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Tradecraft – Hedging Your Bets

On August 9, 2010, In Good Articles, by ElfLord

I’M OFTEN ASKED WHY I don’t just take my clients’ money to a casino and try to earn a quick buck. The short answer: If I felt that would make them money, then I would. And while I happen to like the odds a lot more on Wall Street than in Atlantic City, it’s worth noting that managing money is just French for making it. Within the confines of law, I’m fully supportive of exploring every possible opportunity to turn a profit.

Although 2005 was a relatively flat year for the broad stock indexes, there was plenty of upside in foreign stocks, gold, real estate, energy, utilities technology and even industrial names. You simply had to be quick, agile and more active than buying the major markets and holding out on for the long haul.

It’s a wide world out there beyond the Dow or S&P 500, which is why diversifying among strategies makes perfect sense for all portfolios. While manager A is chasing down one area of the capital markets, manager B could be making money using an entirely different approach. (more…)

Tradecraft – How Are You Doing?

On March 31, 2010, In Good Articles, by ElfLord

EVERY ELEMENT OF money management, from economics to analysis, security selection to stop-loss orders, comes down to answering one important yet often underappreciated question: How am I doing? Because after all the reports and research, all that really matters when it comes to your investments is the bottom line. Asking “How am I doing?” is a simple reminder that this whole exercise is about one thing: making money.

Of course, the question is always relative. Back in the late 1990s, anything less than a 20% yearly return was seen as downright shameful. Active managers were chided for holding cash, taking profits or deviating even the slightest bit from the index. In those heady times, a single-digit return was an embarrassment.

But when the bubble burst, and indeed up until this year, just staying above water has been perceived as commendable. In fact, plenty of managers have boasted of their good “relative” performance, having lost only single digits, for example, at a time in which the S&P 500 index was down significantly more. Of course, I don’t know many groceries that can be bought using good “relative” performance, if that performance still happens to be negative. (more…)

Tagged with: absolute return • power of compounding

Tradecraft – It’s Consistency That Counts

On March 8, 2010, In Good Articles, by ElfLord

UP UNTIL MARCH, the few fund managers who were able to keep their portfolios in the plus column were heralded as investment geniuses. But with the markets up sharply this year, anything less than double-digit returns seems embarrassingly tame. Some sectors haven’t just performed well — they’ve kicked tail. For example, Internet stocks, which we first highlighted last fall, have taken top honors with 100%-plus gains.

But while we’d all like to see our investments on the “top performers” list, what traders should strive for isn’t necessarily the biggest return, but the most consistent.

Let’s define our terms. Consistent trading doesn’t mean that every trade is a winner, or even that in every quarter one is able to achieve a positive return. It does mean, however, that over any statistically meaningful length of time — say, a rolling 18-month period — your overall investments will have gained in value.

The return doesn’t always have to be stellar, but it does have to be positive. With all due respect to Legg Mason fund manager Bill Miller, consistently beating the Standard & Poor’s 500 doesn’t mean much when the S&P declines for three straight years. You can’t spend relative performance. (more…)

Tagged with: absolute return • consistency

Tradecraft – It’s All About the Benjamins

On October 5, 2009, In Good Articles, by ElfLord

WALK INTO ANY casino, and the first thing you will do is exchange your hard-earned hundreds for a pile of worthless plastic chips. It’s a distraction meant to insure that, as you gamble, you aren’t paying too much attention to the dollar amount being won or lost.

And while traders aren’t gamblers per se, a similar thing happens in the market. In the real world, cash is a scarce and valuable commodity. But once the check is written and sent to Schwab, hard-earned money becomes, at least in our minds, a stack of chips, ready to be anted up at the nearest table.

And when a click or keystroke can mean thousands of dollars, a fully funded brokerage account feels like Harrah’s on your hard drive. From the craps table to Comverse Technology (CMVT), it’s much easier to lose big money when you’re not thinking about the money.

So no matter at what level you play the game, you’ve got to get in the habit of keeping it real. In my experience, the best traders aren’t gun-slinging gamblers, but pragmatic realists. They’re better at seeing the world the way it is rather then the way they’d like it to be. (more…)

Tagged with: absolute return • cash • paper loss

ZF Capital

Tradecraft – Hedging Your Bets

Tradecraft – How Are You Doing?

Tradecraft – It’s Consistency That Counts

Tradecraft – It’s All About the Benjamins

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