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Tradecraft – The Nasdaq Delusion

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

WE ARE ALL dumb money. It’s just that a few of us are slightly less dumb then the rest.

Most people spend their time thinking about exactly the wrong things, and with the Nasdaq down over 50% from its high, it comes as no surprise that there are plenty of opinions on what the next move might be. Should my retirement account rest in equities and nothing but equities because Abby Joseph Cohen makes a market call? Should I be bullish just because the perpetually tan Joe Battipaglia is bullish and can lay down a line of corresponding patter in a two-minute segment on CNBC’s “Squawk Box”?

The debates are interesting — but ultimately irrelevant. As always, nobody knows the future. For every reason this might be a bottom, there are just as many signs that suggest the worst is yet to come. To that end, let us remember that there are no “right” answers, only answers that are right for your portfolio. What matters most is not your analysis of the stock, but your understanding of how the stock fits, or could potentially fit, into your overall position in the marketplace. Trading is an act of self-preservation. The real question isn’t “What’s next for the Nasdaq?” but how adding or subtracting a position in the Nasdaq might affect your overall risk exposure. (more…)

Tradecraft – Size Matters

On September 2, 2009, In Good Articles, by ElfLord

TRADING IS NOT about taking risk, but avoiding it. To that end, I am always reluctant to commit too much capital to a single position. Not because I don’t believe in my flair for stock picking, but because sometimes the best way to manage risk is not to take it in the first place.

Forget Jack Welch and Michael Dell. When you buy a stock, it isn’t the company’s management you should be focused on, but that of your own portfolio. And while security selection gets all the headlines, it’s money management — namely position size — that ultimately has the biggest impact on your bottom line.

You want to buy the dips? Or stocks making new 52-week lows? Go ahead, knock yourself out. But please do yourself a favor and keep the stakes small. Most people won’t hesitate to drop 15% or more of their portfolio into a single name at a single price. That isn’t just dangerous, it’s insane. A good portfolio should be structured like a good life. Everything in moderation. (more…)

Tradecraft – What’s Wrong With Long-Term Investing?

On August 31, 2009, In Good Articles, by ElfLord

THE POPULAR MISCONCEPTION is that traders are foolish short-term gamblers while investors are the prudent, steady hands in it for the long term. But whether you call it trading or investing, the golden rule remains the same: Don’t lose money. While investment goals and styles are different, we are all gunning for the same result. Not great companies or funds with five stars, but consistent returns that outpace inflation.

As a trader, my goal isn’t to make trades all day long, but to secure a rate of return that protects my investors’ principal and makes them money…period. Saying it’s a tough market is just an excuse, and unlike investors who are “in it for the long haul,” I don’t see any compelling evidence that owning stocks for long periods of time is the best way to achieve that return. (more…)

Tradecraft – Trendspotting

On August 27, 2009, In Good Articles, by ElfLord

MY ADULT LIFE began the day I understood persistence of trend. This undeniable trading truth dramatically increased my profitability and changed the way I look at the world.

Markets aren’t chaotic. Just as the seasons follow a series of predictable trends, so do market psychology and stock prices. Stocks are like everything else in the world: They move in trends, and trends tend to persist.

We are all looking for an edge. Low commissions and superior trade execution can only do so much. I have found that the biggest advantage you can have in the market is to trade with the trend. It’s the economic equivalent of having the wind in your sails.

In my experience, good traders seldom have strong opinions about the future, because they are humble enough to know their opinions don’t mean squat. The future will unfold no matter what any of us think about it. What most fundamental investors and message-board devotees fail to realize is that it isn’t our job to hypothesize how a stock should or could act. What matters is how a stock is acting at the time of our analysis. (more…)

Tradecraft – The Way of the Trader

On August 25, 2009, In Good Articles, by ElfLord

FROM earnings estimates to research reports, most investors aren’t just informed. They’re saturated. There are literally hundreds of columnists, money managers and message-board contributors, all eager to tell you where the market may or may not be headed. And for every bullish voice, there’s usually an accompanying bearish one as well. After all, two sides make a market.

But all the Web’s information overload encourages most investors to focus on the wrong question — whether to buy, sell or hold a stock. Now, you wouldn’t think this would be such a complicated problem. After all, pick a stock and you’ve got at least even odds that it will appreciate. In fact, you’ve got better than even odds, since the market has historically demonstrated an upward bias. So then why do so many people lose money buying individual stocks, and lose even more money trading them?

The answer is because trading is a matter of technique, not simple prognostication. What has been missing from this seemingly endless (and often mind-numbing dialog) about the market’s next move is frank discussion about the craft of trading. (more…)

ZF Capital

Tradecraft – The Nasdaq Delusion

Tradecraft – Size Matters

Tradecraft – What’s Wrong With Long-Term Investing?

Tradecraft – Trendspotting

Tradecraft – The Way of the Trader

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