The speculator is not an investor. His object is not to secure a steady return on his money at a good rate of interest, but to profit by either a rise or a fall in the price of whatever he may be speculating in. Therefore the thing to determine is the speculative line of least resistance at the moment of trading; and what he should wait for is the moment when that line defines itself, because that is the signal to get busy.
– Jesse Livermore, Reminiscences of a Stock Operator
IN THE MARKET, IT’S crucial to not only analyze a stock but the public’s prevailing attitude toward it as well. Whether semiconductors or silver, big blue chips or miniscule micro caps, it’s no matter. Savvy investors should always be short hope and long doubt. While hope plays well in the movies, in your portfolio it’s an expensive emotion that needs to be avoided.
Why is hope so dangerous? Let’s begin with the reality that hopeful investors have already bought XYZ. They’re not sidelined money waiting to come into the market, but capital that’s already at work. After going ahead and buying the stock, these investors hope for the best. There’s not much more they feel they can do.
Hopeful investors are almost frighteningly knowledgeable about XYZ, having scoured the company’s Web site, SEC filings and press releases for any kernel of good news. At a moment’s notice, they’re ready with ambitious projections about how many routers Cisco Systems (CSCO) is going to sell or how many listeners Howard Stern will bring to Sirius Satellite Radio (SIRI). They don’t just invest in a stock, they become evangelists for it. (more…)
People become primitive and action-oriented when they join crowds. Crowds feel simple but strong emotions such as terror, elation, alarm, and joy. Crowds swing from fear to glee, from panic to mirth. A scientist can be cool an rational in his lab but make harebrained trades after being swept up in the mass hysteria of the market. A group can suck you in, whether you trade from a crowded brokerage office or from a remote mountaintop. When you let others influence your trading decisions, you lose your chance of success.
– Alexander Elder, Trading for a Living
WHEN I HEAR PEOPLE bad-mouth Wal-Mart Stores (WMT) for its supposedly evil business practices, I wonder if they have any appreciation at all for just how difficult it is to create even one job, let alone 1.5 million. The ability for a business to be able to cut paychecks week after week, even during the tough months, is an achievement few seem to acknowledge.
Traders can appreciate it, however, because in the markets there’s no such thing as a regular paycheck. Just as most retailers’ profits are seasonal, a trader’s income is highly erratic. The most common profile consists of long stretches of small losses punctuated by a few impressive scores. And because it’s usually feast or famine, the ability to structure a portfolio toward more-consistent returns is a helpful technique that traders of all levels should employ.
Many traders aim to build consistency into their portfolios in exactly the wrong way: by overtrading. Strategies such as rolling stocks or short-term scalping only contribute to the fallacy that the market can function as a sort of endless ATM, where all you have to do each day is show up to make a withdrawal. And while there are dozens of services that promise you a handful of sure stock picks each day, it’s a loser’s game that serious investors should avoid playing. (more…)
If there is one generalization about the whole subject of stock charts which we may suggest at the very introduction of our study, it is the definite caution that the reader be skeptical of any apparently sure thing.
– Richard Schabacker, Technical Analysis and Stock Market Profits
Your judgment will become poorer from the very time when you decide that you know more about the market than the market is telling you. From that moment your results will be unsatisfactory, for in this trading business the tape is the boss. You must learn to obey its orders, doing exactly what it tells you. When you can accomplish this, you are on the high road to success in your stock trading.
– Richard Wyckoff, Stock Market Technique No. 1
LISTEN TO PRESIDENT BUSH AND others in the administration, and you might think that American values are rooted in religion — that liberty is “God’s gift” and that America’s core ideology is one of theocracy.
Other leaders, especially those on the political left, suggest America is founded on the premise of altruistic self-sacrifice. For these folks, no tax or government control is too onerous to provide every citizen with their supposed birthright of housing, health care, education or whichever campaign promise scores high with the focus groups that week.
Lost among the religious right or liberal left is a basic understanding of what core American principles are. Considering that we’re overseeing the process of a new democracy being launched in Iraq, it might serve us to remember what’s at the heart of our own. (more…)
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