Trading After the Great Bull...

It is always that great bull opens the door to crash everything and everyone down in the market. It is a recurrent matter and everyone if knowing the history of the market enough.

In the great bull market, such as those in 1920s, 1950s, 1990s, and 2007, there were relatively little distinction was drawn between industry leaders and other listed issues. It was the time that all of genius and bums made some moneys.

In the bull, the crowd felt that everything was strong enough to weather storms and that it had a better chance for really spectacular expansion than one that was already of major dimensions. The depression years, however, had a particularly devastating impact on the companies below the first rank either in size or in inherent stability.

As a result of that experience market players have since developed a pronounced preference for things which look safe and a corresponding lack of interest most of the time in the stock market. This has meant that most of dirty cheap or blue chip have usually sold at much lower prices in relation to earnings and assets than have the former.

It has meant further that in many instances the price has fallen so low as to establish the issue in the bargain class.

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What happen after all in the ruins. Market players tend to be extreme cautious. The typical reactions of the market are:

1. Good news is bad news
2. Bad news is the sign to close the door
3. Excellent news is so so.

When the crowd feels hopeless, bargain hunters become the last things to be consumed by the market, which has all of the features of contrition war. Most of market players rejected any stocks, even though all has been sold at quite low prices.

In each forum, all you could read are words which are used to express
a belief or fear that the market would have only a dismal future. Everyone is so dismal that only the words about what is the worst in future could be found.

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In fact, at least subconsciously, most of market players believe any price was too high for them. The reason is simple since they believe that all of stocks in the market were heading for extinction or would drop down further.

Market crowd tends to go extreme just as in 2007/2008 before the GFC, it believed that the emerging economies are disconnected with the advanced world and BRIC could drive the world even no advanced economies. That was the reason when resource shares could stay at peak even on Sept 2008 until the global financial system seemed crash down to ground.

Both of these euphoria and depression were exaggerations and were productive of serious errors in the market playing. Actually, the things are not worse or better than the market crowd expects.

It is the vicissitudes characteristic of our economy and market but if the sky is there, the economies have to expand and bring a fair return as that in normal economic conditions. It is all about recursion to means.

 

It is about behavior and attidute...

There are too many genius in the market who lost or have being lost their shirts. Market crowd tends to go extreme since it is a game for it to get the quick money. They could not understand the life logic and common senses since the fluctuation is not what the matters would be met everyday.

The crowd is never disciplined so that it can do just is jump into the bull and consumed in the crash and the following ruins. They even don't understand in the ruins the most important task is to build defensive line and avoid any sale on fire.

The crowd tends to be unrealistic and consequently to create in normal times innumerable instances of major undervaluation. As it happened, most of people who dare to buy in the ruins or hold in ruins were more beneficial to the shares, which were assumed not to be survival.

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Once the things are worse enough, the market would get its turning points as shown in March 2009. The market would completely reverse itself from that in the GFC.

Most of retail market players and many self-called investors, have the
proverbial short memories. They just could see the ruins after the crash. However the pendulum of the market would swing around extremes, as it always did, it would move to the opposite extreme sooner or later.

How many market players really know the truth. Here we could read all of crying and cautions about the future. Have you asked yourselves what is better to buy at the peak before GFC and now?

The ruins have built the opportunities which could not see at the peak before GFC. Yes, these opportunities may be unable to see in days but how about in years? That is the reason why you need the defensive line and keep your positions when all just cry out of the market.

No one knows the future enough but life logic and common senses could help you to resist the primary instincts of the animals. Who are you? A human with the instincts as any animals have. Don't think so? You fail to know yourself. No self-awareness no one could get good enough return in the market even you are bloody genius.

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In the market all what you harvest are caused by the behavior and attitude. Crying in ruins and cheering in euphoria are mainly the behavior of most of retail market players. They would lose the shirts if they would stay in the market for long enough.

Why? They act as the cats without heads and they never know how to protect themselves when everything is good and greedy when everything is bad. Do you get idea why you believe you are genius but lost too much or could not get what you want?

Are there the people who get huge fortunes and cry tearfully in the ruins? If you cry tearfully now, something wrong with you not anyone else. In the ruins without efforts to build the last defensive lines, most of market players hand their future into the storms or winds.

When you are hopeless in the market, all you could do are crying as the babies without moms around them. A very pity picture, which let me tear pitifully! Human, anyway, you come from the animals, even you could do not too bad!

 

After crash...

In the bull, the trend is to push most of stocks into overvalue, the crow rushes toward the cliff. It is always once the overvaluation comes to its extreme the market tends to fall most heavily.

The crow and its cheerful insane posters everywhere just ignore the risks. At last all crash down to ground and then these insane posters just cry in the ruins. They don't understand their cheerful euphoria in the peaks is the seed for their crying. In some cases the pendulum swing may have gone as far as definite undervaluation.

If most shares tend normally to be undervalued in ruins, what reason if the market crowd or the warriors could believe that he can profit from such a situation? The crowd or warriors in the ruins are not completely stupid. What if the crash or market bust persist indefinitely? Could he not be in the same losing position forever? Who knows?

The problem is no easy or simple answer for quick money as always. Actually the answer is somewhat complicated. Substantial profits from the purchase
of shares at bargain prices arise in a variety of ways.

1. The dividend return from sound companies is relatively high in bust time since the price has been crashed down too low.

2. The reinvested earnings from sound companies are substantial in relation to the price paid and will ultimately affect the price.

3. In a long enough time these advantages can bulk quite large in a well-diversified portfolio.

4. A bull market is ordinarily most generous to low-priced shares; thus it
tends to raise the typical bargain issue to at least a reasonable level. Nearly all of my friends just could not figure out why I could get $100,000, $200,000, or $400,000 paper profit even I have to admit I tend to be insane when the air is very hot and paid back the paper profit.

5. Even during relatively featureless market periods a continuous process of price adjustment goes on, under which bargains that were undervalued may rise at least to the normal level.

6. The specific factors that in many cases made for a disappointing record of earnings may be corrected by the advent of new conditions, or the adoption of new policies, or by a change in management, or by successful significant discovery or breakthrough, such as FMS and PRR.

7. Big companies take the acquisition of smaller companies, usually as part of a diversification program. In these cases the consideration paid has almost always been relatively generous, and much in excess of the bargain levels existing not long before.

As always, the crowd and the insane members of the crowd could not understand the complication of the market. They just cry the darkness in the darkest time. Once you read the crying posts in some excellent English, you would wonder what's the waste of the talents? Why don't use your brains more creatively? Why don't google to find your turning points?

These genius deserve to lose the shirts since they just could see what happen now! Me? I just could hear the music in the euphoric party and become greedy. $400,000, $200,000, ... were not enough. I want much more. It is insane. Do I know it before? Since 2004, I have known it but frankly saying I still have not got my mental framework right enough to balance the risk and profit.

Human, if you could not lead your primary instinct to the right place and carefully look after it, you would fail! Genies in the market? They lose their shirts when they are insane too.

 

Market needs the rules and principles!

There are things which are basis to get good enough return or losses in market. It is the rules and principles based on the life logic and common senses. It depends on choices by the market players without matter what and how they want to achieve in the market.

If you want to be a full-time market player, you must have a considerable knowledge of security values, at least enough, in fact, to be sure his security operations as equivalent to a successful businessman. There is no room in this philosophy for a middle way, or degradations, to anyone in the market.

Most of market players, especially retail ones, seek to place themselves in such an intermediate category; Anything in the market means a compromise except the rules and principles. Anyone who compromise in rules and principles is more likely to produce disappointment than achievement.

No one can soundly become “half a businessman,” expecting thereby to achieve half the normal rate of business profits on his funds. Market is fair and cruel and if you are wrong at anytime and any place, you have to pay the cost. How many times you could lose all of your principal capital in the market just because you buy at the peak and lose control in a few months?

All of market players should elect the defensive classification. They do not have the time, or the determination, or the mental equipment to embarkup on investing or speculating(owners of little Casino houses in the market) as a quasi-business. They should therefore be satisfied with the excellent return now obtainable from a defensive portfolio (and with even less), and they should stoutly resist the recurrent temptation to increase this return by deviating into other paths.

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If you are a businesslike market players, you may properly embark upon any shares or any market since you have got enough training to get your business have a go.

You may be very disciplined, analytical, goal driving, persistent, and self-reliant to target the piled up ahead in future. You know how to get wise judgment and how to work on dance for sufficiently promising when measured by established business standards rather than the guess of the winding and storms. You don't cry when you feel difficult and never are euphoric since your head is hot.

As a businesslike market player you have your caveats, which let you attempt to apply such business standards. You know no money is free and could be got quick always. You never dare to forget you need to run your market playing with underlying safety, simplicity of choice, and promise of satisfactory results, in terms of psychology as well as arithmetic.

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The bottom line for a businesslike market player is "he will never let cost run and any individual failure ruin his future." He never pay at “full prices.” He never allows his head to be cold or hot with the market sentiment. What's the full price? Full price mean prices close to par for bonds or preferred stocks, and prices that represent about the fair business value of the enterprise in the case of common stocks. Full price means the market bull has driven the price much higher than the historical mean. Do you understand what is historical mean?

Did you buy RIO at $135? If you did, you paid too much for a excellent business and you failed to be a businesslike market player.

Most of market players hate dirty cheap fishes since they have been burnt by them. However it is wrong to avoid anything or accept anything regardless of price; The businesslike market players would like to buy anything only when obtainable at bargain prices. What's the bargain price? It should be the prices not more than two-thirds of the appraisal value of the stocks or their historical means.

Could we trust the appraisal value or historical means? It is the skills we really need to get for our future. How about to google in the internet for crying or cheering? They are the cleverest ways to kill the time and if you play in the market with the real money you would be losers!

Have you asked how could you make yourselves as businesslike market players? Nearly 100% of retail market players just feel but never think! They don't mind what they do but what they get or lose even they lose always.

 

you are not good enough

Someone said "It requires a great deal of boldness and a great deal of caution to make a great fortune; and when you have got it, it requires ten times as much wit to keep it."

Most of market players are fearful and greedy and then most of them have not chances to get good enough fortune and even they are lucky in one time but they could not have enough wit to keep it.

Have you got enough fortunes? Have you kept your fortunes for long enough time? If not do you know whom you are and how could you pretend you are experienced market players and using crying words to show your cleverness?

The fact is that you are not good enough! How could you be good enough?

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In an ideal market, all of us would hold stocks only when they are cheap and sell them when they become overpriced, then duck into the bunker of bonds and cash until stocks again become cheap enough to buy.

In the reality, all of us would sell stocks on the fire and buy back at peak. In the ruins, one often tries all to cry hardest. In the peaks, one often is so cheerful as though he holds the world.

Our instinct is designed to lose anything we save hard from our salaries. So too many save for life and lose all at one time. They want to average saving in life but they fail to pick up the turning points.

How many have lost too much in IT bust and GFC ruins? Too many! Unfortunately too many didn't learn anything but google for what they want much more quickly without realizing they just could get garbage without selection.

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What they choose? They choose too many such as the Handbook for life but they really don't get the idea that before their mental framework changed, no HandBook for Life available for them. Anyt tiny misunderstanding about the life logic and common senses would result in disasters in the market and wars.

Why have so many God believers killed each other in human history? Why so many market genius lost their shirts? They believe and calculate the future based on their biases. They kill others or their own money under some glory or glowing flags.

You have to be bold and cautious. Bold to get the fortune with carefully calculation for what you want, and Cautious to prepare if you are wrong you are still OK and once you find you are wrong you can move into a position to build your defensive line.

No mercy to tears in the market without matter how well you perform to cry tearfully.

 

Only can be understood backward...

All of us want to know where the future market will go. However few really could know the future enough. As someone noticed that life can only be understood backwards, but it must be lived forward.

When we look back, we can always see exactly when we should have bought and sold. But we should not let what we see in the past fool us into thinking we can see in real time. We just don't really know when to get in and out. All of systems take too much short cut into the future.

In the financial markets, hindsight is forever 20/20, but foresight is legally blind. The key is to figure out the possible scenarios and get ready for different what ifs. We should put the focus on our goals, direct or indirect ones and find the ways to be sure we can get the direct goals.

What's your direct goal now? Don't be consumed by the contrition war by setting up my own defensive line in the market and if something really dirty-cheap in the historical bottom channel, buy more.

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Long time ago, I read the words from W. Buffett: bought great companies at reasonable price. It sounded great but what the price is reasonable one?

The market has told me that the reasonable price for big and great stocks doesn't come when they are at their most popular, but when something goes wrong.

At lower price when they become unpopular, some of them might once again have got more room to grow. This kind of temporary unpopularity can create lasting wealth by enabling us to buy a great company at a good price.

Is it logical observation?

 

Put all of eggs into one basket...

We all have some biases. Standing at different places, one assertion can be right or wrong. Where should you put your eggs?

1. Some said you should not put all of your eggs into one basket, which is hanging on a fragile branch of big tree.
2. Some went a little bit far and said you should not put all of your eggs into one basket under any conditions!
3. In the first case, it seems right. In the second case, it seems go too far.
4. If you have a very strong basket and it stays in your most safe castle, it seems wise to put all of your eggs into it and look after it all of the time.

Some wise people said “Put all your eggs into one basket and then watch that basket,” and “Do not scatter your shot. The great successes of life are made by concentration.” The really big fortunes from common stocks” have
been made by people who packed all their money into one investment
they knew supremely well.

Looking around nearly all the business people focus on their own business only. All of fortunes has been dominated by fortunes controlled by some very focus people. There are a lot of clever people among the retail market players but they just could not focus on anything. After they spread their limited capital, they just could not accumulate enough fortune to compensate their human errors.

However, almost no small fortunes have been made this way or have been kept by retail market players. What single basket believer neglects is that concentration also makes most of the great failures of life. By keeping all their eggs in the one basket that had gotten them onto the list in the first place:

1. In booming time all the other original holders fell away.
2. When hard times hit, none of these people were properly prepared.
3. Most of market players could only stand by and wince at the sickening crunch as the constantly changing economy crushed only basket and all their eggs.

 

How to do in fluctuation?

In the market, everyone has to deal with the price fluctuation. All of shares are subject to recurrent and wide fluctuations in their prices. Each of us is interested in the possibilities of profiting from these pendulum swings. That is not a issue but how we try to profit could mean differences.

There are two possible ways for us to try profiting from the market pendulum:

1. the way of timing and
2. the way of pricing.

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What's meaning by timing? It means we endeavor to predict the action of the market. We want to buy or hold when the future course is deemed to be upward. We want to sell or refrain from buying when the course is downward. Actually most of retail market players try all to timing the market.

That is why they prefer TA or Stop Loss. That is why they prefer using their burnt fingers to burn more money on the fire. Usually the market players who believe timing, don't care about the underlying value. They don't understand the price at last lead by the underlying value. They play the effects with the believe they hold the causes on the corner.

All they do care about are buying and selling based on the course of the wind or storm. They tend to jump over fences quickly and very quickly until they turn to be dizzy and lose their shirts. TA guys tend to believe they are genius but never learn anything from the fact: The last decade was that Genius fell down miserably!

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What's about by pricing? It means the endeavor to buy stocks when they are quoted below their fair value and to sell them when they rise above such value. A cautious market player who put time and efforts by price, tend to be less ambitious for pricing.

They don't ignore the market sentiment and know the market would underprice everything time by time even they refuse to predict when these times are. They are excited when the market support line is broken down. They tend to get different views of the underlying business and buy the shares with margin of safety.

They believe they have not to let the cost run as any business. So that all of their effort are to make sure that when they buy they do not pay too much. They don't refuse the timing and would like to see a share is underpriced regularly even they don't believe it is market normal.

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Why do I build my last defensive line? Chart is useless since a bust can take one year longer very easily. We could not be survival without cash in hand for a year. TA guys should jump out of the charts times by times. In most of time persistence is the necessary element for big enough fortune. Chart may tell you everything in the past but it could not tell you everything in future.

Usually by price means patient and discipline. You could not buy thing at bargain price always. Usually by timing you don't need to be analytical, disciplined, and self-reliant, since you have to trust the Support and Resistance line. After the crash all of your support lines have been broken down, logically you have to sell on fire since you paid the price at peak.

At very beginning I just could not understand why TA guys try to cry loudly in the ruins. Now it seems clearly: They want to stop loss but the crash make the price drop much lower than their stop loss price when they just hesitate for a few seconds. They could not hold since all on the screen are red. When they feel the support is there and jump in, the market crashes again and then they lose all of the energy and capital to jump over the fences.

TA guys tend to be the cat without head in the market bust. Once they burn the money on fire, they tend to close their trading business painfully and silently. How many TA guys have left the market forever? It was the reality of the last decade. Don't think so? I bet you just talk for talking and never play with TA before.

To most of TA guys, genius and bums, the market as a dormant volcano when they cheer for the breakthrough of resistance lines since some great support lines would be broken out sooner or later. Once their great support line is broken down, they would just have the chances to cry tearfully in the erupted volcano if they could be survival in the market!

If you are being burnt or are burning your own money on the fire of market volcano, what charts could save you? It is self-cheating when you tearfully cry for the fire and damage you tell us chart is all for your future and winners in the market!