Top Traders Round Table- Richard Dennis, Jerry Parker, Brian Proctor

http://www.cmegroup.com/education/top-traders-round-table-episode-07.html?mkt_tok=eyJpIjoiT0RjM09HUTNOemd3T1RkaCIsInQiOiJVOGVyVzNVTnBvaGtXbXZHM3JVVFhcL2dzZzFqUXRtTHZ3NFlEOEQxdzh5c29iMDhHUlNnSDEyTG9CNjA5dTVFMlVrd2lFWXJwZkdMS1pjZEFuV0tLNjl1ZEV4UXhoTzBlaTg4M2lGZHQ0eDhWU1QyajIzK3ZYaGZXKzZQSDFUMmsifQ%3D%3D

Adam Sarhan Market Quotes:

Learn How to Navigate The Stock Market

  1. “Never argue with the tape and always keep your losses small.”- -Adam Sarhan

  2. “Trade wisely” -Adam Sarhan

  3. “The market is just a reflection of collective psychology.” -Adam Sarhan

  4.  “Time is the friend of a successful investor and the enemy of lousy investor.” -Adam Sarhan

  5. “There is always that one person who beats the market. Be that person.” -Adam Sarhan

  6. “My research shows most people lose money on Wall Street because they make emotional, not rational, decisions.” -Adam Sarhan

  7. “There are two sides to every trade. Before you pull the trigger ask yourself what is the other side thinking?” -Adam Sarhan

  8. “For every tick there is a trade.” -Adam Sarhan

  9. “Learning how to trade stocks is easy. The hard part is overcoming your emotions and actually doing it in real-time.” -Adam Sarhan

  10. “Ask Yourself- Do I think and behave like a successful trader? If not, it will be almost impossible to win in the long-run.” -Adam Sarhan

  11. “Winning starts from within. Before you can win- you have to truly believe you deserve to win. Unfortunately, that is not easy for most people.” -Adam Sarhan

  12. “Most people spend their time studying markets and researching stocks. Instead, they should study themselves.” -Adam Sarhan

  13. “Profits are a function of time.” -Adam Sarhan

  14. “Time is your most valuable asset and information is your most valuable commodity. Use them wisely.” -Adam Sarhan

  15. “Forget everything you think you know and seek the truth. The truth in this business is the balance on your monthly statement. If you are not making money on your current path- find another path that works for you.” -Adam Sarhan

  16. “There are an infinite number of ways to make money in markets and in life. Your job is to find one that works for you. Just because a “system” works for someone else, doesn’t mean it will work for you. Your job is to find an approach that consistently makes you money. Period.” -Adam Sarhan

  17. “Do a daily inventory of your wants. Ask yourself,  and write down, What do you want most today? Then make sure your actions are aligned with your top want.”
    -Adam Sarhan

  18. “Align yourself with the market.” -Adam Sarhan

  19. “Trade on what you see happening, not what you think will happen.” -Adam Sarhan

  20. “Respect risk.” – Adam Sarhan

  21. “Filter out the noise and focus on what matters most: Making Money.” -Adam Sarhan

  22. “Being successful is a skill that you can learn.” -Adam Sarhan

  23. “The skills required to make money have nothing to do with formal education, intelligence, IQ, your background, race, religion, sex, or any other prohibiting factor. Anyone can learn how to be successful.”  -Adam Sarhan

  24. “Ask yourself, am I Investing or Speculating (a.k.a Trading)? Then find a “system” that works for you.” -Adam Sarhan

  25. “We live in the age of information. Successful people pay for good information and know how to use it.” -Adam Sarhan

  26. “Markets are always moving and will be around forever. Make money and respect risk so you can be around too.” -Adam Sarhan

  27. “The beauty of this business is that you do not have to trade every day, week, or month. In fact, you are free to enter and exit 100% at your convenience. Only trade when you have an edge (see the ball).” -Adam Sarhan

  28. “It is important to find balance. Force yourself to take off every now and then. Otherwise, you will burn out.” -Adam Sarhan

  29. “On Wall Street, your money works for you. Not the other way around. Become comfortable with this concept because it is foreign to most people.” -Adam Sarhan

  30. “Avoid self-sabotage at all costs.” -Adam Sarhan

  31. “You deserve success. Once you become comfortable with that idea, make the necessary changes (thoughts/actions) and it will follow.”  -Adam Sarhan

  32. “Keep things simple. People have a natural tendency (to their detriment) to get in their own way and over-think markets. ” -Adam Sarhan

  33. “When you find yourself praying that a market moves in a certain direction. It probably won’t. -Adam Sarhan

  34. “Value, like Beauty, is subjective and in the eye of the beholder.” -Adam Sarhan

  35. “Price is a function of perception (psychology). Technicals and fundamentals are tools used to help determine perception.” -Adam Sarhan

 

Why Don’t You Give FLS A Try?

Learn From Your Mistakes- Investing Wisdom From Warren Buffett

Buffett

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The Greatest Investor Of All-Time
Many people overlook their mistakes and only look at their strengths. The problem is doing this invariably leads to more mistakes (repeating the same mistakes over and over again). Many people look at Warren Buffett, the most successful investor in history, and only look at what he does right. In Mr. Buffett’s infinite wisdom, he actually does the opposite, he analyzes his mistakes (so he can learn and not repeat them).
Woodstock of Capitalism:
Every year tens of thousands of people flock to attend Mr. Buffett’s annual shareholder meeting. The event is covered by the press, academia and everything in between. Mr Buffett’s flagship company is Berkshire Hathaway, and he has been at the helm for 49 years. On his 25th anniversary he published this letter to shareholders which outlined the mistakes of his first 25 years. Next year will mark his 50th anniversary at the helm,  and hopefully  he will update and share the lessons he’s learned from the first 50 years of his legendary career.
Here are 6 lessons that jumped out at me, the full letter is below:
1. Cigar Butt: Don’t buy stocks just because the price is cheap. Instead, buy quality companies and look for growth.
2. Time is the friend of the wonderful business, the enemy of the mediocre. Remember that profits are a function of time. Be patient with your winners.
3. Good jockeys will do well on good horses, but not on broken-down nags. Same is true for good management. Numbers don’t lie. If the numbers are poor, it will be very difficult for even the best managers to show up and save the day.
4. Avoid business problems, don’t solve them. When buying a business look for the problems. If they are not easily fixed, invest your money somewhere else.
5. Beware of irrational behavior or what Mr. Buffett calls, the unseen force that we might call “the institutional imperative.” People will likely stick the course (to protect their pride/egos) than admit defeat and be open to a new course of action.
6. Go into business only with people whom you like, trust, and admire.
Full Letter:
From the 1989 Berkshire Hathaway 1989 letter to shareholders:
Mistakes of the First Twenty-five Years (A Condensed Version)
To quote Robert Benchley, “Having a dog teaches a boy
fidelity, perseverance, and to turn around three times before
lying down.” Such are the shortcomings of experience.
Nevertheless, it’s a good idea to review past mistakes before
committing new ones. So let’s take a quick look at the last 25
years.
o My first mistake, of course, was in buying control of
Berkshire. Though I knew its business – textile manufacturing –
to be unpromising, I was enticed to buy because the price looked
cheap. Stock purchases of that kind had proved reasonably
rewarding in my early years, though by the time Berkshire came
along in 1965 I was becoming aware that the strategy was not
ideal.
If you buy a stock at a sufficiently low price, there will
usually be some hiccup in the fortunes of the business that gives
you a chance to unload at a decent profit, even though the long-
term performance of the business may be terrible. I call this the
“cigar butt” approach to investing. A cigar butt found on the
street that has only one puff left in it may not offer much of a
smoke, but the “bargain purchase” will make that puff all profit.
Unless you are a liquidator, that kind of approach to buying
businesses is foolish. First, the original “bargain” price
probably will not turn out to be such a steal after all. In a
difficult business, no sooner is one problem solved than another
surfaces – never is there just one cockroach in the kitchen.
Second, any initial advantage you secure will be quickly eroded
by the low return that the business earns. For example, if you
buy a business for $8 million that can be sold or liquidated for
$10 million and promptly take either course, you can realize a
high return. But the investment will disappoint if the business
is sold for $10 million in ten years and in the interim has
annually earned and distributed only a few percent on cost. Time
is the friend of the wonderful business, the enemy of the
mediocre.
You might think this principle is obvious, but I had to
learn it the hard way – in fact, I had to learn it several times
over. Shortly after purchasing Berkshire, I acquired a Baltimore
department store, Hochschild Kohn, buying through a company
called Diversified Retailing that later merged with Berkshire. I
bought at a substantial discount from book value, the people were
first-class, and the deal included some extras – unrecorded real
estate values and a significant LIFO inventory cushion. How could
I miss? So-o-o – three years later I was lucky to sell the
business for about what I had paid. After ending our corporate
marriage to Hochschild Kohn, I had memories like those of the
husband in the country song, “My Wife Ran Away With My Best
Friend and I Still Miss Him a Lot.”
I could give you other personal examples of “bargain-
purchase” folly but I’m sure you get the picture: It’s far
better to buy a wonderful company at a fair price than a fair
company at a wonderful price. Charlie understood this early; I
was a slow learner. But now, when buying companies or common
stocks, we look for first-class businesses accompanied by first-
class managements.
o That leads right into a related lesson: Good jockeys will
do well on good horses, but not on broken-down nags. Both
Berkshire’s textile business and Hochschild, Kohn had able and
honest people running them. The same managers employed in a
business with good economic characteristics would have achieved
fine records. But they were never going to make any progress
while running in quicksand.
I’ve said many times that when a management with a
reputation for brilliance tackles a business with a reputation
for bad economics, it is the reputation of the business that
remains intact. I just wish I hadn’t been so energetic in
creating examples. My behavior has matched that admitted by Mae
West: “I was Snow White, but I drifted.”
o A further related lesson: Easy does it. After 25 years of
buying and supervising a great variety of businesses, Charlie and
I have not learned how to solve difficult business problems. What
we have learned is to avoid them. To the extent we have been
successful, it is because we concentrated on identifying one-foot
hurdles that we could step over rather than because we acquired
any ability to clear seven-footers.
The finding may seem unfair, but in both business and
investments it is usually far more profitable to simply stick
with the easy and obvious than it is to resolve the difficult. On
occasion, tough problems must be tackled as was the case when we
started our Sunday paper in Buffalo. In other instances, a great
investment opportunity occurs when a marvelous business
encounters a one-time huge, but solvable, problem as was the case
many years back at both American Express and GEICO. Overall,
however, we’ve done better by avoiding dragons than by slaying
them.
o My most surprising discovery: the overwhelming importance in
business of an unseen force that we might call “the institutional
imperative.” In business school, I was given no hint of the
imperative’s existence and I did not intuitively understand it
when I entered the business world. I thought then that decent,
intelligent, and experienced managers would automatically make
rational business decisions. But I learned over time that isn’t
so. Instead, rationality frequently wilts when the institutional
imperative comes into play.
For example: (1) As if governed by Newton’s First Law of
Motion, an institution will resist any change in its current
direction; (2) Just as work expands to fill available time,
corporate projects or acquisitions will materialize to soak up
available funds; (3) Any business craving of the leader, however
foolish, will be quickly supported by detailed rate-of-return and
strategic studies prepared by his troops; and (4) The behavior of
peer companies, whether they are expanding, acquiring, setting
executive compensation or whatever, will be mindlessly imitated.
Institutional dynamics, not venality or stupidity, set
businesses on these courses, which are too often misguided. After
making some expensive mistakes because I ignored the power of the
imperative, I have tried to organize and manage Berkshire in ways
that minimize its influence. Furthermore, Charlie and I have
attempted to concentrate our investments in companies that appear
alert to the problem.
o After some other mistakes, I learned to go into business
only with people whom I like, trust, and admire. As I noted
before, this policy of itself will not ensure success: A second-
class textile or department-store company won’t prosper simply
because its managers are men that you would be pleased to see
your daughter marry. However, an owner – or investor – can
accomplish wonders if he manages to associate himself with such
people in businesses that possess decent economic
characteristics. Conversely, we do not wish to join with managers
who lack admirable qualities, no matter how attractive the
prospects of their business. We’ve never succeeded in making a
good deal with a bad person.
o Some of my worst mistakes were not publicly visible. These
were stock and business purchases whose virtues I understood and
yet didn’t make. It’s no sin to miss a great opportunity outside
one’s area of competence. But I have passed on a couple of really
big purchases that were served up to me on a platter and that I
was fully capable of understanding. For Berkshire’s shareholders,
myself included, the cost of this thumb-sucking has been huge.
o Our consistently-conservative financial policies may appear
to have been a mistake, but in my view were not. In retrospect,
it is clear that significantly higher, though still conventional,
leverage ratios at Berkshire would have produced considerably
better returns on equity than the 23.8% we have actually
averaged. Even in 1965, perhaps we could have judged there to be
a 99% probability that higher leverage would lead to nothing but
good. Correspondingly, we might have seen only a 1% chance that
some shock factor, external or internal, would cause a
conventional debt ratio to produce a result falling somewhere
between temporary anguish and default.
We wouldn’t have liked those 99:1 odds – and never will. A
small chance of distress or disgrace cannot, in our view, be
offset by a large chance of extra returns. If your actions are
sensible, you are certain to get good results; in most such
cases, leverage just moves things along faster. Charlie and I
have never been in a big hurry: We enjoy the process far more
than the proceeds – though we have learned to live with those
also.
* * * * * * * * * * * *
We hope in another 25 years to report on the mistakes of the
first 50. If we are around in 2015 to do that, you can count on
this section occupying many more pages than it does here.
___

Source: Josh Brown

Power Follows Wealth

CARTOON

 

 

 

 

 

Power Follows Wealth: 

Many years ago, Legendary Investor Jim Rogers told me that Power follows Wealth. A brief look at history confirms his thesis. We all know that empires were built when massive fortunes were accumulated and eventually collapsed when their inevitable economic dominance ended. Over time, capital begins to flow away from one area of the globe and to another area. Over the two decades or so, he argues that capital is quietly flowing away from the “West” and migrating towards “East.” His logic would conclude that it is only a matter of time until global power follows the money and “shifts” from the West to the East. Whether or not that happens, and the speed in which that happens, is yet to be determined. This article, which is based on HSBC’s report, projects a massive shift in the global economic landscape by 2050. It suggests that it is only a matter of time until the East surpasses the West as the dominate world economic power.

In fact, 60% of the top 5 economies in 2050 will be in Asia:

HSBC 2050 list of top economies (change in rank from 2010)

1) China   (+2)

2) U.S.     (-1)

3) India     (+5)

4) Japan   (-2)

5) Germany (-1)

What Does This Mean For You?
I prefer to focus my attention on how to allocate capital right now, not in 50 years. Right now, the West remains the dominate Economic and Military power on the planet- bar none.  Until that changes, and it is now longer called the American Dream, there remain countless opportunities to prosper and thankfully they are located in front of us each and every day. It is our job to find them.

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Full article below:

(CNN) – The global research department of HSBC has released a report predicting the rise and fall of the world’s economies in the next 40 years.

The world’s top economy in 2050 will be China, followed by the United States. No surprises there – since China’s reforms in the 1980s, economists have said it’s not a question of if, but when, China’s collective economic might will top the U.S.

But among the smaller, developing nations, there are several surprises by HSBC prognosticators:

* By 2050, the Philippines will leapfrog 27 places to become the world’s 16th largest economy.

* Peru’s economy, growing by 5.5% each year, jumping 20 places to 26th place – ahead of Iran, Colombia and Switzerland. Other strong performers will be Egypt (up 15 places to 20th), Nigeria (up nine places to 37th), Turkey (up six spots to 12th), Malaysia (up 17 to 21st) and the Ukraine (up 19 to 45th).

* Japan’s working population will contract by a world-top 37% in 2050 – yet HSBC economists predict it will still be toward the top performing economies, dropping only one spot to the 4th largest economy. India will jump ahead of Japan to 3rd on the list.

* The big loser in the next 40 years will be advanced economies in Europe, HSBC predicts, who will see their place in the economic pecking order erode as working population dwindles and developing economies climb. Only five European nations will be in the top 20, compared to eight today.  Biggest drop will be felt northern Europe: Denmark to 56th ( -29), Norway to 48th ( -22), Sweden to 38th (-20) and  Finland to 57th (-19).

HSBC 2050 list of top economies (change in rank from 2010)

1) China   (+2)

2) U.S.     (-1)

3) India     (+5)

4) Japan   (-2)

5) Germany (-1)

6)  UK      (-1)

7) Brazil    (+2)

8) Mexico (+5)

9) France (-3)

10)  Canada (same)

11)  Italy      (-4)

12)  Turkey (+6)

13)  S. Korea (-2)

14)  Spain    (-2)

15)  Russia (+2)

16)  Philippines (+27)

17)  Indonesia (+4)

18)   Australia (-2)

19)  Argentina (2)

20)  Egypt (+15)

21)  Malaysia (+17)

22)  Saudi Arabia (+1)

23)  Thailand (+6)

24)  Netherlands (-9)

25)  Poland (-1)

26)  Peru     (+20)

27)  Iran      (+7)

28)  Colombia (+12)

29)  Switzerland (-9)

30)  Pakistan (+14)

“If we step away from the cyclicality, there are two ways economies can grow; either add more people to the production line via growth in the working population, or make each individual more productive,” the report says.

In other words, demographics – the size of your working population – along with the opportunities to flex that muscle help determine long-term economic trends. Big factors on the back half of that equation: Education opportunities, democratic governments or strong rule of law (a caveat that explains China and Saudi Arabia’s high placement).

“We openly admit that behind these projections we assume governments build on their recent progress and remain solely focused on increasing the living standards for their populations,” the report says. “Of course, this maybe an overly glossy way of viewing the world.”

Chief factors that may derail economies moving forward, the report says: War, energy consumption constraints, climate change, and growing barriers to population movement across borders.

Source: http://business.blogs.cnn.com/2012/01/12/worlds-top-economies-in-2050-will-be/?sr=sharebar_facebook

Jim Rogers Blog:

Rare Marty Schwartz “Pit Bull” Speech: Spring 2013

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Marty Schwartz Jack Schwager’s “Market Wizards” Discussion in Amherst

Great talk by Marty Schwartz “Pitbull”

 

Source: http://www.youtube.com/watch?v=CkDZbGVR7Y8#action=share

 

25 Market Insights From Jesse Livermore

Livermore

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1. The only leading indicator that matters

Watch the market leaders, the stocks that have led the charge upward in a bull market. That is where the action is and where the money is to be made. As the leaders go, so goes the entire market. If you cannot make money in the leaders, you are not going to make money in the stock market. Watching the leaders keeps your universe of stocks limited, focused, and more easily controlled.

2. Patterns repeat, because human nature hasn’t changed for thousand of years

There is nothing new on Wall Street or in stock speculation. What has happened in the past will happen again, and again, and again. This is because human nature does not change, and it is human emotion, solidly build into human nature, that always gets in the way of human intelligence. Of this I am sure.

All through time, people have basically acted the same way in the market as a result of greed, fear, ignorance, and hope. This is why the numerical formations and patterns recur on a constant basis.

I absolutely believe that price movement patterns are being repeated. They are recurring patterns that appear over and over, with slight variations. This is because markets are driven by humans — and human nature never changes.

3. The obvious rarely happens, the unexpected constantly occurs

The market will often go contrary to what speculators have predicted. At these times, successful speculators must abandon their predictions and follow the action of the market. Prudent speculators never argue with the tape. Markets are never wrong, but opinions often are.

Remember, the market is designed to fool most of the people most of the time.

4. On the importance of sitting tight and being patient with your winners

They say you never go broke taking profits. No, you don’t. But neither do you grow rich taking a four-point profit in a bull market.

I did precisely the wrong thing. The cotton showed me a loss and I kept it. The wheat showed me a profit and I sold it out. Of all the speculative blunders there are few greater than trying to average a losing game. Always sell what shows you a loss and keep what shows you a profit.

The market does not beat them. They beat themselves, because though they have brains they cannot sit tight. Old Turkey was dead right in doing and saying what he did. He had not only the courage of his convictions but also the intelligence and patience to sit tight.

After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting.

5. You don’t have to be active every day

First, do not be invested in the market all the time. There are many times when I have been completely in cash, especially when I was unsure of the direction of the market and waiting for a confirmation of the next move….Second, it is the change in the major trend that hurts most speculators.

Always remember; you can win a horse race, but you can’t beat the races. You can win on a stock, but you cannot beat Wall Street all the time. Nobody can.

There is the plain fool, who does the wrong thing at all times everywhere, but there is also the Wall Street fool, who thinks he must trade all the time. No man can have adequate reasons for buying or selling stocks daily– or sufficient knowledge to make his play an intelligent play.

Remember this: When you are doing nothing, those speculators who feel they must trade day in and day out, are laying the foundation for your next venture. You will reap benefits from their mistakes.

6. It is what people actually did in the stock market that counted – not what they said they were going to do.

7. Successful trading is always an emotional battle for the speculator, not an intelligent battle.

8. I believe that the public wants to be led, to be instructed, to be told what to do. They want reassurance. They will always move en masse, a mob, a herd, a group, because people want the safety of human company. They are afraid to stand alone because they want to be safely included within the herd, not to be the lone calf standing on the desolate, dangerous, wolf-patrolled prairie of contrary opinion.

9. If you don’t have a plan, you will become part of someone else’s plan

I believe that having the discipline to follow your rules is essential. Without specific, clear, and tested rules, speculators do not have any real chance of success. Why? Because speculators without a plan are like a general without a strategy, and therefore without an actionable battle plan. Speculators without a single clear plan can only act and react, act and react, to the slings and arrows of stock market misfortune, until they are defeated.

10. If you can’t sleep at night because of your stock market position, then you have gone too far. If this is the case, then sell your position down to the sleeping level.

11. Remember that stocks are never too high for you to begin buying or too low to begin selling.

12. When I am long of stocks it is because my reading of conditions has made me bullish. But you find many people, reputed to be intelligent, who are bullish because they have stocks. I do not allow my possessions – or my prepossessions either – to do any thinking for me. That is why I repeat that I never argue with the tape.

13. Losing money is the least of my troubles. A loss never troubles me after I take it. I forget it overnight. But being wrong – not taking the loss – that is what does the damage to the pocket book and to the soul.

14. I trade on my own information and follow my own methods.

15. But if after a long steady rise a stock turns and gradually begins to go down, with only occasionally small rallies, it is obvious that the line of least resistance has changed from upward to downward. Such being the case why should anyone ask for explanations? There are probably very good reasons why it should go down.

16. About scaling in and scaling out

When I’m bearish and I sell a stock, each sale must be at a lower level than the previous sale. When I am buying, the reverse is true. I must buy on a rising scale. I don’t buy long stocks on a scale down, I buy on a scale up.

17. It cost me millions to learn that another dangerous enemy to a trader is his susceptibility to the urgings of a magnetic personality when plausibly expressed by a brilliant mind.

18. A man must know himself thoroughly if he is going to make a good job out of trading in the speculative markets

19. When the market goes against you, you hope that every day will be the last day – and you lose more than you should had you not listened to hope. And when the market goes your way, you become fearful that the next day will take away your profit and you get out – too soon. The successful trader has to fight these two deep-seated instincts.

20. The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the person of inferior emotional balance, or the get rich-quick adventurer. They will die poor.

21. Don’t take action with a trade until the market, itself, confirms your opinion. Being a little late in a trade is insurance that your opinion is correct. In other words, don’t be an impatient trader.

22. It is foolhardy to make a second trade, if your first trade shows you a loss. Never average losses. Let this thought be written indelibly upon your mind.

23. Successful traders always follow the line of least resistance. Follow the trend. The trend is your friend.

24. When you make a trade, “you should have a clear target where to sell if the market moves against you. And you must obey your rules! Never sustain a loss of more than 10% of your capital. Losses are twice as expensive to make up. I always established a stop before making a trade.

25. To Sum Things Up

Don’t worry about catching tops or bottoms, that’s fools play. Keep the number of stocks you own to a controllable number. It’s hard to herd cats, and it’s hard to track a lot of securities. Take your losses quickly and don’t brood about them. Try to learn from them but mistakes are as inevitable as death. And only make a big move, a real big plunge, when a majority of factors are in your favor….every once in a while you must go to cash, take a break, take a vacation. Don’t try to play the market all the time. It can’t be done, too tough on the emotions.

Source: ST50 & Livermore’s books

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8 Legends Share Their Market Wisdom

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1. Christian Siva-Jothy On Idea Generation

No one gets paid for originality – you get paid for making money. I am happy to take other people’s good ideas and run with them, as long as I understand exactly why I am in the trade.

2. Dwight Anderson On When To Increase Your Position

What did you learn from Julian Robertson? – One thing that Julian did very well, which we do poorly, is pay up when fundamentals start to develop as anticipated. A trade he used to like to talk about was Citibank in 1990 and 1991. He bought it at 10 and it went to 20. When one of his analyst wanted to sell the position, he doubled it instead, because he felt it was cheaper at 20 then that it was at 10. When he first bought it, there were real estate problems that were resolved by the time it got to 20, so it was clear that City wasn’t going bankrupt. It ended up going to 100, split adjusted.

3. Scott Bessent – Pressure to give investors what they want can compromise any trading style.

The biggest mistake I made was not taking the advice of Robert Wilson: “If you have as much money as I’ve read you do, you are an asshole if you manage anybody’s money except your own. To go up 100%, you have got to be willing to go down 20%, and you cannot go down 20 with other people’s money”

4. Yra Harris on Patience

Anytime something is too good to be true, I now recognize that it probably is and that it’s there for a reason because someone knows more than me. Where I used to rush in, I now step back and wait for a move to develop. I don’t feel I have to be at the start of every move anymore.

Money is always going somewhere no matter what, so I Just have to stay attuned. But I am more patient in letting moves develop before I get in. As I’ve gotten older, my patience has improved.

5. Anonymous

Recognizing when you are right is as hard for some people as recognizing when you’re wrong. I find it comical to see people cut their profits and run their losses, but happens all the time.

***

“Traders have a very hard time buying something at a greater value than what they just took profit on, so they look for a proxy or relative value.” – as a result they miss on the real move.

***

All the crap rallies at the end of a bull market, which is how you know it’s near the end.

6. Jim Leitner

Options take away the whole aspect of having to worry about precise risk management. It’s like paying for someone else to be your risk manager. Meanwhile, I know I am long XYZ for the next six months. Even if the option goes down a lot in the beginning to the point that the option is worth nothing, I will still own it and you never know what can happen.

7. Jim Rogers- Human Nature

I don’t know if the markets are smart enough to say “Let’s test the weak hands,” but history has repeatedly shown that sort of thing happens. It is human nature…The smart money always loses money shorting bubbles because they cannot comprehend that it could go as high as it does.

8. Dr. Andres Drobny: Talk Is Cheap

I also learned early on that talk is cheap in the markets. Everybody runs around with a view, but what leads to success is not having a view but coming up with a direct trade idea.

 

 

Source: ST & Inside the House of Money: Top Hedge Fund Traders on Profiting in the Global Markets, Steven Drobney, Wiley 2006

 

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Investing Advice From Peter Thiel: Timing Is Everything

Theil Peter Thiel on Timing is Everything

One of the dilemmas with our post-bubble hypothesis is that while the enormous distortions affecting the market, must eventually unwind, they can get bigger before reversing course. Balancing long-term and short-term views on the pivot of timing indicators is very tricky. For example, we think there is a housing bubble in the United States today, but we thought that two years ago. Since then, homebuilder stocks have gone up by a factor of four, so it would have been a disastrous trade if we had put it on then. Lacking a good timing indicator until recently, we refrained from trading the housing bubble. Sometimes good trades are the ones you don’t put on. (2006)

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Source: ST

Stanley Druckenmiller – “The Greatest Moneymaking Machine In History”

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Who is Stanley Druckenmiller?

Here is what hedge fund manager Scott Bessent says about Druckenmiller in the book “Inside the House of Money’

Stan may be the greatest moneymaking machine in history. He has Jim Roger’s analytical ability, George Soros’s trading ability, and the stomach of a riverboat gambler when it comes to placing his bets. His lack of volatility is unbelievable. I think he’s had something like five down quarters in 25 years and never a down year. The Quantum record from 1989 to 2000 is really his. The assets grew from $1 billion to $20 billion over that time and the performance never suffered. Soros’s record was made on a smaller amount of money at a time when there were fewer hedge funds to compete against.

Breaking the Bank of England was not a one-man job. Superlatives have gone entirely to Soros, but history has been unjust to the other genius behind the trade – Druckenmiller. Both, Soros and Druckenmiller played crucial roles and one could not have done it without the other. They were a dream-team of speculators.

Here’s is Scott Bessent again about the infamous Pound trade:

What is most interesting to me about the breaking of the pound was the combination of Stan Druckenmiller’s gamesmanship – Stan really understand risk and reward – and George’s ability to size trades. Make no mistake about it, shorting the pound was Stan Druckenmiller’s idea. Soros contribution was pushing him to take a gigantic position.

When people talk about the Breaking the Bank of England story, which netted a billion pounds to Soros, few remember the mention the risk parameters of the trade. His fund was up 12% for the year, when they decided to take the trade. Their pre-defined maximum risk was the entire year-to-date profit, but not more.   It takes huge balls of steel to make such a bet.

What is the philosophy behind Stanley Druckenmiller’s exceptional performance:

 

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1. Flexibility

The Friday before the 1987 crash, Druckenmiller goes from net short to 130% long. Here is his conversation with Jack Schwager in The New Market Wizards’ book:

– You’ve repeatedly indicated that you give a great deal of weight to technical input. With the market in a virtual free-fall at the time, didn’t the technical perspective make you apprehensive about the trade?

– A number of technical indicators suggested that the market was oversold at that juncture. Moreover, I thought that the huge price base near the 2,200 level would provide extremely strong support— at least temporarily. I figured that even if I were dead wrong, the market would not go below the 2,200 level on Monday morning. My plan was to give the long position a half-hour on Monday morning and to get out if the market failed to bounce.

***

Another important lesson to be drawn from this interview is that if you make a mistake, respond immediately! Druckenmiller made the incredible error of shifting from short to 130 percent long on the very day before the massive October 19, 1987, stock crash, yet he finished the month with a net gain. How? When he realized he was dead wrong, he liquidated his entire long position during the first hour of trading on October 19 and actually went short. Had he been less open-minded, defending his original position when confronted with contrary evidence, or had he procrastinated to see if the market would recover, he would have suffered a tremendous loss. Instead, he actually made a small profit. The ability to accept unpleasant truths (i.e., market action or events counter to one’s position) and respond decisively and without hesitation is the mark of a great trader.

***

Druckenmiller flipped the portfolio from short to long, a reversal that saved Quantum in 1999, but then hurt it a few months later in 2000. Druckenmiller finished 2000 up for the year. He went from down 12% in March to up 15% for the year in his own portfolio. If you remember, the Nasdaq dumped in March 2000 but then it almost made a marginal new high in September at which point he changed his mind again, went from net long to net short, and caught the whole move down from September to December 2000.

Stan is better at changing his mind that anybody I’ve ever seen. Maybe he stayed with it a little too long, but one of the great things about Stan is that he can and does turn on a dime. To paraphrase John Maynard Keynes, when the facts change, he changes his positions.

2. He understands and applies perfectly the concept of risk/reward and one of his main weapons is proper timing:

One of the things that I learned from Stan Druckenmiller is how to enter a trade. The great thing about Stan is that he can be wrong, but he rarely loses money because his entry point is so good.

3. The most important lessons from George Soros

I’ve learned many things from him, but perhaps the most significant is that it’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong. The few times that Soros has ever criticized me was when I was really right on a market and didn’t maximize the opportunity

Soros has taught me that when you have tremendous conviction on a trade, you have to go for the jugular. It takes courage to be a pig. It takes courage to ride a profit with huge leverage. As far as Soros is concerned, when you’re right on something, you can’t own enough.

***

It’s my philosophy, which has been reinforced by Mr. Soros, that when you earn the right to be aggressive, you should be aggressive. The years that you start off with a large gain are the times that you should go for it.

The way to build long-term returns is through preservation of capital and home runs. You can be far more aggressive when you’re making good profits. Many managers, once they’re up 30 or 40 percent, will book their year [i.e., trade very cautiously for the remainder of the year so as not to jeopardize the very good return that has already been realized]. The way to attain truly superior long-term returns is to grind it out until you’re up 30 or 40 percent, and then if you have the convictions, go for a 100 percent year. If you can put together a few near-100 percent years and avoid down years, then you can achieve really outstanding long-term returns.

***

Soros is also the best loss taker I’ve ever seen. He doesn’t care whether he wins or loses on a trade. If a trade doesn’t work, he’s confident enough about his ability to win on other trades that he can easily walk away from the position. There are a lot of shoes on the shelf; wear only the ones that fit. If you’re extremely confident, taking a loss doesn’t bother you.

4. Great defense wins championships

Druckenmiller’s entire trading style runs counter to the orthodoxy of fund management. There is no logical reason why an investor (or fund manager) should be nearly fully invested in equities at all times. If an investor’s analysis points to the probability of an impending bear market, he or she should move entirely to cash and possibly even a net short position.

5. About valuation and timing the market

I never use valuation to time the market. I use liquidity considerations and technical analysis for timing. Valuation only tells me how far the market can go once a catalyst enters the picture to change the market direction.

The catalyst is liquidity, and hopefully my technical analysis will pick it up.

6. About leverage:

You could be right on a market and still end up losing if you use excessive leverage.

One basic market truth (or, perhaps more accurately, one basic truth about human nature) is that you can’t win if you have to win. Druckenmiller’s plunge into T-bill futures in a desperate attempt to save his firm from financial ruin provides a classic example. Even though he bought T-bill futures within one week of their all-time low (you can’t pick a trade much better than that), he lost all his money. The very need to win poisoned the trade— in this instance, through grossly excessive leverage and a lack of planning. The market is a stern master that seldom tolerates the carelessness associated with trades born of desperation.

 

And a more recent quote from Druckenmiller, related to Soros’s advice “don’t try to play the game better, pay attention to when the game has changed”:

I really don’t care whether we go to $70 billion or $65 billion in September, … But if you tell me quantitative easing is going to be removed over 9 or 12 months, that is a big deal

 

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SOURCES:

Courtesy of ST50,

INSIDE THE HOUSE OF MONEY, STEVEN DROBNEY, WILEY, 2008
Schwager, Jack D. (2009-10-13). The New Market Wizards: Conversations with America’s Top Traders. HarperBusiness. Kindle Edition.

Richard Donchian’s Trading Rules (Father of TrendFollowing)

Richard Donchian developed a plan in 1934 (no, that is not a typo) that he soon published as a set of guidelines. The majority of those guidelines are still relevant to every investor today:

  1. Beware of acting immediately on widespread public opinion. Even if correct, if will usually delay the move.
  2. From a period of dullness and inactivity, watch for and prepare to follow a move in the direction in which volume increases.
  3. LIMIT LOSSES, ride profits – irrespective of all other rules.
  4. Light commitments are advisable when a market position is not certain.
  5. Seldom take a position in the direction of an immediately preceding three-day move. Wait for one-day reversal.
  6. Judicious use of stop orders is valuable aid to profitable trading.
  7. In a market in which upswings are likely to equal or exceed downswings, a heavier position should be taken for the upswings for percentage reasons – a decline from 50 to 25 will net only 50% profit, whereas an advance from 25 to 50 will net 100%.
  8. In taking a position, price orders are allowable. In closing a position, use ‘market’ orders.
  9. Buy strong acting, strong background (markets) and sell weak ones, subject to all other rules.

 More information is available here: http://en.wikipedia.org/wiki/Richard_Donchian

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