ZF Capital > 2009 December

Tradecraft – Let the Winners Run

On December 7, 2009, In Good Articles, by ElfLord

ODDSMAKERS WILL ALWAYS handicap the favorites. But at the start of every baseball season, all teams — even longtime losers — are contenders.

The same early-season optimism can be found in the stock market, where a new quarter brings opportunity in both new names and old favorites.

As the wheeling-dealing gets underway, investors should approach every trade with the confidence of Warren Buffett and the wisdom of a blackjack dealer, who knows that even the best players have plenty of losing hands. Although most people want to slap a “time horizon” on their trades, the truth is that the market should decide your holding period, not emotions or research. Every long-term investment starts out the same way — as a short-term trade.

In my view, an appropriately sized initial position is no more than 5% of your overall portfolio. Once you get your trade confirmation, all the analyst reports and newsletter recommendations become moot. As we’ve pointed out in the past, after the first trade is made, it’s all in the follow through. Your job isn’t to research, but react. (more…)

Thought of the Day (December 6, 2009)

On December 6, 2009, In Thought of the Day, by ElfLord

Many people make the mistake of thinking that market behavior is truly predictable. Nonsense. Trading in the markets is an odds game, and the object is to always keep the odds in your favor. Like any other odds game, in order to win, you’ve got to know the rules and stick to them. Unlike other games, however, the single biggest reason rules are necessary is to keep a check on your emotions. Assuming you have the knowledge you need to take a position with confidence, the hard part is executing the trade correctly. That’s what the rules are for.

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

Thought of the Day (December 5, 2009)

On December 5, 2009, In Thought of the Day, by ElfLord

Money cannot consistently be made trading every day or every week during the year.

In other words, overtrading is a great way to lose money. Standing aside is the right call more often than not.

– Jesse Livermore, Reminiscences of a Stock Operator

Thought of the Day (December 4, 2009)

On December 4, 2009, In Thought of the Day, by ElfLord

You can talk all you want about what a stock should be doing or why it isn’t doing what it should be doing. You can talk about inflation, interest rates, earnings, and investor expectations. Ultimately, however, it comes down to the picture. Is the stock going up or down? Knowing the reasons behind a stock’s movement is interesting, but not critical. If your stock goes up on a given day, they won’t take your money away from you if you don’t know why it went up. And if you can explain why it went down, they won’t give you back your lost money. All that really matters is a picture, a simple line on a chart. The trick to visual investing is learning to tell the difference between what is going up and what is going down.

– John Murphy, The Visual Investor

Tradecraft – Playing It Safe

On December 4, 2009, In Good Articles, by ElfLord

WHETHER YOU’RE RUNNING a trust account worth billions or a bank account worth considerably less, there are times when you just want to play it safe. Maybe you’ve grown less tolerant of risk. Maybe you’ve got a major expense coming up or are just sick of seeing your account balance drop.

Whatever the reason, it’s okay to downshift your risk from time to time — as long as you do it right. For most people, “playing it safe” means selling their entire portfolio and stuffing their assets into a seemingly risk-free investment — most likely a CD or money-market or savings account. But even leaving aside the tax bite that comes with selling long-term positions, stuffing your money in the proverbial mattress is a losing move.

There’s no such thing as a free ride. Savings accounts and CDs are insured, but you’re paying for every bit of that safety in the form of mediocre returns. Even uninsured money-market funds are paying a record low 1.35% interest. The return becomes even more depressing after taxes. (more…)

Thought of the Day (December 3, 2009)

On December 3, 2009, In Thought of the Day, by ElfLord

The theory of contrary opinion aims at avoiding Crowd opinions. This is a broad generality, but let it stand for the moment. The reason for avoiding the crowd in most matters is that the crowd is often wrong. A crowd is swayed by emotion and fear rather than by ruminating and reasoning.

How may we gain guidance from the actions of the crowd? The quick reply might be that if the crowd is usually wrong then if we go contrary to the crowd we shall probably be right.

To an extent this is true, but it is subject to the penalties of being wrong in timing. That is, we may be right at the wrong time.

– Humphrey Neill, The Ruminator

Thought of the Day (December 2, 2009)

On December 2, 2009, In Thought of the Day, by ElfLord

I started out by worrying about the system I was going to use to trade. The second factor I worked on was risk management and volatility control. The third area I focused on was the psychology of trading. If I had it to do over again, I would reverse the process completely. I think investment psychology is by far the most important element. followed by risk control, with the least important consideration being the question of where you buy and sell.

– Tom Basso, The New Market Wizards by Jack Schwager

ZF Capital

Tradecraft – Let the Winners Run

Thought of the Day (December 6, 2009)

Thought of the Day (December 5, 2009)

Thought of the Day (December 4, 2009)

Tradecraft – Playing It Safe

Thought of the Day (December 3, 2009)

Thought of the Day (December 2, 2009)

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