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Trading Is it rule paying less...?

Discussion in 'Shares' started by wdongli, 14th Jan, 2012.

  1. wdongli

    wdongli Well-Known Member

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    Is it a rule paying less...?

    You need cash flow for your livings, right? You need to leave some money as back up? You need to build your financial base for what you like to do or do nothing when you dislike or are bored to do anything?...

    Do you get all of these money from your market playing? If you could not do so what your cash inflow comes from? From your pension, annuities, or fees to predict future or any income for your labor value?

    Life and market is not very nice always to everyone. Most of us know one of the Great Speculator in 1900s, Jesse Lauriston Livermore. He at last failed to get more than what he paid and committed suicide.

    ***
    In the market as in the war, you could not put out all of your resources without better returns for more. It is a rule you have to pay less than what you get or at least to keep the same for what you get and what you pay for long term. All of market players have their own duties and responsibilities to build their own bond type investment when their nature bond, labor, will diminish definitely, if they want to be self-reliant even they could not get up for years or a decade.

    This is dream for most of market players to accumulate enough money but few really understand the rule "pay less than what you get!" TA is good tool to speculate in the market under some conditions. The problem is you could not speculate everything in the market. Too many TA guys oversimplify the complication of the market. Most of TA guys can twist the wisdom but never know how to use it.

    ***
    Too many TA guys when they admired what Livermore achieved, don't know what the catch of TA and speculation. Speculation needs more lucks than carefully buying and selling for paying less than what you get!

    Retail market players have been in market for more than a decade. Most of them acted as traders for quick money based on TA. How many of them lost their future financial basis? Have you been with OzeStock before 2007? How many traders worked there very hard then?

    Two busts in a decade seem enough to hit 99% of their participants down in the market. How many active posters there? 2 or 3 only now! What are they interested in? Personally provoking only and cry for the darkness in darkness. Why? Just one IT darling, ERG, had destroyed too many dreams about TA! The last few are those who live based on the pension or what they have got in their life.

    ***
    It is not the problem of TA but the market players. Any tools have their own catches. You don't know the catches and when they hit you, you just lose all. It is a lesson from my market experience. All of great losers are loser to set up their own mental framework. What is the consequences if the base is the air for your house?

    If you don't know the house should not be built on the air, you definitely are a loser even you are extremely clever and skillful, which just speed up your losing. Don't feel shameful if you could not make money in the market.

    However if you really want to make money you have to build your mental framework right, which needs efforts to change the behavior and personality. It seems a not achievable task for most of us! You have to beat down yourself who are full of primary instincts in your blood.
     
  2. wdongli

    wdongli Well-Known Member

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    Timing and price

    It is my conviction that a market player has to pay less than what the market would like to accept in normal time.

    1. Normal time in the market becomes less than normal due to the information highway which anyone can access.
    2. The overflow of information makes the guess more and more powerful to drive the market price up and down.
    3. However the price have to follow the value of business and economies, since at last all of the playing has to get enough money, resources. No value and no resource, no meaning for money to be there.

    ***
    There are times when the price is much lower than the value. Any spikes of prices could make overpriced environment. No one could afford to ignore the effects of speculation. No one could afford to cheer or cry at extreme prices.

    We have to know anyone if he places his emphasis on timing only, in the sense of forecasting, he will end up as a speculator and with a speculator’s financial results. Don't mistaken me. Speculation can get great return too but is very difficult to get balance between the speculation now and future bond building.

    Fully understand the reasons why most of market players fell very difficult to understand the distinction between speculation and investment. Most of us are the layman. As a matter of business practice, or perhaps of thoroughgoing conviction, the market as a whole seem believe they should devote careful attention to market forecasts, even no one really could predict the future.

    ***
    There are full of prediction words about where the market will go in the media and market. As a market player you can scarcely take seriously the innumerable predictions which appear almost daily and are his for the
    asking.

    However if you are a layman, you would like to read these prediction. In many cases you pays attention to them and even acts upon them. Why? Because you has been persuaded or believed that it is important for you to form some opinion of the future course, and because you feels that the service forecast is at least more dependable than your own.

    A great deal of brain power goes into this field, and undoubtedly some people can make money by being good stock market analysts. But it is absurd to think that the general public can ever make money out of market forecasts.

    ***
    Have you noticed that who will buy when the general public or crowd or warriors at a given signal, rushes to sell out at a profit?

    If you expect to get rich over the years by following some system or leadership in market forecasting, you must be expecting to try to do what countless others are aiming at, and to be able to do it better than your numerous competitors in the market.

    In the market, there is no basis either in logic or in experience for assuming that any typical or average market player or member of the crowd can anticipate market movements more successfully than the crowd, of which you are yourself a part.

    Internet and the powerful search engine make every news to be known by everyone in electronic speed. Withe the sensational words about what is or will happen, the crowd gets the tools to jump over fence for nothing even the collective consequence is not too bad after bust and great leap forward of the economies and business, which need to be over corrected.

    Why over corrected? The things are need to be done and get its objectives desperately or cheerfully. It is our instinct we tend to work hard to avoid crisis and get best return in peak. If everything is steady, people tend to do nothing and feel bored.

    ***
    Timing is of great psychological importance to the crowd or speculator or gambler because he wants to make his profit in a hurry. Who don't want big fortune in a few days? Who don't want to avoid the disaster to lose all? It is a matter caused by our instincts.

    Most of market players hate the idea that he has to wait for a year before his stock moves up. In a crash all of market players want to run away before anyone else, which cause great stampede and great losses of every one. In a euphoria of great leap up of the market, everyone wants to be there to get the more and more even the price increases always result in over priced market.

    Crowd or most of market players don't understand that a waiting period, as such, is of no consequence to the market players. Do you know the advantage is there when you are waiting until he receives some (presumably) trustworthy signal that the time has come to buy? We have to know we can enjoys an advantage only if by waiting we succeeds in buying later at a sufficiently lower price to offset his loss of dividend income or no dividend at all.

    In this sense, timing is of no real value to the market players unless it coincides with pricing, which is greatly underpriced or underpriced enough, unless it enables us to repurchase our shares at substantially under our previous selling price. The mixing of timing and price need analytical, disciplined, and self-reliant minds.
     
    Last edited by a moderator: 15th Jan, 2012
  3. wdongli

    wdongli Well-Known Member

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    Theoretically right and practical return

    We tend to twist words and try to sound right in the market. However it is different matters to be right theoretically and get good enough return practically. If you want to be right both theoretically and practically, you have to know the necessary and sufficient conditions about the right or wrong. You need to identify the conditions rather than pick up the timing based on the predictions.

    Dow theory, briefly, takes its signal to buy from a special kind of “breakthrough” of the stock averages on the up side, and its selling signal from a similar breakthrough on the down side.

    1. Its calculated, not necessarily actual results showed an almost unbroken series of profits from 1897.
    2. On the basis of the results, its practical value would have appeared firmly established.
    3. However the result to anyone who use it would actually depend on what he have done in the market.

    ***
    It was said the the results shown by the Dow theory changed radically after 1938. Since then this theory had begun to be taken seriously by market crowd.

    1. Theoretically before 1929 crash, it had given a sell signal, at 306.
    2. This signal should push its followers out of the long bear market
    3. Its followers should be out of the market until things had pretty well righted themselves, at 84, in 1933.

    However practically from 1938 its practitioners got out at a pretty good price but then putting them back in again at a higher price. They repeated this pattern and failed to get good enough return. In hindsight for decades thereafter, one would have done appreciably better by just buying and holding the DJIA.

    ***
    It is not accidental to see the theoretical right but practical wrong. It is an inherent
    characteristic who follow the forecasting and trading formulas in the fields of business and finance.

    Any formulas that gain adherents and importance do so because they have worked well over a period, or sometimes merely because they have been plausibly adapted to the statistical record of the past.

    But as the formulas become popular, their reliability tends to diminish when the underlying conditions changed. Generally saying there are two reasons:

    1. The passage of time brings new conditions which the old formula no longer fits.
    2. In market the popularity of a trading theory has itself an influence on the market’s behavior which detracts in the long run from its profit-making possibilities.

    The popularity may seem to create its own vindication, since it would make the market advance or decline by the very action of its followers when a buying or selling signal is given. A “stampede” of this kind is, of course, much more of a danger than an advantage to the public trader.

    So someone would like to say that you, if do, do first!
     
  4. wdongli

    wdongli Well-Known Member

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    Fluctuations and trends

    Most of retail market players come to the market since they want to get what they could not get from what they got used to. Market actions are types of exploration for future. There are too many things which most of market players just have not enough knowledge and mental power to deal with.

    Logically and in life experience it is not likely that the day-to-day or even month-to-month fluctuations could lead us to our destination in any fields else. However in the market most of market players believe they could do so by follow them for their financial destination. The flaws in logic just lead too many of market players cheerfully jumping into the market and tearfully leave from the market.

    ***
    As a market player, it is necessary to know the differences between fluctuations and trends for long term. It is not easy to know the differences. There will are a lot of practical questions which will pop out to present themselves, and the psychological problems, which are likely to grow complicated.

    We need to remember that a substantial rise in the market is at once a legitimate reason for satisfaction and a cause for prudent concern, which usually the case in ruins. However it may also bring a strong temptation toward imprudent action.

    1. Your judgment was right and your shares have advanced.
    2. So far so good.
    3. You are richer than you were, good!
    4. But your head could become unreasonable hot.
    5. The price risen too high, which worries you but also excite you.

    ***
    Should you think of selling? Or should you kick yourself for not having bought more shares when the level was lower?

    Have you thought about what happen in the market euphoria to yourselves? Have you thought its worst case? Should you now give way to the bull-market atmosphere, become infected with the enthusiasm, the overconfidence and the greed of the great crowd? Don't forget after all, you are a part of crowd. Would you make larger and dangerous commitments?

    The answer to the last question is a self-evident no, but even the most intelligent market players are likely to need considerable will power to keep them from following the crowd.

    Do you have this will power? If you don't have you would have serious trouble without matter how clever and knowledgeable you are!

    ***
    After two great busts in a decade, anyone if still active in the market, should know the challenge of the market for our human natures and primary instincts.

    However it is not all of us understand how powerful of our human natures to decide our future of life and market. In the ruins and with the ashes of burnt money, most of us have not enough courage and knowledge to challenge themselves.

    We tend to keep our mental framework as those which led us into the ruins but try to find external forces or ways for solutions.

    ***
    Most of market players who lost their shirts or money, favor to shift into some kind of mechanical method, such computer systems or stop loss or whatever they feel should work. People need to believe something and then could act decisively. That is the reasons why so many market players fail and google to try one after another mechanical ways.

    Most of mechanical ways are no-through ways in the market. But some would work in right hands. The chief advantage to use mechanical ways, perhaps, is that the formula or mechanical ways will give people something to do. As the market advances the believers of any system or mechanical ways will from time to time make sales out of their shares, buying back, and as it declines he will reverse the procedure.

    The challenge is not the mechanical ways themselves but what kind of people whom you are. Wrong tools in the wrong hands for wrong purposes would dig the financial graves for their owners.

    These activities will provide some outlet for the otherwise too-pent-up energies and enthusiasm. We have to say if we are the right kind of people we will take added satisfaction from the thought that his operations are exactly opposite from those of the crowd.

    ***
    Too many retail market players don't understand themselves and market vicissitude until they are hit terribly more than 2 times.

    Life to market is thousands of years but for a life of human in the market just about a decade if they were trained as professionals in the fields else. Often than not they would be wiped out by market before they could have the chances to build up a right mental frame works. That is the cruel part of the market and frustration for all of retail market players.

    The last decade has shown that it is not just possible for you to be wiped out from the market, but probable. It is quite possible that most of the stocks you own will gain at least 50% from their lowest price and lose at least 33% from their highest price. It is a matter regardless of which stocks you own or whether the market as a whole goes up or down.

    ***
    A retail market player, If can’t live with that or think his portfolio is somehow magically exempt from it, then he is not yet to be ready to play in the market as a winner.

    Please take a note: 50% gain takes a $20 stock to $30. From $30, a 33% loss or $9.90 drop takes it right back to $10 around, where it started. Most of retail market players tend to join the bull at peak and then they usually lost more than 50% and some times more than 90%.

    In the market you don't need to much mistakes but two of 90% losses in a decade would wipe you out of the market. Some traders admire what Livermore had achieved in speculation but ignore the fact he had to commit suicide! After all of your capital have been successfully wiped out from the market, you just have the energies to cry tearfully or stop what you don't want to see.

    No one wants to cry but when all of your hands are just full of the ashes of the money which come from that you worked hard for decades, what is the best choice you should take? Hara kiri is a issue which has frustrated Tropo for quite long time. Now I seem be able answer the reasons.

    Don't let you in a environment where you would be completely hopeless. You have to think about how to avoid any chances to be hit into the hell. In this sense it is a pleasant matter if you just need to cry loudly! If you want to cry please cry enthusiastically and then restart to update your mental framework.
     
    Last edited by a moderator: 15th Jan, 2012
  5. Tropo

    Tropo Well-Known Member

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    "Hara kiri is a issue which has frustrated Tropo for quite long time. Now I seem be able answer the reasons."

    The most frustrated thing to me, is to read your schizophrenic posts.
    Hara-kiri is the only option you've got left (as I said before).
    So, why don't you do it...
     
  6. wdongli

    wdongli Well-Known Member

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    Haha, Tropo, it is great to see your words. You read my post in very details. Thank you.

    Fully understand your frustration about my schizophrenic posts. I intentionally use Social English as a benchmarket for my mental framework updating. All of us need the time to fine tune for what we don't get used to.

    Hara-kiri is a very painful practice in my knowledge, which I try all to avoid.

    So far so good. Finished all of software architecture and system design for my project and now take a few days as a break and then jump to the next stage. I do enjoy with my old spade.

    I do feel I have leaped up quite much in building up my new mental framework especially after I read your kind words.

    We, all, are similar and tend to be happy only with the words which are what we want. I don't want the words which support me but a right mental framework to accumulate the fortune for what I like to do. I have only one enemy in the market, that is myself.

    I am still too primary in the market according to the human instincts. Hope I could not be so primary anymore! I have wasted two life opportunities in IT booming and that between October 2010 - April 2011. I have to make my mental framework ready for the next opportunity and never allow my head hot again!

    Happy New Year!
     
    Last edited by a moderator: 15th Jan, 2012
  7. wdongli

    wdongli Well-Known Member

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    Your relationship with others in the market

    No one can win in a war if he could not know enough about the relationship among the environment, the mates on his side, and how to cooperate with others to get his own direct and indirect goals for short or long terms.

    Market is in the constant fluctuation if not in crash or euphoria. The impact of market fluctuations upon the market players’ true situation may be considered also from the standpoint of the shareholder as the part owner of various businesses. It is a matter most of market players just ignore when they chase after the fluctuation everyday.

    Thinking as a businesslike market player doesn't need high IQ or very skillful in hightech as a genius. It just needs more wisdom and better mental framework for disciplines, analysis, and self-reliant.

    All of us know the holder of marketable shares actually has a double status,

    1. The privilege of taking advantage of either at his choice.
    2. His position is analogous to that of a minority shareholder or silent partner in a private business.

    What are his results to be shareholders? They are entirely dependent on the profits of the enterprise or on a change in the underlying value of its assets. Theoretically we all should determine the value of our shares, the net worth of the shares in balance sheets.

    Once we hold a piece of paper for shares, we can sell them in a matter of minutes
    at a price which varies from moment to moment. However the price in the market is not the copy of the value of your shares. The price often is far from the balance sheet
    value.

    Sometimes it is logic for the price up or down but most of time, they are driven by the external sentiment in the market.
     
  8. wdongli

    wdongli Well-Known Member

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    A prime important issue...

    There is a prime important factor in stockmarket, that is the whole structure of the share prices is built on its inherent contradiction. This contradiction can be explained as followings:

    1. The better or worse a business' record and future prospects, the less relationship the price of its shares will have to their intrinsic value.

    2. But the bigger above or less below the premium or discount about the intrinsic value, the less sure the basis of determining its intrinsic value.

    3. The more desperately or euphorically the market sentiment is, the more the price will depend on the changing moods and measurements of the stock market.

    This factor is important primly in the bust and euphoria. However it has received less attention than it deserves.

    Thus most of market players reach a final paradox, that the more successful or more desperate a company, the greater are likely to be fluctuate in the price of its shares.

    Generally speaking in a very real sense, the better the quality of a stock, the more speculative it is likely to be, at least as compared with the unspectacular middle-grade issues.

    ***
    Anything has its own catches in the market. A market player has to be cautious to be hurt by his own beliefs. No stock would become a sound
    choice for good return just because it can be bought low price or close to its intrinsic value.

    There are more elements need to be concerned whey you put your money into the market. You have to other elements such as

    1. the satisfactory ratio of earnings to price,
    2. the sufficiently strong financial position, and
    3. the prospect that its earnings will at least be maintained over the years.
    4. the lowest tail position in the probability distribution for a long enough time.

    The above may appear like demanding a lot from a modestly priced
    stock, but if you really want they are not hard to fill under all but dangerously peak market conditions.

    ***
    Do remember once we are willing to forgo brilliant prospects, such as better than average expected growth we will have no difficulty in finding a wide selection of issues meeting our criteria. Most of problems to most of market players are they don't understand the importance of these elements for their future finance.

    Have you remembered GFC and its following ruins. Nearly all of shares were crashed down to the level few could believe in 2007. In the bust of GFC a lot of shares actually sells below its tangible-asset value.

    Could the market drop down further? What do we need to do now? Cry in the ruins and believe everyone would commit hara-kiki since you feel hopeless? Could you build your own defensive line?

    ***
    Why are so many retail market players running away from the market. How much the price have dropped down? If any market player have all of his shares which are much lower than its intrinsic value, he can take much more independent and detached view of stock-market fluctuations than those who have paid high price corresponding to both earnings and tangible assets.

    Stocks' value are the earning power. As long as the holdings remains satisfactory earning power, their holders can give as little attention as they pleases to the vagaries of the stock market. Just assumed that at times he can use these vagaries to play the master game of buying low and selling high.

    Could you do so? You can but your mental framework must be changed and you have to lead your emotion to the place they could get return for you! Why do you stop loss? You make loss first even you do want the return.
     
    Last edited by a moderator: 17th Jan, 2012
  9. wdongli

    wdongli Well-Known Member

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    How to analyse what you should buy?

    In the ruins people tend to exaggerate what would happen. GFC was the second biggest crash since 1929 and it had played its parts to make enough people to feel hopeless. They believe if GFC could crash them down and then the future would be full of crashes in years. When too many people want to get chances to be alive, the exit is the only destination they rush to.

    1. XAO was 6200 before GFC, 3300 at worst time, and now 4200.
    2. EU debt crisis and the difficulties in all of nations' economies are extend of GFC.
    3. Australia has good economy and finance record and XAO is at the level just what it could get without resource boom.

    While most of retail market are the losers, how could you choose the shares to buy for future returns?

    1. Is it a big enough company?
    2. What's value of the preferred and common together? What's the market capital?
    3. What's its cash and working capital? What's the earnings? Is it improved or worse?
    4. Is it considered to be worth less than its current assets alone?
    5. What is the meaning of the current asset, which means less as a going concern than if it were liquidated.

    ***
    But why the market sell on so much discount?

    1. Were there any special tax benefit to the business? It tended to scare the market
    2. Where net profits had fallen off in the previous year? Market is fearful about it.
    3. Most important that the general market was depressed.

    When people in bad mood, all of good thins are in discount. Have you exaggerated some bad things when you feel very bad? We all tend to have exaggerated and eventually groundless fear.

    There are things which could hit you down forever and force you to take harakiki but most of things are temporary influences to you. The problems are we always fail to tell the significance of any matters in life.

    Would EU crash mean the end of Europe or Australia? We should have been well advised to scrutinize the picture with some care, to see whether we had made any miscalculations.

    But if the results of our study were reassuring, if we really do our R/D not just google for darkness, we were entitled then to disregard the market
    decline as a temporary vagary of finance. Of course unless we have the funds and the courage to take advantage of it, we should buy more on the bargain basis offered.
     
  10. DrJohns

    DrJohns Member

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    Are you drunk?
     
  11. wdongli

    wdongli Well-Known Member

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    Drunk? Quite possible! How about you? Very intelligent or genius? Do feel you are genius!
     
  12. wdongli

    wdongli Well-Known Member

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    Drunk if pay less?

    Market is full of insanity. A man, who is insane, never thinks he is.

    So if you say we should buy less and sell more for profit, you would be thought mad or drunk. So that there are plenty of market players, who are clever and insane and their insanity and cleverness make things worse.

    All of systems, if used just to stop the losses, sound like cars driven by the mad men. In the market as in the freeway, you have not break down the basic rules, such as taking U turns just because winding is stronger or weaker.

    Unfortunately a lot of men in the market don't know they are insane and they don't accept the fact they could not get any good enough return since they don't follow the basic.

    In the market crash, all of the clever men just want to sell. The fact is it is the time when new chances to buy less. If you believe it it good time to buy you should hold and be sure you can buy and sell wisely.

    I don't mind I was thought to be drunk anymore. Who could update their mind for new framework in the market? Very few since it means rebuilding a mature man. He has to struggle and could make more mistakes since he doesn't trust old and new is not ready!

    So if you want to update your mind and others thought you are drunk, it is normal and the mad and the wise usually think everyone else is stupid, drunk, or insane, even they could not base on the different facts.

    Whom do you think others are, is important in any sense in the market, but who you are! Not very long time ago, I do hit others' ideas in my way and ridicule others' stupidity, when I acted very stupidly and madly.

    Actually all of the losers in the market hit others' idea and thought others mad when they could not be mad any further since market always stops them by taking all of their chips from their table.