Thought of the Day (October 3, 2009)

Until the lens of experience focuses information, it does almost no good. No matter how much the marketing machines of the Information Age would have us think otherwise, information by itself isn’t power: knowledge is. And turning information into knowledge requires more time, experience, and effort than an afternoon spent starting at a screen full of facts.

Information is passive. To make it knowledge, you need to assimilate it. Put it in context. Understand it. Knowledge streamlines and focuses our relationship with information. Knowledge helps us avoid information we don’t want or need and leaves us with the stuff we can use.

In an age in which endless amounts of bits and bytes are always available, it’s a daunting task to spot the worthwhile stuff. It’s easy for the Net to overwhelm us or lull us into the misconception that simply having access to something is as good as knowing it.

– Michael Penwarden

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Thought of the Day (October 2, 2009)

The challenge is not the markets. The challenge is learning how to master ourselves. Once that’s done, the rest is a cakewalk.

– DbBurrows, TMF Boards

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Tradecraft – Give Your Cash Some Flash

OK, CASH MANAGEMENT doesn’t exactly match the adrenaline high of trading stocks. But managing your cash holdings is a challenging discipline, and a prudent and profitable way to get market experience with considerably less risk. It’s also a lot of fun — especially for less-capitalized traders who can’t afford to play in the majors just yet.

For many of us, cash comes in the form of a money-market account, usually either linked to a brokerage account, bought from a mutual-fund company or sold by a bank. Only bank-sold money-market funds come with FDIC insurance, but all suit the same general investment goals: safety and high liquidity. They are essentially savings accounts — and they’re more for peace of mind than for profit. The problem with money-market accounts is that, in exchange for liquidity and protection of principle, we forfeit the higher returns that come along with even slightly more risky investments. For example, E*Trade Group’s (ET) money fund currently yields 3.7%. Fidelity’s is in the high 2% range. Not exactly champagne wishes and caviar dreams.

But with sound cash management, you can do better. You manage a cash portfolio just as you do a stock portfolio. Using appropriate position size, money management and risk controls, you can improve results with only marginally higher levels of risk. (more…)

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Thought of the Day (October 1, 2009)

As a trader, and as a person, you have a choice. You can let emotions born of the search for glory determine your behavior while ignoring the facts; or you can recognize that you have to learn in order to grow, and with learning come mistakes. You are going to make mistakes—you’re going to win sometimes, and you’re going to lose sometimes, too. When you make a mistake, you can grow by analyzing the mistake and changing your behavior according to what you learn. This process leads to constant improvement of your skills and to a positive estimate of yourself. Practiced consistently, it will lead to self-esteem, not to mention more, and more consistent, profits from trading.

– Victor Sperandeo, Trader Vic – Methods of a Wall Street Master

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