A10, Stock Trader Dude

Another book to disappoint you, a discussion about what someone else would do (retail investors) when a stock price rises or falls isn’t going to help your situation (unless they are a model for poor decision-making). When you don’t have a clear understanding and inside track to the developments within the company (new products or services, regulation changes, earnings, management changes) and how it relates to peer companies and the sector then you sell, maybe not all at once but you begin the process to know where you are. You allow yourself to step away from the process and see that if the price rises, you might make less, and if the price declines, you lost less and can exit the rest of the position knowing you allowed yourself a chance to briefly wait for further gains.

The media, financial press, and self-help investment promoters tout making investments as a natural life experience/expectation like brushing your teeth. The decision not to invest isn’t part of their thought leadership. The concept of not investing isn’t part of their self-help dialogue. Experiencing the stock market isn’t appropriate for everyone, and this is where these self-appointed experts failed to aid the public.Losie Orman and Robert Kiyosuckie aren’t going to bail you out… they told you to get into investments even when the timing was bad, they were caught off guard by the severe decline in the stock market in 2000 and in 2008 they had no sense that it was artificially high, and that a severe decline could happen again. Why would anybody listen to them now? What can they say… hang on? We already know how Losie handles it, “Look at what you have, not at what you had” – okay lady, that was after 2000-2001, you still telling them that? Why do people buy stocks? Well, somebody told them to. They got their expectations from somewhere, right? When I was a child I never thought, “I want to buy stocks when I grow up.”

Why pay thousands of dollars for something when I can give you the overview of the process used at the workshop?

1. Personal responsibility for results
2. Thoroughly prepared
3. Disciplined psychology

Know the average profit per trade per dollar risked. Know your system – different forms of money management to achieve objective.The marketers and financial media are still promoting stocks as an investment but their ads miss the most important component to profiting from investments: It’s not so much what you buy, but who can you sell it to for more than you paid?The media and financial industry has trained you to buy but never to sell… or to not buy at all.

Relying on experience can be limiting… experience doesn’t necessarily hold lasting value, since value shifts with the marketplace. What worked well at one time doesn’t mean it’s best to repeat that approach.Experience: At 91, the man Warren Buffett famously dubbed a “superinvestor” is still picking unloved stocks [Forbes, February 11, 2008, pg 48]An interesting fellow, Walter Schloss, he doesn’t use a computer and he doesn’t pay for research reports or charts. The article stated, “He often found himself buying while stocks had a long way to fall and selling too early.” This was in reference to his experience during the 80s and 90s.“Still, many of his calls were spot-on. He shorted Yahoo and Amazon before the markets tanked in 2000, and cleaned up.” After that, unable to find many cheap stocks he liquidated his fund and gave investors their money back.The article listed five stocks that Schloss bought.The article states: It’s been two years since he bought in, and the stock is down a third. But the superinvestor, who has seen countless such drops, is philosophical and confident this one is worth book at least. “How much can you lose?” he asks.The answer: A lot, a little over a year later these stocks have fallen to penny stock prices. Four of them have risen at least 100% from the low in March, the other stock nearly rose a 100% from the low and each stock is still significantly below February 2008 prices.These companies were weak prior to 2008. Why is he picking losers? The man has experience in it and experience is a hard thing to give up. During a protracted economic downturn the share prices of these companies have gotten much cheaper… naturally.

Position sizing is that portion of your trading system that tells you “how many” or “how much.” How many units of your investment should you put on at a given time? How much risk should you be willing to take?

Aside from your personal psychological issues, this is the most critical concept you need to tackle as a trader or investor. Please… you cannot limit yourself… this approach doesn’t have anything to do with making an intelligent choice, selecting the one best mover and betting as much as you can when you have as close to a lock on something as possible. For further insight I’ll refer you to chapter three (Take monumental risks) of How to be a billionaire: Precisely because so many people are able to take this kind of risk, the rewards are not astronomical. No one has a 10-figure net worth purely through passive investing in the stock market. In March of 1989 Steven Ballmer bought $46 million of Microsoft stock (he was then an executive, now CEO) and three years later his investment was worth $350 million. A company gets cheap for good reason and rebounds in value only if somebody, or some change in conditions, fixes the problem.

Investors and traders rely on their sensations of their experience of the stock market. But you never directly interact with the stock market; you interact with your thoughts and feelings about investing and trading. Nobody is coming along to shove easy stock market profits into your pocket… or else you would have known to short or exit the stock market before the downward momentum. If you didn’t read the market correctly in 2008, what makes you think now is the time to invest or trade? You don’t have to see the future; you have to see yourself.S&P 500 from the October 2007 highs to the March 2009 lows: During the market crash toward the end of 1929 and the decline during the Great Depression, there were at least five rallies of forty percent or greater.The retail investor rarely makes substantial gains… he or she is too distracted, or too easy to influence.

Peak performance in investing or trading is not about what you know about the market, it’s what you know about yourself.Your personality messes up your investment returns. It’s not that difficult to develop a sound investment strategy. The difficult part is sticking with that strategy when emotions like fear, anger, greed and jealousy are trying to sabotage you at every turn.Associated with the idea of profiting in the various markets is making decisions based on the vast amount of information available. Information is not knowledge, information that does not provide an actionable insight may be low quality and market information does not contain predictive value. How you make decisions is important… Tharp(y) is out there trying to sell his workshops and study material. The thing with this guy is that he knows he doesn’t have the ability to outperform in the marketplace so he doesn’t directly experience the process of trading. Making money in investments is not a business, but making money by selling information about investments and the various markets is. If the folks who hold the keys to all this great information can’t profit from it directly within the stock market, what makes you believe them when they claim you can do it? The wrong answers are always for sale.You rarely hear that ignoring information is an intelligent selection process. If 80 – 95% of the information we pay attention to in our heads is total junk… meaning it doesn’t mean anything and is repetitive, then…

– That experience acts as the reality to which we give our attention.
– Our thoughts are mostly junk concepts that we mistake for reality.
– Exposure to the markets is through vague concepts that add more junk to the mostly junk thoughts already there.And it’s what’s going on in your head that you really trade (your concept of information, your beliefs, emotions, your limited experience), not the markets.And when you notice a belief, you need to understand the following:

1. Where did it come from?
2. What does it get me into?
3. What does it get me out of?
4. Is it useful? If not, then change the belief.

Even when there aren’t much positive fundamentals to promote stocks the ads on the Internet claim various stock-picking strategies, options, or Forex currency trading is the answer. Nothing is the answer… other than working on your decision- making hang-ups. All that means is considering your emotions and having a plan to deal with them to keep you out of trouble. Tharp(y) keeps going with his workshops on ETFs attempting to attract those over-thinking intellectual traders… all you’ll really get from his seminars is him asking you to look at yourself:

1. Ask yourself what psychological tendencies have sabotaged your investment returns. If you don’t understand your patterns you are doomed to repeat them.
2. Write down your beliefs about investing, then draw up a detailed investment strategy based on those beliefs.
3. List everything that could go wrong with your plan. Then, rehearse how you would deal with these catastrophes.
4. Get your excitement from other activities, not the stock market.That’s a recurring theme with his students… they like being a part of the investment or trading process, because there’s an element of action. They don’t think in terms of making a huge sum of money from one great investment. Why pay thousands of dollars for something when I can give you the overview of the process used at the workshop?

1. Personal responsibility for results
2. Thoroughly prepared
3. Disciplined psychology

Know the average profit per trade per dollar risked.Know your system – different forms of money management to achieve objective.

From an advertisement:
Most people are doing the exact opposite of what the big funds are doing and they pay a big price for doing so. For example, you put money into a stock after hearing that a fund manager really likes it. However, by the time you do, the fund manager is getting ready to sell. But what if you could see what the big mutual funds are doing with their money well before they complete a transaction so you could jump in ahead of them? (It’s called front running.)It would be a huge advantage.For example, if mutual fund managers are buying retail stocks, you would be able to get into those stocks well before they get in and profit greatly as their activity drives prices up. Imagine what an advantage you would have over other investors. And we are going to show you exactly how to do that. (I don’t believe that.) Suppose that you are managing a mutual fund and you need to move a billion dollars out of retail stocks into Internet stocks. You do not just tell your broker to sell a billion dollars worth of stock.Instead, you must give an order to a large brokerage firms that basically says, You have three days to get rid of this stock… we would like to get at least $998 million for the stock. If you can get more than that, you may keep the extra as your bonus commission. The market then slowly sees a movement out of retail stocks. And as one fund moves out, another may see the big picture and start to move out as well, thus making the underlying movement even stronger.Furthermore, as the movement out of retail stocks gets underway, the same fund manager may give instructions to buy a billion dollars worth of Internet stocks, and the broker may have a week to fill that order. Gradually, you would see retail stocks moving down and Internet stocks moving up as one or more big funds shifts positions.And the net result is that the internal conditions of the stock market shift even though the major averages may not move that much. What is interesting for you is that you can learn to see the overall shifts in cash flow as the funds start to move money around. In fact, you can spot it quickly. And you could have a huge advantage because big money tends to move slowly, but you can move quickly. In fact, when you get good at observing the flows of funds, you can start making thousands of dollars each day at your convenience. (At my convenience? What a sales pitch! I’m not buying into it.)It is not that hard. We will show you just how to do it in this and teach you how to jump in front of the big guys in their trades. (Not difficult? People I don’t know what to make me rich in the stock market? What’s in it for them? Oh right, the overpriced fees of the seminar! I’m not interested.)

A foolish marketing update from Citibank:In today’s economy, it’s more important than ever to make smart decisions with your money. How you spend it. How you save it. How you manage it. That’s why we’re introducing this periodic communication with practical information to help you make the most of your finances.Do more with what you have.
You may not think you can afford to invest, but you may be surprised. Just by reorganizing your finances, you can find the money you need to get started. Uncover new ways to achieve your goals by reading…Citibank doesn’t get it… knowing not to invest is a sign of intelligence. Of all the times to say jump in, they want you to now stretch your budget to throw away money on “investments” precisely when earnings for many companies are down and not due to rebound for perhaps several years.The most exciting time to invest (buy stocks) was during 1995 to early 2000 when a fortune could be made in the stock market… or rather when a person had a chance of catching a significant move upward.Here’s a snapshot of multiple areas of the market.Strongest sectors:
Taiwan
Gaming
Networking
Homebuilders
RetailWeakest sectors:
Pharmaceuticals
Mexican Peso
Mexico
Regional Banks
UtilitiesNone of these sectors seems particularly interesting to investors. Global Water might be where I want to be… but not yet, nothing is promising in the near term. There’s no point in buying too early and waiting… Buffet isn’t bullish for fundamental reasons… and that should be a clue… don’t let anyone talk you into investing, not even yourself.