Archive for March, 2010
“Michael’s courses at UCLA and the NYSSA clearly standout: First, his materials and techniques are based on the practical application of public data in testing ideas. Second, his willingness to work behind the scenes on any questions I had maximized my learning curve. Overall, it is very rare to see a successful trader take the time to share their hard-earned experiences.”
“I would like to thank you for the commodity course at UCLA. I appreciate your prompt and personable answers to my questions. I would recommend this class to anyone interested in commodity trading. I look forward to the next class.”
—-Terry H.Read More
I answered a question on LinkedIn the other day and I thought it might make sense to get a discussion going here or on Facebook.
Are contrarians and trend followers fundamentally different in how they view the market or do you think that a contrarian trader is simply a momentum trader thinking in terms of the 1st derivative of the market price time series?
Another way to look at the behavior of contrarian investors/traders is that they emphasize/discount a specific hueristic that the “crowd” is not and therefore seem that they are contrarian or going the other way.
For example, say the crowd is ultimately bullish on gold. One thing that a contrarian might focus on is the ability for a central bank to sell gold at today’s prices and act accordingly. The bulls know that central bank selling is possible, but the contrarian might have more focused or special insight on this potential phenomena…even if it’s only a gut feel.
It’s important to note that it’s not until AFTER the central bank sells that the msm will report that gold bulls/bugs got killed and contrarians made out well.
In my experience, contrarians are just men and women who can think for themselves and don’t necessarily think of themselves as contrarians, just unique in their thought processes.Read More
Michael Mauboussin of Legg Mason is a great thinker and writer. I’ve read his newsletters for years and I’ve read all of his books. Here he is during an interview with the The New Yorker on the release of his most recent book, Think Twice.
I’ve said that emotional intelligence and self-awareness make up the majority of trading profitably. I think Mauboussin’s work speaks to that and you’d be well-advised to read as much of it as you can.
Hat tip to Barry Ritholtz.Read More
Interesting article on Yahoo! Finance via Wall St. Journal by Brett Arends called The Turkey Principle. In it, he talks about buying stocks of your favorite places where you dump your disposable income:
For two decades, many private investors have been trying to get rich by blindly buying shares in their favorite stores, restaurant chains and the companies that make their favorite products. They were following Peter Lynch’s advice to invest where they shopped. Mr. Lynch, the former manager at Fidelity’s Magellan fund, made this notion the cornerstone of his 1989 best seller “One Up on Wall Street.”
During the bull market of the 1990s, investors did OK. But then, everything went up anyway. In the last decade the results of following this strategy have been mixed — or worse.
I agree with Mr. Arends. Immediately coming to my mind is the quote attributed to Paul Tudor Jones: Price moves first and the fundamentals follow.
- Many who invested in Fidelity Magellan (FMAGX) lost money while Lynch ran it. They decided to trade the fund’s shares.
- Investors who bought FMAGX the day before the crash in ’87 got the worst of it: they lost huge NAV and they got a tax bill on top of it for all the capital gains that Lynch took during the sell-off b/c he needed the cash to meet redemptions.
- People who buy AAPL b/c they think Steve Jobs is an incredible genius will lose money as investors.
- People who buy CSCO b/c it’s “the backbone of the internet” may need a chiropractor before they make any money.
If you are compelled to buy things that you know and love for whatever reason, you may be lucky and make money. But have an “uncle” point: a price where you’re out no matter what you think or read about the company. That’s in the best of times. You will really get hammered when all of your holding go south at the same time. In those times, cash is king.
Cisco Case in point
I owned CSCO for myself at the turn of the century (see chart above). I didn’t know a lot of the fundamentals, but I knew generally that Cisco was a major player in the internet space. However, despite what I thought I knew, or what the street thought, the price tells you everything that you need to know about a security. If everyone loves it, it will rise. If there is fear or people are scared about anything, they will sell.
I chose an uncle point at $75 for no other reasons that it was where I was willing to transfer the risk to someone else and take my small loss. I figured I could always get back in at a higher price.
Little did I know that it would never reach $75 ever again (and that’s 10 YEARS AGO!). Looking at the chart, I’m a lot happier being out at $75 than still in it (and my ego) hoping for it to come back. Hope is a wasted emotion in trading and investing. It doesn’t serve you unless you like the feeling of hoping all the time. Then I’d suggest you keep doing it until you figure out what the feeling is trying to tell you. (Like, learn how to better manage risk dude…)
During this time, Fortune magazine has named CSCO the #1 name it their industry several times. So when you hear some jackass MF manager say “we sell when the fundamentals change” don’t give them a nickel. Give them a grin, and firm handshake, and your other hand on their shoulder as you tell them “thanks for the wonderful insight.”
Remember what Paul Tudor Jones said: Price moves first, and the fundamentals follow. Always have a sell discipline, especially if you’re a long-only investor. True for stocks and mutual funds…and a way of life with commodity futures.
Staying in a losing position can mean several things, but 2 come to mind:
- You have a big ego and don’t like being wrong
- You don’t know how to manage risk at all
I have no positions in the securities mentioned in this blog post.Read More
Hillary Clinton telling Iran that the US is looking for sanctions that bite is like telling them they’re grounded and cannot go outside.
Sanctions don’t work as far as political threats are concerned in the Middle East. And as reported in Daniel Ammann’s new book, The King of Oil, Israel got 60-90% of its oil from Iran at a time that they weren’t officially recognized because it was in everyone’s interest to be business partners although publicly they had to “not save face” and remain bitter enemies, officially speaking.
So all this jawboning about Iran does nothing but keep the War Machine moving forward. Officially, the US wants to stop them from developing a uranium enrichment program. Iran is the second largest producer of crude oil in OPEC. They can go buy a nuclear weapon or dozens of them. Pragmatically, there’s nothing the US can do.
Iran needs to keep the oil flowing and they will…to China, India, and Russia. After crude oil, Iran’s largest exports are, ready for this, Persian carpets, pistachios, and saffron.
Secretary Clinton was quoted in the NYT article as saying “parts of Iran’s government are ”a menace” to the Iranian people and the Middle East.” Wow, that sounds a lot like the United States…parts of our government are a menace to me and you. We have a lot in common with the Persians from that standpoint.
“Clinton said that if Iran developed a nuclear weapon, it would embolden terrorists and spark an arms race that would destabilize the Middle East.” It might be me, but I think poking a stick in their eye emboldens them more than anything else. My guess is that they have them already, not officially, but instinctively or Top Secretly.
Politicians will get behind this because they are elected by their donors, not their constituents.
In the end, Iran will stare down the US and win.Read More