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Donchian: Forbes Circa 1982

  
  Education
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An excerpt from Forbes circa 1982:

The fundamentalists — a decided majority among successful investors — look on chartism somewhat the way physicists look on parapsychology. They are probably correct to regard them so, but there is no rule that does not have an exception. Dick Donchian seems to be that exception. Donchian differs from many a chart watcher: He doesn’t predict price movements, he just follows them. His explanation for his success is simple and as old as the Dow Theory itself: “Trends persist.” He will buy a hog or Treasury bond future after an upswing is under way, and sell it only after the price has begun to tumble. He misses some of the profit, but that’s part of the discipline of his style of investing. “A lot of people say things like: ‘Gold has got to come down. It went up too fast.’ That’s why 85% of commodities investors lose money,” he says. Donchian gained that wisdom the hard way. His Futures Inc., the first publicly offered commodities fund, came out in 1948 at $10 a share. It was before its time — or Donchian’s. “When I started trading I was bearish,” he recalls. “Cocoa seemed too high. So we took a short position at 30 cents, and it went down to 19. We made a lot of money at first; that was the worst thing that could happen. I looked around for another commodity that was overvalued. Coffee was making a new high of 20 cents, so we took a short position, and it went up to $1. I made a rule never to be a price trader. There’s no such thing as too high a price or too low a price.” Futures Inc. went as low as 4 cents a share before finally being dissolved…The essence of trend-following, however, is always this: Buy on a rising price and sell on a falling price. That sounds like buying dear and selling cheap, but it works, if prices move not in random walks but in long strides.

MARKET WISDOM

  
  Education
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A list of golden sayings and rules I have gleaned from many sources:
wisdom-thought

  • Plan your trades, trade your plan.
  • Trade Quality, Not Quantity.
  • Keep it simple.
  • Don’t look for a reason to enter the market, look for a reason NOT to enter.
  • Don’t act due to “Newbie Nerves”
  • Don’t make up a trade. If you have to look, it isn’t there.
  • Never play with scared money.
  • You are not the market.
  • Buy dips in an uptrend, sell rallies in a downtrend.
  • Do not try to pick tops and bottoms.
  • It is only divergence if it came off a retracement – not a sideways market.
  • Indicators warn, price action confirms.
  • Divergence is early, cross-overs are late.
  • You cannot expect your positions to go immediately into the money.
  • Divergence means a detour, but not necessarily a new trend.
  • No-one knows what will happen in the markets.
  • Standing aside is a position.
  • Subordinate your will to the will of the market.
  • Large ranges beget small ranges, small ranges beget large ranges.
  • Once a thing is set in motion, it tends to stay in motion.
  • Sniper-rifle, not a shotgun.
  • Cut your losses short, let your profits run.
  • Only move stops in the direction of your position.
  • Do not let a winner turn into a loser.
  • Never add to a losing position.
  • Forget losses quickly. Forget profits even quicker.
  • Consistent behavior equals consistent results.

There are probably more, send ’em in…

The Inanity Of Asking Questions On Blue Channels

  
Analysis, Education
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Last week I was watching a investor query an analyst on a television show , the analyst in his most humble opinion on a particular stock said “Fundamentally it is good , technically it is not looking so good ” . What should I do asked the investor ? , the analyst replied ” I think you should hold on ” . the investor prompted “can I buy more , should I sell some ” . up came the analyst in his humble opinion ” buy on a fall , and sell on a rise ” and in wisdom he added “it is a volatile stock anything can happen “.. I failed to understand what the investor achieved of this conversation . the conversation had incorporated everything viz. . buy ,sell , hold and the standard disclaimer , “anything can happen ” . Investors are bombarded with packets of irreconcilable data which cause their little hard drives to collapse under pressure and confusion . Partly to blame for this are investors themselves , who ,in the quest for more information buy themselves a box of contradictions . !
What an investor needs is a modicum of authenticated information and to be phlegmatic .. however most investors these days are contrarian’s and hence , they follow up with every pink paper , and investment magazine , add to it the daily dose of ‘analysis’ on television … Those Score’s of analyst reciting their pedantic verses and the numerous phone calls by altruists souls that ring in to tell you ‘what’s hot on the street’ .! What do we have at the end of all this ? Ans.: An agglomeration of profligate et irreconcilable information and a confused individual — who can barely find his way in the heap of ‘ information ‘.
Serpents In the financial Eden :
All the information an investor has access to is at most sciolism , what lies beneath is above the reach of the common man on dalal street .Distortion and dilution are the two most plaintive facets of information today . Mostly intentional , distortion and dilution is carried out by interested quarters and the fodder is fed to the people , the public domain as we are all aware has the ability to Xerox information at the speed of light , and before you know it a distorted Piece of information has taken the shape of a ‘hot news’ on the street. (more…)

10 COMMANDMENTS FOR MAKING MONEY

  
  Education
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1.  BELIEVE IN THE DIGNITY AND MORALITY OF BUSINESS:  Making money is much harder if, deep down, you suspect it to be a morally reprehensible activity. 

2.  EXTEND THE NETWORK OF YOUR CONNECTEDNESS TO MANY PEOPLE:  Befriend many people who are a rung or two above and below your financial level, then find ways to help them achieve their desires.  You will have discovered the secret of Partnership Power. 

3.  GET TO KNOW YOURSELF:  To change the way others see you, first you have to learn to see yourself as others see you. 

4.  DO NOT PURSUE PERFECTION:  Neither neglect the imperfect nor expend yourself on futile pursuit of perfection, while failing to make the most of less perfect circumstnaces. 

5.  LEAD CONSISTENTLY AND CONSTANTLY:  Learning to lead is important, but it may not be what you think it is.  Leadership is not a noun; it is a verb.  It is not an identity; it is an action.  Don’t try to become a leader, just do it. Just lead.

6.  CONSTANTLY CHANGE THE CHANGEABLE WHILE STEADFASTLY CLINGING TO THE UNCHANGEABLE:  Convert change from enemy to ally by understanding when to enjoy the exhilaration of change and and when to fight it and steadfastly defend the unchangeable. 

7.  LEARN TO FORETELL THE FUTURE:  Who is wise? One who can tell what will be hatched from an egg that has been laid. Not he who can see the future-that is a prophet.  Wisdom is seeing tomorrow’s consequences of today’s events. 

8.  KNOW YOUR MONEY:  Your money is a quantifiable analog for your life force-the aggregate of your time, skills, experience, persistance, and relationships.

9.  ACT RICH: GIVE AWAY 10 PERCENT OF YOUR AFTER TAX INCOME:  Through the mystical alchemy of money, giving charity jump-starts wealth creation. 

10.  NEVER RETIRE:  Integrate your vocation and your identity by thinking of life as a journey rather than a destination. 

If you have not figured it out yet you soon will: learning to trade inside the charts finds its firm foundation outside the charts.  It is all in the way you think and in what you believe about money and wealth creation. 

Trading Wisdom Not Heard Often

  
  Education
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  • Buy from the scared, sell to the greedy.
  • Buy their pain, not their gain.
  • Successful traders are quick to change their minds and have little pride of opinion.
  • I made my money because I always got out too soon. (Bernard Baruch)
  • Don’t try to buy at the bottom and sell at the top. It can’t be done except by liars. (Bernard Baruch)
  • Throughout all my years of investing I’ve found that the big money was never made in the buying or the selling. The big money was made in the waiting. (Jesse Livermore)
  • The faster a stock has climbed, the quicker it will fall.
  • The more certain the crowd is, the surer it is to be wrong. (Menschel)
  • Bear markets begin in good times. Bull markets begin in bad times
  • Never confuse genius with a bull market.
  • Always sell what shows you a loss and keep what shows you a profit

Amos Hostetter-Trading Wisdom

  
  Education
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Amos Hostetter: Trading Dont’s

  • Don’t sacrifice your position for fluctuations.
  • Don’t expect the market to end in a blaze of glory. Look out for warnings.
  • Don’t expect the tape to be a lecturer. It’s enough to see that something is wrong.
  • Never try to sell at the top. It isn’t wise. Sell after a reaction if there is no rally.
  • Don’t imagine that a market that has once sold at 150 must be cheap at 130.
  • Don’t buck the market trend.
  • Don’t look for the breaks. Look out for warnings.
  • Don’t try to make an average from a losing game.
  • Never keep goods that show a loss, and sell those that show a profit. Get out with the least loss, and sit tight for greater profits.

Amos Hostetter: Dangers in Trading caused by Human Nature

  • Fear: fearful of profit and one acts too soon.
  • Hope: hope for a change in the forces against one.
  • Lack of confidence in ones own judgment.
  • Never cease to do your own thinking.
  • A man must not swear eternal allegiance to either the bear or bull side.
  • The individual fails to stick to facts!
  • People believe what it pleases them to believe.

Stock Market Wisdom : The Tortoise And The Hare

  
  Education
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stkmktwisdom

Once upon a time, there was a young hare, a hotshot rabbit investor who would always brag to anyone that would listen and that he was the smartest, fastest, best performing investor in the world. He would constantly tease the old tortoise about his slow, solid investment style.Then, one day, the annoyed tortoise answered back: “There is no denying that you are very aggressive in your investment strategy. (more…)

Five Market Wizard Lessons

  
  Education
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“Five Market Wizard Lessons” 
Hedge Fund Market Wizards is ultimately a search for insights to be drawn from the most successful market practitioners. The last chapter distills the wisdom of the 15 skilled traders interviewed into 40 key market lessons. A sampling is provided below:

1. There Is No Holy Grail in Trading
Many traders mistakenly believe that there is some single solution to defining market behavior. Not only is there no single solution to the markets, but those solutions that do exist are continually changing. The range of the methods used by the traders interviewed in Hedge Fund Market Wizards, some of which are even polar opposites, is a testament to the diversity of possible approaches. There are a multitude of ways to be successful in the markets, albeit they are all hard to find and achieve.

2. Don’t Confuse the Concepts of Winning and Losing Trades with Good and Bad Trades
A good trade can lose money, and a bad trade can make money. Even the best trading processes will lose a certain percentage of the time. There is no way of knowing a priori which individual trade will make money. As long as a trade adhered to a process with a positive edge, it is a good trade, regardless of whether it wins or loses because if similar trades are repeated multiple times, they will come out ahead. Conversely, a trade that is taken as a gamble is a bad trade regardless of whether it wins or loses because over time such trades will lose money. (more…)

World’s Oldest Trader

  
  Education
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World’s oldest Value Investor. Duly noted (hat tip to Mr. Melvin) that Irving Kahn is a former Ben Graham assistant and likes to buy and hold for long time– and not really a “trader” per se.

From the WSJ:


Discipline has been a key for Mr. Kahn. He still works five days a week, slacking off only on the occasional Friday. He reads voraciously, including at least two newspapers every day and numerous magazines and books, especially about science. His abiding goal, he told me, is “to know much more about the stock I’m buying than the man who’s selling does.” What has enabled him to live so long? “No secret,” he said. “Just nature’s way.” He added, speaking of unwholesome lifestyles: “Millions of people die every year of something they could cure themselves: lack of wisdom and lack of ability to control their impulses.”

Here is a link to his current portfolio (he includes a land-based driller). 

The Wisdom of Burton Pugh

  
  Education
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It was true when he wrote it in 1948, and it’s still true today:

“To the professional short-turn trader who can spend all his time at the exchange, it
is, of course, permissible and expected that he will try to secure frequent fragmentary profits in an effort to compound them into larger funds, but this is not investment. Few are the ones who can afford to become ‘professionals’ and, in the final wind-up of a financial campaign, the outright investor following [a] plan will far exceed the results achieved by the less patient in-and-out trader.”

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