…)
Intrusion Kills
Facebook’s CEO Mark Zuckerberg:
“I want to stress the importance of being young and technical. Young people are just smarter. Why are most chess masters under 30? I don’t know. Young people just have simpler lives. We may not own a car. We may not have family. Simplicity in life allows you to focus on what’s important.”
Of course, family, and other aspects of life are important, but that doesn’t take away from Zuckerberg’s wisdom. Want to make something big happen, like trend following success, then avoid distraction. Period.
"Truth and Trading"
1. Truth: Truth is an absolute value. Some things are true in all places and times. Resisting evil, for example, is always right.
2. Justice: Justice consists of treating others as one would wish to be treated. “Do unto others as you would have them do unto you” summarizes this concept of justice.
3. Courage: Courage means standing up for justice.
4. Moderation: Nothing should be carried to excess.
5. Wisdom: Wisdom enables a person to know what justice is, to recognize when courage is required, and to do what is right.
So how do these values play out in our trading? In this column, let’s explore truth as it applies to your trading.
One of the clear, clean things about trading is that truth is immediately and finally manifested. The price goes up or down or nowhere. Your trade or position is profitable or not. You can’t spin it any other way. You’re right when you make money. You’re wrong when you lose money. That’s just the way it is.s
There are also other truths involved. You just got lucky. You have a robust and proven method for trading that you can rely upon over time. Your methods are flimsy at best, unpredictable at worst. You have no method or you have a million methods which amounts to the same thing. Your impulses frequently and easily override your methods, or you rigidly apply your rules even when you clearly should not.
You keep clear records so you can assess what works best, or you don’t and at the end of the day (or the week or the month), you have no idea. Your record of action is either clear or murky. To correct it, it needs to be clear.
You need to tell yourself the truth as you go along. No excuses. No complaints. No trumped up stories. If you can truthfully analyze your trading mistakes as well as your trading strengths, you can make adjustments, and develop a personal style that will lead to trading success.
Telling the truth about each day’s (week’s, month’s) trading doesn’t mean you have to be brutally cruel to yourself or gloomy about your trading. What it does mean is that you don’t have to do that again, and you can optimistically look forward to the next day’s trading. You will know the truth, and the truth will make you free.
You want to keep your trading in true alignment with any known or possible clues as to the on the ground truths in relevant areas. There are fundamental truths, technical truths, methodological truths, inter-relational truths, and personal truths. The closer you can get in any or all of these areas, the better your prospects. You will seek to know the truth, and those truths will power your trading.
Have A Plan
It’s interesting to see that at a time like this, a time of economic concern, a time of confusion, that many people (including traders) get caught up in information that doesn’t serve them in any way helpful. What do I mean by this? Well, if you look at most financial news networks or most financial news services out there, how often of the time are they serving us information that is helpful in any way to our trading? I listen and talk to traders on a daily basis and it amazes me how much overwhelming economic information they know. However, when I ask them how it’s serving their trading, I never seem to get a clear answer.
I’ve been lucky enough to talk to some of the most successful legendary traders out there and really pick their brains to see how they think. If you’ve ever had the chance to read Market Wizards and New Market Wizards, there is some real wisdom in those books that most people don’t seem to pick up on. In New Market Wizards, Jack Shwager interviews a very successful trader. During the interview he asks him:
“Can you tell who will be a successful trader and who will not?”
The traders response is very interesting. He goes on to say:
“Yes, on a less technical level, I can say that after years of studying traders, the best predictor of success is simply whether the person is improving with time and experience. Many traders unconsciously acknowledge their lack of progress by continually jumping from one system or methodology to another, never gaining true proficiency in any.
As a result, these people end up with one year of experience, six times, instead of six years of experience. In contrast, the superior traders gravitate to a single approach-the specific approach is actually not important-and become extremely adapt to it.”
Now, most traders would read that and think nothing of it. But look at how he talks about how most traders jump from system to system, never really gaining true proficiency in any. This is something I have come to observe as well within most traders. When I try to understand why this is happening it seems that it’s the same reason each time.
As traders learn more and more about different indicators and patterns in the market, they become more and more desperate to find this “holy grail” system that will produce some astronomical winning results. Not only that, but they continuously jump from doing one thing to another. One day they’re trading moving averages, the next day they’re trading a bear wedge pattern, the next day a double top; they’re just all over the place. Why is this? It goes back to the quote up top. Instead of focusing on ONE methodology and mastering it, what happens is as soon as a losing streak comes along or a trade doesn’t work out the way they would have liked, they begin to think that something is wrong with the system, when in fact the real problem is the trader himself. (more…)
TRADING WISDOM
Steven Seagal teaches trading
I have just watched Steven Seagal in ‘Out For a Kill’. Don’t ask me why; please just accept that some actions cannot be explained. The movie reviews say it is a terrible film with poor direction, a bad script and even worse acting, and the reviews are right on all counts. However, Mr Seagal does impart some sage trading wisdom when when he quotes an ancient Chinese proverb on the subject of revenge:
‘Before you set out on revenge, you first dig two graves’.
Life and Trading Lessons from Hemingway
As I work on brushing up writing skills for a potential book on my journey as a caregiver to my wife for 30+ months, I happened across a collection of advice for writers Hemingway sprinkled through his correspondence with colleagues over the years. Wisdom for the ages?
Life lesson:
“Listen now. When people talk listen completely. Don’t be thinking what you are going to say. Most people never listen. Nor do they observe. You should be able to go in to a room and when you come out know everything that you saw there and not only that. If that room gave you any feeling you should know exactly what it was that gave you that feeling. Try that for practice. When you’re in town stand outside the theatre and see how the people differ in the way they get out of taxis or motor cars. There are a thousand ways to practice. And always think of other people.”
And for traders as well as writers:
“Dostoevsky was made by being sent to Siberia. Writers are forged in injustice as a sword is forged.”
It makes me think of all the injustices bestowed upon newer traders; complexity, bad prices, one’s own emotional state, the non-obvious inner circle game– the list is endless.
Irrational Exuberance
Robert J. Shiller
Shiller’s book presents yet another correct view of the issues that so many people refuse to confront. These are the very issues that cause people to lose. Perhaps, one day investors will begin to appreciate uncertainty as something that can be managed. If people refrained from being overconfident or indulging in their magical thinking and then started to manage uncertainty as Trend Followers do — there might actually be the risk of no more trends!
Is it likely? No. For trends to stop investors would need to realize that news, personal opinions, tips, etc. have no relevance to properly making a decision. Trend Following trading takes advantage of the psychological weaknesses that most people possess. Trend Followers disarm the magical thinkers by winning their losses in the great zero sum game.
Ponder the wisdom:
Everyone wants to be rich, but few want to work for it.