ZF Capital > 2010 January

Thought of the Day (January 16, 2010)

On January 16, 2010, In Thought of the Day, by ElfLord

We have to understand that all stock market decisions– each and every one, including doing nothing– involve risk. Some people believe they can minimize their risk by relying on the cop-out “risk/reward ratio” cliche: “Ten points potential reward compared to 5 points potential downside” becomes “okay to trade” without even the slightest consideration of what the chances are that the stock will actually move in the undesired direction.

It is the risk itself that needs to be analyzable, not the potential reward. The stock might already have moved extensively; the reason might already be known; support underneath might be flimsy; the stock hasn’t moved yet even though the market is already up a lot; and so on. Not until we grasp the extent of and kind of risk should we consider the degree of reward. Hope has never kept a stock up when it doing things wrong.

– Justin Mamis, The Nature of Risk

Tradecraft – Hey, Socialists! In Your Ear!

On January 15, 2010, In Good Articles, by ElfLord

THE CIRCUS CAME to Chicago last week — not Ringling Brothers, but a colorful band of anticapitalist protesters armed with megaphones, placards and enough eco-unfriendly pamphlets to papier-mache the Sears Tower.

Protesting capitalism, mostly outside meetings by corporate leaders or the WTO, is ultra-chic among the alternative crowd these days. Last week, their target was the Trans-Atlantic Business Dialogue, an annual meeting of corporate and government officials from the U.S. and Europe working to ease trade restrictions. The event just happened to be held in my hometown.

Although I enthusiastically support the right of peaceful assembly, I’m of the mind that capitalism shouldn’t be protested, but rather celebrated. While “greedy executives” always make an easy target for disaffected youth, the reality is that nothing better exemplifies our national spirit than American business — the thousands of corporations big and small that benefit us all.

First off, let’s not forget just how “big business” gets so big. As Ayn Rand writes in her book “Capitalism: The Unknown Ideal,” “The sole means by which a government can grow big is physical force; the sole means by which a business can grow big, in a free economy, is productive achievement.” (more…)

Thought of the Day (January 15, 2010)

On January 15, 2010, In Thought of the Day, by ElfLord

You need to base your trades on a carefully prepared trading plan and not jump in response to price changes. I pays to write down your plan. You need to know exactly under what conditions you will enter and exit a trade. Do not make decisions on the spur of the moment, when you are vulnerable to being sucked into the couwd.

You can succeed in trading only when you think and act as an individual. The weakest part of any trading system is the trader himself. Traders fail when they trade without a plan or deviate from their plans. Plans are created by reasoning individuals. Impulsive trades are made by sweaty group members.

– Alexander Elder, Trading for a Living

Thought of the Day (January 14, 2010)

On January 14, 2010, In Thought of the Day, by ElfLord

A doctor can evade the truth that he or she made a mistake and tell the relatives of a deceased patient, “I did my best, but….” A lawyer can drink too much the night before his final address to the jury, and when he loses, convince himself and his client that the jury was biased. But a trader has no one to convince, no one to lie to. The market is the final judge, and it issues its verdict every day. I therefore think that understanding how the false pride system works can be crucially important to a successful and lasting career as a trader, speculator or investor.

– Victor Sperandeo, Methods of a Wall Street Master

Tradecraft – Do the Right Thing

On January 13, 2010, In Good Articles, by ElfLord

AMERICANS MAKE dangerous, delusional and self-destructive decisions on a regular basis. Just look at the statistics: Plenty of us smoke, overeat, unbuckle our seatbelts, use drugs and have unprotected sex, just to name a few acts of random idiocy performed by seemingly intelligent and well-educated people every day.

Here’s the thing: Sooner or later, we pay for our stupidity. Whether it’s cancer, a car crash, a heart attack or herpes, most people who tempt fate end up losing. George Burns is the exception, not the rule.

And so it goes in our portfolios. More than any other endeavor, trading comes down to a series of choices made over time. The best advice I can come up with is also the simplest: Do the right thing.

Of course, that’s easier said than done. Navigating our place within the financial markets is quite a challenge.

Most of us follow a religion, or at least have a general philosophy that governs our actions. Indeed, from Christians and Muslims to atheists and anarchists, most of us have strong feelings about how best to approach the world. In the markets, some advocate growth investing while others put their faith in value. Some buy only large companies while others swear by the small caps. Technical traders trust only the charts while most purists follow the fundamentals. (more…)

Thought of the Day (January 13, 2010)

On January 13, 2010, In Thought of the Day, by ElfLord

When we notice the impulse to trade based on strong fear, it is usually best to literally step out of the trap by stepping out of the situation.

We need to get up, walk away from the computer and television, take a walk, get a diet soda, go outside and water the plants, or do anything else that will move us out of the fear/panic mode.

Don’t return to the computer until you have managed to achieve some emotional control over your fear/panic reaction. If you can’t get a grip on your fear, then don’t come back that day.

Most likely you will find that even if you keep thinking about the miserable market conditions while you water the planters, simply getting away from the keyboard and monitor is enough to make a difference. It removes the demand to take action and gives you the mental space to gain perspective and let go of your knee jerk sell reaction.

– Steven Hendlin, The Disciplined Online Investor

Thought of the Day (January 12, 2010)

On January 12, 2010, In Thought of the Day, by ElfLord

It was never my thinking that made big money for me. It was my sitting. Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after this that a stock operator can make big money. it is literally true that millions come easier to a trader after he knows how to trade than hundreds did in the days of ignorance.

– Jesse Livermore, Reminiscences of a Stock Operator

ZF Capital

Thought of the Day (January 16, 2010)

Tradecraft – Hey, Socialists! In Your Ear!

Thought of the Day (January 15, 2010)

Thought of the Day (January 14, 2010)

Tradecraft – Do the Right Thing

Thought of the Day (January 13, 2010)

Thought of the Day (January 12, 2010)

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