You will need a sound approach – one that allows you to win at trading. It’s best to try to win on the grind: Plan on taking a small profit from a small number of trades. Don’t think of yourself as a take-off artist; rather, think of yourself as marketing an idea whenever you enter a trade.
– Peter Steidlmayer, Steidlmayer on Markets
When I get hurt in the market, I get the hell out. It doesn’t matter at all where the market is trading. I just get out, because I believe that once you’re hurt in the market, your decisions are going to be far less objective than they are when you’re doing well. If you stick around when the market is severely against you, sooner or later they’re going to carry you out.
– Randy Mckay, The New Market Wizards by Jack Schwager
Most people start out with too little money, and most traders do not give themselves enough time to learn. Trading is very different from physics or mathematics, where genius reveals itself early. In science, if you’re not a star by the time you’re 25, you’ll never be one. Trading, on the contrary, is an old man’s game, and now increasingly a woman’s. Patience is a virtue and memory a great asset. If you slightly improve each year, you can grow into a brilliant trader.
– Alexander Elder, Come Into My Trading Room: A Complete Guide to Trading
THE STORIES THAT interest me most aren’t those found above the fold on Page 1 of The Wall Street Journal. While it might feel comfortable to invest based on something written in a newspaper or magazine, I’m paid to speculate, not to bet on sure things. And because the market doesn’t reflect the news, but rather anticipates it, traders must get used to taking positions without a good fundamental reason.
So when putting my money to work, I evaluate not only stocks themselves, but also the stories that go along with them. At issue is determining if the investment thesis, or “story,” has already been played out and picked over by the herd. Like most things in the market, it’s an imperfect science, but the general idea is that by the time the story is out, you already will have harvested your gains and moved on. Watching the media, the message boards and the market can often provide the telltale signs.
If you follow the market, it also makes sense to follow the media, since that’s where stories live and are primarily disseminated. While I try to avoid monitoring the media for investment ideas, I do keep abreast of the coverage of the stocks in my portfolio. A mention on Cavuto or a write-up in Forbes isn’t enough to prompt me to sell, but it is one sign that word is getting around. My job is to find great stocks before they make it on the cover of Barron’s. (more…)
Hope is a dirty word for a trader, not only in regards to procrastinating in a losing position, hoping the market will come back, but also in terms of hoping for a reaction that will allow for a better entry in a missed trade. If such trades are good, the hoped-for reaction will not materialize until it is too late. Often the only way to enter such trades is to do so as soon as a reasonable stop-loss point can be identified.
– Jack Schwager, The New Market Wizards
The successful plunger may make a great name for himself for many years, on account of his huge profits. But by far the majority make just as great names for themselves, and far more tragic ones, by later failure and disaster. No names need be mentioned but the reader is probably familiar with those great meteors of past market fame who have gone through one bankruptcy after another, and who have finally died in poverty, loneliness and despair.
Let the reader ponder this basic fact. Out of a thousand individuals who enter the market, he may read in the newspapers of two, because of their practical success. One of these will be a conservative and will be consistently successful and happy. The other will be a plunger and will very likely get later publicity because he has lost the fortune that he previously made.
– Richard Schabacker, Stock Market Profits
FROM THE HOLLYWOOD PITCH to political talking points, we live in a world of sound bites. Just about everything, it seems, is boiled down to its essence. Smart investing is no exception.
Since you can’t bet on everything in the markets, it’s imperative that an actively managed portfolio be equally focused. That’s because the most economical use of capital comes from homing in on a handful of key investment themes. In the words of Mark Twain, “Put all your eggs in one basket — then watch that basket.”
At any given time, my hedge fund is involved in no more than a half-dozen investment themes. It might be an asset class such as gold, or a particular sector such as utilities or a group like foreign stocks. The point is that the portfolio’s risk is centralized around a few major ideas. (more…)
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