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Tradecraft – The Loser’s Racket

On June 25, 2010, In Good Articles, by ElfLord

REGARDLESS OF YOUR LEVEL OF skill, education or experience, invest in the markets long enough and you’ll eventually encounter a losing streak that makes you wish the opening bell never rang. Speculation is not a savings account, and losses, oftentimes serious ones, will for a time plague even the most pedigreed of portfolios.

So although Bill Miller is still heralded as one of the best portfolio managers around, he too was pummeled by the brutal bear market. An investment in his Legg Mason Value Trust (LMVTX) dropped some 40% from 2000 through early 2003.

Or take legendary portfolio manager Stanley Druckenmiller. In early 2000 he left George Soros’ Quantum Fund after bad technology bets erased almost $3 billion — more than 20% of the hedge fund’s assets. (more…)

Tradecraft – The Honeymoon Ends

On June 23, 2010, In Good Articles, by ElfLord

TO MAKE MONEY IN THE markets, you’ve got to have an imagination and a willingness to picture a world totally different from the one you now inhabit. Traders are naturally prone to fantasy, always forecasting how things will look a few minutes, weeks or months down the road.

Yet market fantasies can ruin a portfolio when allowed to overwhelm a trader’s rational faculties. Following a script can be dangerous. What’s important is to have a general belief of how a market might move, not a detailed description of XYZ Inc.’s every tick.

For example, oftentimes people are intent on earning a profit in a specific stock. They’re not merely interested in XYZ — they’re downright married to it. They construct detailed industry analysis and earnings forecasts. They read countless research reports and newsletter recommendations. They draw trendlines, set price targets and take up shop as resident know-it-alls on the Internet message boards. XYZ is their world, till death do they part. (more…)

Tagged with: annual reports • company vs stock

Thought of the Day (June 22, 2010)

On June 22, 2010, In Thought of the Day, by ElfLord

When you do what your emotions tell you to – on the spur of the moment – you are doing exactly what the “masses” are doing, and this is not generally profitable.

– Claude Rosenberg Jr, The Investor’s Anthology by Charles Ellis

Tagged with: Claude Rosenberg Jr

Thought of the Day (June 21, 2010)

On June 21, 2010, In Thought of the Day, by ElfLord

What is the ultimate rationalization of a trader in a losing position? “I’ll get out when I’m even.” Why is getting out even so important? Because it protects the ego. I became a winning trader when I was able to say, “To hell with my ego, making money is more important.”

– Martin Schwartz , Market Wizards by Jack Schwager

Tagged with: Martin Schwartz

Tradecraft – No Nudes Is Good News

On June 21, 2010, In Good Articles, by ElfLord

FROM A STABLE BLUE CHIP to the most speculative small cap, we’re all quite comfortable with the notion that, in the market, you’re never on the hook for more than you put in. Whether you buy 100 shares of DTE Energy (DTE) or the bonds of some near-bankrupt airline, your risk is defined by your investment. Buy $5,000 worth of stock, and the most you can lose is $5,000.

While the losses are limited, the potential gains aren’t. Stocks and bonds are worth whatever someone is willing to pay. So when you buy XYZ, there’s no telling how high it might fly.

The other basic method of making money, however, is what I call the insurance format, an approach best exemplified by the options-writing strategies that have become increasingly popular with individual investors. In this case, a person is paid essentially to assume the risk of ownership without actually owning the security in question. The upside is limited, but the loss isn’t. (more…)

Tagged with: naked puts • options

Thought of the Day (June 20, 2010)

On June 20, 2010, In Thought of the Day, by ElfLord

Before I began my trading career, I played a lot of poker. I read every book I could find on the subject and learned that poker isn’t a game of luck, but one of both risk and odds management. Leaving bluffs aside, if you bet or call only when the odds are in your favor and plan your bets so that you stay at the table, you will make money over time. That doesn’t mean you’ll win every hand, far from it. But if you always keep the odds in your favor and scale your bets accordingly, you will come out a winner in the long run.

– Victor Sperandeo, Trader Vic II: Principles of Professional Speculation

Tagged with: Victor Sperandeo

Thought of the Day (June 19, 2010)

On June 19, 2010, In Thought of the Day, by ElfLord

It is stupidity which makes people “rush in where angels fear to tread.” And there is something about the Wall Street atmosphere which makes people think that whatever is to be done must be done at once, otherwise the opportunity will get away from them. I find that opportunities are coming along all the time, and that the majority are not as good as they look. So the best ones are worth waiting for.

– Richard Wyckoff, How I Trade and Invest in Stocks and Bonds

Tagged with: Richard Wyckoff

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Tradecraft – The Loser’s Racket

Tradecraft – The Honeymoon Ends

Thought of the Day (June 22, 2010)

Thought of the Day (June 21, 2010)

Tradecraft – No Nudes Is Good News

Thought of the Day (June 20, 2010)

Thought of the Day (June 19, 2010)

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