Trading Are you happy?

Are you happy in the market and life? Most of times I am happy but sometimes I am not. When are you not happy?

Long time ago, I didn't think about it since I didn't want to feel pains. Not long times ago, I started to realize I have to face it but times by times I wanted to avoid think about it. Now I want to use it as valuable alert signal to update my mental framework.

If you could not figure out what cause your unhappiness, you would make the things for your unhappiness in the market again and again.

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In life and market, the happiness of us depend on some internal and external factors. Someone said:

1. The happiness of those who want to be popular depends on others;

2. the happiness of those who seek pleasure fluctuates with moods outside their control;

3. but the happiness of the wise grows out of their own free acts.

It is not very good if your happiness depends on others. Do you really want to be popular in the market or work in dance to get your mental frameworks for your market personal legend?

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When you could not stop the influence to your happiness from others, you would do what others would do. When you do the same as others, you would lose the chances to think independently. When you lose the independence, you would lose the self-reliance, discipline, and analysis capability. So you need to avoid to chase after the popularity since market is a place you have to get high self-interests.

Some would say they just want to get the pleasure and it is all they come to the market. They do feel good if they could get the profit. It is great feeling after buying the price just shoots up again and again.

However after the price down, they could not be happy anymore. They don't have the power to control the price movement and when they follow the price movement, the market just tends to make jokes with them.

So most of retail market players tend to lose their happiness after they rush down to the hell after the whole market into the ruins.

 

Most of times Market is right!

We need self-reliant or independent mind but we should not stubborn fight against the market. We don’t want to prove we are right but we do want to see the risks and opportunities the market as a whole tend to ignore.

We want to find the bargains when the whole market is in overprice. We want to sell to lock the profit when the market as a whole become euphoria. We want to put ourselves at the position we would be much safer and if we are right we could get excellent return(even we have to warn ourselves these kind of opportunities are few!).

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We have to accept the fact that most of the time, the market is mostly accurate in pricing most stocks. There are millions if not billions of buyers and sellers who do a remarkably good job of valuing the business of the companies in the stock market on average.

We also have to realize that sometimes, the price given by the market is not right. Occasionally and regularly, the given price can be very wrong indeed. You need to identify this kind of time since once it happens, it lies the chances for true bargains.

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Once we are at such times, we need to understand what Market as a whole would do. Have you learnt something about crowd psychology? If you have, you probably would feel how brilliant the following metaphor is, which explains how stocks can become mispriced:

1. Market can be manic-depressive in bipolar
2. It does not always price stocks the way as we would value businesses.
3. Generally when stocks are going up, market happily pays more than their objective value; and, when they are going down, market is desperate to dump them for less than their true worth.

What does market do means risks and opportunities and you could not do anything to let market follow your will. Will market do so in future? Will market be bipolar disordered times by times? If in the last a few hundreds of years, market did so, we seeming can bet market would continue to do so.

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At the peak of 2008, RIO was priced at about $150 increased from $30 at 2003, increasing more than 700% in price. In a little bit longer than half year, its price dropped down to $30 after GFC crash, a 77% price loss. Resource booming made market believed that RIO’s value would be increased day by day before GFC.

What was going on at RIO’s business that could make its stock so valuable in 2008? The answer seems obvious: phenomenally fast growth in resource demand and huge profit from selling resources to China. If RIO could sustain its growth rate before GFC for just five more years, its revenues would explode and then the value.

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With such growth in sight, the faster the stock went up, the farther up it seemed certain to go. So market made its own cake, that was BRIC and Australia were decoupled from Western Advanced Economies.

However price could shot up but value has its forces to limit its range. The clever winding followers just bought RIO madly! Were you still happy to pay $150 for RIO at the end of 2008? No! Market and us swang to the opposite extreme in the GFC crash.

Did you think $30 was too little for RIO's value at the end of 2008? Were you happy to buy madly at $30? Market and most of us desperately wanted to sell then. The crash was so powerful and then RIO at $30 seemed do nothing in the resource booming.

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What did we see and what did we hear in 2008, the year of heaven and hell to most of market players? Before GFC crash market was in its wild love affair with RIO's shares and it was overlooking something about its business.

Do you remember what happened to some IT companies in IT booming and buts. Most of them was losing money. In their entire corporate lifetime, they had never made a dime in profits. But in IT peak, Mr. Market valued them ridiculously high. Did you remember OneTel? Had you excited by its rocket type shooting up?

As always and we know now, at the peak market tent to get ready into a sudden, nightmarish depression. RIO's price dropped down to $30 and OneTel closed the door. A unbelievable collapsing happens always after all of market want to pour money into something.

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OneTel went too far and closed the door. However most of business would continue in the crash and after. Had RIO’s business dried up? Not at all; Resource booming might take a pause but RIO is a excellent business. Market just asked too much for its value.

So what had changed, then and now? Only market’s mood: Before Oct 2008, market were so wild about the resource booming that they priced RIO so. At the end of 2008, however, market would pay anything at dramatic discount. Market always was ferociously trashing every stock that had made a fool out of it.

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Did market was more justified in its bad mood after crashing everything down in the market? Not at all. Market does the same swing in desperate rage than it
does in his manic euphoria. History had told us that RIO at $30 was very cheap. Who bought RIO at $30 perhaps has got his life bargains.

After GFC and the crash since April 2011, most of retail market players tend to cry for the darkness and would like to scare themselves for the unstopable disasters ahead. However when market crashed and makes stocks greatly cheap, it’s no wonder that sooner or later things would become better.

Don't forget the history in long term. It is helpful if we could refresh our memory and get the lessons for our future.

 

Think for yourself

A lot of market players don't know what market is!

Just in the ruins of IT bust, in Ozestock, there were group of guys, who could not get good enough profit individually and wanted to vote about what shares to buy so that they could form a team.

They said Australia had tradition of Mateship. You have to act for your mate. Two hands are better than one hands, which sounds very logic. However it could not work since everyone had his own cakes in the sky and a lot of people just voted based on the primary instincts only.

Now most of them disappeared after failure to get any profit. All of us prefer twist the words.

1. If you say you have to be disciplined and self-reliant, everyone would feel you are good boy.
2. If you say we have to be think for ourselves and make us richer, people would feel you are bad.

Actually no significant difference between these two types of words.

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Would Would you willingly allow a certifiable lunatic to come by at least five times a week to tell you that you should feel exactly the way he feels? Would you ever agree to be euphoric just because he is or miserable just because he thinks you should be?

Of course not. If you could be intelligent, make fortune in the market, the last place the capitalism defends its future, why don't you act independently and pay your tax legally. If you lose in the market, you would lose your responsibility too.

Some cry for "the rich becomes richer!" but never think about why "the poor become poorer!" The poor retail market players tend to buy at peak since they feel good. The poor retail market players tend to sell on fire when market is in ruins. How much money could be hold on the fire?

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You have to insist on your right to take control of your own emotional life, based on your experiences and your beliefs. It is not a new idea. I moved around the world before my 35 just of that.

However, when it comes to our financial lives, most of us let market chart tell us how to feel and what to do. Why do you google for news or comrades in the market and follow them without any analysis or not good enough analysis? What is your independence?

The fact is obvious in the past. From time to time most of us would be mad and hurt without conscience. I still could not understand why so many people would like to sell the stocks or houses when no one wants to buy!

If you really want to sell why don't sell happily in the peak with great personal interests and happiness.

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One of my neighbor, who came from Russia and has been in unemployment for nearly three years.

He could talk about how bad the world is becoming but he never wants to check what he could do for himself. He said he hate the rich who he thinks are too greedy but when I said what he would like to do for his kids or his loves, he seems surprise why I ask this question!

Not all of us could get big fortune but we all can do OK for ourselves if we really want in Australia. Most of times we don't know how to do the right things in the market and then when a tiny mistake takes all of our chips from the table, we just could not figure out what's wrong!

Think for yourself first in the market always! Act differently from the crowd. Try to lead their way. What is a good business? Would anyone be your competitors and then you could not get the chances to make money?

 

The cheaper the less eager to buy!

Most of market players are not happy now! Why? The cheaper the market becomes the less eager they want to buy. They were happier to buy when RIO was $150 than when it was $30! They were happier to buy when XAO was at 6500 but cry now when XAO is about 4200!

Why do they like to pay more rather than less? Partly it is because they
were imitating the crowd in the market, instead of thinking for themselves. They are too clever to predict the future from what they could see now! Is it insane? If you are insane you would be poor and will be poorer!

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When you choose the ways to be poorer, you have all of the right to cry and curse the "the poor become poorer." The problem is that if we post here, we want to be richer! When you curse the darkness, you could not be richer!

The intelligent market players shouldn’t ignore what market is doing entirely when you could sense the extremes. We should do business with market crowd and only do the business with it only to the extent that it serves
our own interests. What's your interests in the market?

1. Enjoy the euphoria when the crowd cheers for the grand party?
2. Cry tearfully when all of the things are crashed down by market?
3. Buy cheap and sell dear based on the value and margin of safety?

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What's the market’s job? It is to provide us with prices, not more or less! Do you know what's your job in the market? You have the responsibility to
decide whether it is to your advantage at some price, no more and no less!

We don't have to trade in the market just because market is so hot and constantly begs us to do so. It is easy you become the slave of market master. If we really are intelligent, we can transform us to be masters of the market.

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If you jumped into the stock market before 1999, you should know ERG, a high tech darling since 1988. Its price increased from $0.10 around to $3, drops down to $1 at 1996 around, and then shot up to $40(including splitting) in 2000/2001. 4000% paper profit in a few year.

As always the manic market changed its mood since March 2000. Since then its price crashed to $0.03 before it was delisted from the market. 99.999% of its market capital gone in a few year too.

Do you know Berkshire Hathaway, the investment company hold by Warren Buffett? It lost 26% in 1999, went up 26.6% in 2000 and 6.5% in 2001, then had a slight 3.8% loss in 2002.

 

Why are you not happy?

In the present market, most of market players are not happy. It is terrible to burn the money into ashes. Why did you make your losses and let you unhappy?

How much do you earn per week? How much do you burnt in IT bust, GFC, and current contrition market? After you lose so much how could you be happy even you could say money is not about everything. Have you wondered why you put yourselves into this unhappy conditions? Most of market players don't think it was his faults. However it was you to burn the money not everyone else.

As a market player, we have to know the primary cause of failure is that they pay too much attention to what the stock market is doing currently. They cheer when market is in euphoria and then when the unavoidable crash coming they were shocked to know they have got the unaffordable losses.

Why didn't you stop losses? Yes you did but how much losses have you got and why could you not lock the profit rather than take the losses?

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The last decade was the losing decade for most of the retail market players.

1. Have you allowed yourselves to be stampeded in IT bust or GFC?
2. Are you unduly worried by unjustified market declines in your holdings?

It was horrible to be stamped at the exit of grand party. To be stampeded in the market is perversely transforming any basic advantage into a basic disadvantage.

What does "basic advantage mean to you? We, as retail market players, have the full freedom to choose whether or not to follow the crowd in the market.

We don't need to worry about how miserable the market is now. We don't need to follow anyone just because they pay for our work. We have the luxury of being able to think for ourselves.

Could you be able to think about yourselves and your interests in the market? If not whose problem is it?

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Most of market players, big or small ones, usually have no choice but to mimic average market’s every move:

1. buying high when market is hot and hope hotter,
2. selling low when losses in the account, with the hope to stop small losses,
3. marching almost mindlessly in their erratic footsteps.

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It is helpful for small intelligent market players to know some of the handicaps mutual fund managers and other professionals have:

1. They have billions of dollars under management. They must hold the biggest stocks. They cannot buy dirty-small companies in the multimillion-dollar quantities. So they end up owning the same few overpriced giants in good time.

2. Crowd tend to pour more money into funds as the market rises. Big boys use the new cash to buy more of the stocks they already own to extend the base for their fees, driving prices to even more dangerous heights.

3. Market always drops down after booming. In the failure to get the quick money, the clients would ask for their money back, which forces the funds to sell stocks to cash them out. This forced selling to push the market down further and much more cheaper.

4. Fund managers get bonuses if they can beat the market, so they obsessively measure their returns against benchmarks. Hundreds of big boys would compulsively buy the new ones added to an index. No one wants to be looked as foolish. If the new ones perform well and they don't buy, they look foolish. If they buy but new ones work badly, no one could blame them.

5. All of professionals want to be specialized. They must buy only “growth” , or “value”, or nothing but “large blend” stocks. They could not hold if a company gets too big, or too small, or too cheap, or a bit too expensive, even if the manager loves the stock.

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So active and intelligent small market players have their advantages against the crowd who leads by the big market players. Unfortunately most of small market players tend to hold one assertion, such as dollar cost averaging to give up their advantage.

A small market player have no reasons that you can’t do better than big boys. The key question is what you cannot do despite all the pundits who say you can in the big boys' game. Most of big boys can’t win their own game as shown in GFC crash!

Why do you enjoy to play the game with rules set by others? Why don't you figure out the rules for your game and win in your games? If you follow the rules of big boys, you will lose—since you will end up as much a slave to market crowd as the big boys are but have no fees for your incomes.

 

You can only get what you can!

Why do you say I am greedy when I cheer in the euphoric market? Why do you say I am fearful when I cry in the money ashes after I burnt too much money in the market? Are they not the normal reaction for human kind to great good or bad things? I just do what a human should do!

However some of humans could do very well in the market? Of course some of them do so just because they are extremely lucky. Who could stop you very rich if you could get a lottery every year in average for 5 years? What if we are not so lucky and still want to be rich enough?

What's the intelligent market players should do or behave? Most of us just want to catch up with the upward winds but no any individual human could control where the winds swing to. We all want to get good results from what we could not control. So that when it moves against us, all of us are in the hells.

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What is the the intelligent actions or behaviors in the market? Actually it is all about do what you could control, which shouldn't have any questions for anyone in the life out of the market, but when we are in the market, we don't believe it any more.

We, as market players, have to recognize that playing in the market intelligently is about controlling the controllable. We can't control whether the stocks or funds you buy will outperform the market today, next week, this month, or this year; in the short run, our returns will always be hostage to the crowd of market and our own whims.

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In the life and market, we always have something which we could control or fine tune its courses. What could we control in the market and life:

1. We can control our own actions if we are intelligent, disciplined, analytical, and self-reliant.
2. We can control the cost to buy and never let the cost to run.
3. We could wait for opportunities which we have great certain that we would be safe for quite high probabilities of high return.
4. We could hold our position when the market thinks we are moving into the end of the world.
5. We could dollar cost average in ruins and, save and get cash positions before the market crashes.
6. We can control our expectations, by using realism, not fantasy, to forecast our returns. We could find the piled gold others could not see ahead and move straightforward to it.
7. We can control our risk, by deciding how much of our total assets to put at hazard in the stock market, by diversifying, by time averaging, by getting margin of safety, and by rebalancing
8. We can lock the profit before the peak or crash.
9. We can control our own behavior.

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There are too many market boys who don't know whom they are and what they could control. How many dogs in the market have tried enough to turn themselves into swans? If you are the dogs how could you live as swans?

So dogs just get what dogs can get even they dream to get the money to fly as swans.

Whom am I? A market dog with the desire to change myself so that I could not behave as the market dogs anymore! It is not easy and very painful too. I spent three years but still could not act as an intelligent swans in the market, so that when the market wanted to crash all of dogs down I was hit terribly too.

However I could feel the difference between me now and that in 2000. At least I know I should build up my last defensive line in the ruins rather than burning the money on fire and crying hopelessly.

It is not enough and I have to change my mind and then change my behavior.