Trading No new year to warriors?

In the Christmas Eve of 1999, people said "Merry Christmas and Happy New Year" each other in every forum. Now no one would like to say so to others in every forum.

It seems everyone has used out all of his energy after long time crying in the ruins. Nearly all of retail market players are dumb now. They are in the pains, no idea about the future, and then no interest to the New Year and Christmas any more.

It is sad to see when the retail market players lost the money and also lost all of the cheers about life. If all of your experiences just get so much, it is sad. Why don't let you cheer up and say Happy New Year?

If you are alive don't be reluctant to say "Merry Christmas and Happy New Year!" We need hope more than the crying, don't we?

The cuts in GFC and this fluctuation need some salt for sanity. The market would die if it would not burst to another cheerful time? The warriors need to be consumed and then everything would be good.

Where the posters are? Are you bursting your winning or hiding your sadness in the pub or parties? Winning is nice but failure should not stop you to enjoy the life.

 

Three key elements in the market

In the market all of us want to buy something and get some excellent or good enough return. There are a lot of elements which would affect the future returns or losses.

1. Value

2. Price

3. market sentiment or emotion

All of shares have their own value. All of shares have various prices which is far from its value. In long term, price will run around the value. Market emotion could drive the price to extreme which is far from from the value or means or your expectation. The extreme could be zero price or price far from the value or means.

***
Intelligent market players always endeavor to answer the question whether it was too high for conservative purchase as market as a a whole or a special share. A clever idiot in the market will lose the shirt much quicker than your assumption always.

However most of market players think this question is an exercise in self-punishment. They tend to pretend they are mistake-free. It is wrong. A intelligent market players shall recognize his own weakness and when the market could be his days. His own days need to be waited and only come in if he prepares for them.

Why did I refuse to lock the profit in the early of 2000 or in this April? I have to admit I failed to question "was or was not the stock market was too high for sound investment.” In the light of the subsequent spectacular pulling back of the market, it may seem strange that it was by no means easy for us to reach a definitive conclusion but we just don't want to do any intelligent analysis.

***
2011 was a year of a complete debacle again after GFC. It was understandable now that GFC debacle even didn't lead the global economies into collapse but it has greatly changed the global economies. The V-shape recovery made a lot of hopes but could not let EU avoid the debt crisis.

Many of market players, who refused to lock the profit in April lost 50%-90% of their capital. XAO kept to make new low and tried to lead the world into the price area of GFCII. The collapse since April was disconcerting, if not disastrous, to many self-acknowledged market players and perhaps to many more imprudent people who thought themselves clever.

It was a discourse time. The future need to be viewed from different angles. After GFC, V-Shape recovery, and this debacle since the April. The followings are my concerns:

1. old standards (of valuation before GFC) appear inapplicable; new standards have not yet been tested by time; market would struggle in the bottom until EU issues have the outset, good or bad.

2. A market player must base his policy(protecting himself from serious mistakes, set up good enough cash inflow, buy at the price as close as possible to the lowest level of bottom, and calm down and let the head warm enough rather than put cold water into the head restlessly) on the existence of major uncertainties without guess too much.

3. The possibilities compass the extremes, on the one hand, of a protracted and further advance such as XAO back to 5000 or more; or on the other hand, of a largely unheralded collapse of the same magnitude since EU collapse, such as XAO back to 3300 or lower.

***
However speaking bluntly, 2011 price level is very low in historical view. All of returns from resource booming have been gone for XAO. It seems, if XAO could not make market players cheer or insane, it has less chances to hurt the market players as it did in GFC crash and the crash since the April.

If you just get your living based on your stock market return, it was very tough to feel good. Just realize now that

1. bond type investment should be the base of your finance and extend absolutely.

2. Bond should be the main source of your cash inflow.

3. What your average cash inflow is what value of yourself now.

4. If your average cash inflow before tax is $100,000, based on average base return of history, you worth about 1,666,667, without matter how clever or stupid you are!

5. If you want to add value for yourself, you have to extend your cash inflow.

Most of retail market players don't understand this basis of personal finance and when they chase the hot spot the fail to extend their bond value.

Why Livermore committed suicide? He was very successful to get money from stock market in his life but he failed to extend his bond value and allowed the storm to destroy his own bond value. Livermore's bond value was his plunging into the stock market, which has shown that his bond value was far less than people's belief. He failed to use his harvest to build his own bond without feeling the completely failure and he did feel he could not get what he has lost back, which was limited by age and natural law. He was very clever but not wise enough!

When the market moved in the way as he hoped, his gambling was very effectively since he had the guts to put himself into the hot spots. However when the wind against him, he could not use his bond to support his survival and feeling. He just felt he could not stand up to plunge himself into the market as before anymore. At 60s, a fatal hitting at his weakest point, he collapsed first.

***
Life is a matter to consume the resources. Market is a place to consume warriors. No warriors could win in all of wars. In this contrition type of market times, any one, if having no enough cash inflow, couldn't stay steady even the market would not crash heavily again.

Everyone would goes through the time periods as baby, kid, youth, middle age, late in employment or career or business. Everyone would see diminishing of labor value(the primary bond to everyone). Everyone has to extend the value of his bonds to compensate the diminishing of labor value.

In 2000, I had a choice to extend my property portfolio since my stock value increased from $10,000 to $400,000 temporarily, which should be locked and be used to buy another 4 houses(still could buy a house at about $100,000 in Perth then) with very affordable negative gearing. Unfortunately I didn't know the basic and gambled in stock market cheerfully!

Actually at April I had the choice again even I become more cautious in the market but I still failed to understand the basis again. I put my hope onto market again. I wanted to move the profit into 2011/2012 for tax manipulation legally. I just wanted to wait for another 2 months to lock the profit. However this two months were so crucial and at last forced me to pick up the spade again after I put it aside for three year. Whom could I blame? Me and only me.

Greed will ask your payment! Primary instinct needs the basic logic and necessary common senses to crash down! The more experiences you have, if the primary instinct could not be use wisely, the less chances you would have to build your bond basis.

Stock type of investment is lovely just only because it could give your chances to add value of your future bond value. If you fail to add value for your bond you would fail in the days not for you.

The primary instinct is very powerful and is a two-edge sword. Most of failure in the market is that the edge of sword cut ourselves when the market is extremely low and high!

Without matter you are dog or swan, the days could not be just for you always. Every alive things has his/its seasons. If you could not store enough resources in your lovely harvest time, you could not have a comfortable or enjoyed life when the days are not for you.

So if you feel your days are in and your harvest is good enough, don't forget to take them home and turn them into your bond type investment for your future cash income!

 

Basic policies in the ruins!

Market is cruel but fair. When you cry for "the poor become poorer and the rich become richer" in the market(it is not a place for social fairness), it doesn't show your kindness but the pains of your market failure or your failure to understand what market is. When you hold some books as handbook for life but fail to try being self- and environment-awareness and choose proper action to build your own defensive line, you fail to do any useful things for yourselves let alone others.

No one should conclude what market would work for him merely because he has a handbook for life. Any book could be read by a insane people for insane action to get the insane and pitiful consequences. It is so evident but in the proper time, such as each peak of stock market, few could find any useful of their handbook for life to save them from burning the money on fire in the crash of the peaks.

A market player must weigh the wisdom, logic, common senses, and his own experiences against the contrary reasoning they will hear from most competent and experienced people on the market for right and decisive conclusion. How many God believers kill each other for their handbook of life in this world?

***
In the end everyone must make his own decision and accept responsibility
therefor. However, if an market player is in doubt as to which course to pursue he should choose the path of caution and protection of himself in the market. If you twist the words, the market would twist you!

The principles in the market playing would call for the following policy under the current market conditions:

1. Get your cash inflow positive and sustainable

2. Hold your position if you could. Damages, if happened, have been done its most job.

3. No borrowing to buy or hold securities without carefully calculation how you could service it

4. You have to build your last defensive line in the case that market could be undervalue for years if not another decade ahead.

5. You have to make good enough return in this worst time for any new buying without losing any protection for your survival.

6. Turn good enough return into bond type investment or cash

7. Never follow any words, such as "buying and holding forever" in all of market conditions.

8. Buy after all of crying diminishing since the toughest bargain hunters gives up to buy!

9. Sell when the price comes up too much and become insane!

10. Change your behavior and mental framework.

11. If you believe you hold a handbook for life, be sure you understand the words onto the ground!

Bottom line: if any action just makes thing worse, don't move any bit! Tough to yourself and use the emotion wisely!

 

Be careful when you cry tearfully!

Just read words "you’ve got to be careful if you don’t know where you’re going, ’cause you might not get there." Now it is very dark and it is very easy to find the dark point to cry tearfully!

Crying is a normal emotional matter for anyone. Who never cry before? However if crying too long for anything, it is not good for your health and you have to be alerted and change the environment you got used to.

Crying is a kind of prediction in the market. If not predict worse future, no one could cry as babies. One lesson is that if you are intelligent you must never forecast the future exclusively by extrapolating the past.

Unfortunately, that’s exactly the mistake that one pundit after another made in the 1990s and 2000s. How many genius fell down in the valley of death along the way? Most of criers since the April were the same who cried in the IT bust and GFC crash. Insanity repeats itself and the similar scenes would playback again and again.

Crying tearfully means feeling hopelessness for future. However the things usually turns around when you feel hopeless. Of course if you never give up and would like to pay efforts for chances and change your behavior.

 

Past could not tell future enough!

All of us have seen the bull-market baloney but few have the vision to sell at the peaks. All of us have heard the crying baloney in the ruins but few could have the gut to find the light at the end of tunnel.

A intelligent market player need to ask some simple and skeptical questions. All of debacles happen after the market as a whole fail to answer these simple and skeptical questions properly.

1. Why should the future returns of stocks always be the same as their
past returns?

2. When every market player comes to believe that stocks are doomed and hopeless, won’t the market end up being wildly at its extremes?

3. Once extremes happen, how can future market would be cheerful or painful as what you could see now?

***
Wisdom, as always, is ****** in logic and common sense. The value and return of any market and business action is, and always must be, a function of the price we pay for it.

By the late 1990s and 2000s, inflation was withering away, corporate profits appeared to be booming, and most of the world was at peace. But it never meant that you could buy anything at any price.

Nothing could grow up to moon and nothing could be in hell if the world exist and people could live peacefully. Resource is limited and everyone has limited affordability. At last the return from any investment have to be limited by some threshold. Price could not be ridiculous low always since people always needs something for their life.

***
The most risky thing in bullish time is when market players focus on the market’s recent returns when they have been rosy, which will lead to a quite illogical and dangerous conclusion.

Too many expect too much in the good time and too many expect the more bloods shed from them when most of market blood has been shed out.

From 2003 through 2007, as the market rose dramatically from the IT ruins, all of the market turned to be euphoric and few could see the GFC was moving into their life.

There are the awful aftermath of any excess enthusiasm always. IT bust, GFC, EU debt crises, and 1929 all told us so. There are the excellent upward at last after each bust too.

***
All of experienced market players know should buy low and sell high. The internet and easy googling let everyone feels as expert to make money in the stock market. In practice most of market players often end up getting burnt finger if not burnt down dreams.

The logic in the market is simple without needs of high IQ: “By the rule of opposites,” the more enthusiastic market players become in the market, the riskier the market players would take. The less enthusiastic market players become, the safer the market players become.

In the euphoria no one think about the affordability. In the ruins everyone becomes sensitive for any bad news. The more certain they are to be proved wrong in the short run. Just heard "the Asian economies are decoupled from US economies, GFC brought every countries into trouble. In July of 2008 XAO was more than 6000 but in October and November it crashed down to 3300 around. When the retail market players cried painfully, the V-shape recovery was under its way.

Too many market pundits turned sourly bearish, predicting flat or even negative market returns for years. Some predicted the negative return would last even for decade. At extreme time, a market player needs to ask one simple question:

How calamitously wrong the “experts” were the last time they agreed on something, why on earth should the intelligent market players believe them now? A lot of market players here or anywhere else want to say something as experts but they just could not make enough return for themselves.

You should be alerted by any words which sound from experts. What self-reliance means in the market and life. If you are wrong it should be because you miscalculate the future probabilities.

Never and ever to trust any words without logic and too good to be true. Some predict US crashes and China tips off. Could you believe them who know all about US and China and how powerful self adaptability of the capitalism?

Don't forget most of experts even don't understand dogs have their days!

 

Three elements affect the performances

There are noises and signals for money usually are buried among the noises. It is critical to tune out the noise and think about the historical means of the stock market as a whole.

In the market there are three three factors, which define the average return or historical means:

1. real growth (the rise of companies’ earnings and dividends)
2. inflationary growth (the general rise of prices throughout the economy)
3. speculative growth—or decline (any increase or decrease in the investing public’s appetite for stocks)

As history shows that the real growth was about 1.5% to 2% (not counting inflation); inflation was running around 2.4%; the dividend yield on stocks was 1.9%. So, the performance in means of the stock market was about 5.8% to 6.3%.

So it would be reasonable to expect stocks to average roughly a 6% return (or 4% after inflation). If the market as a whole gets greedy again from ruins it will drive stocks back into orbit. An recovery tends to trigger the speculative fever temporarily, which would drive returns higher.

If, the market is full of fear, as they were in the 2008/2009, and that since the April, the returns on stocks will go temporarily lower than historical means. The higher the price shoots up the heavier the crash at last. The lower the price the more momentum the market goes back and over shoots.

The more and the longer the crying the future would be brighter if market is not at its end! It is true and logic of the market. The history replayed the episodes time by time.

There are too many clever people who stupidly believe they could beat down the basic or life logic. The reality is genius lost the shirts and gone forever from the market one after another with their handbook for life. They all fail to ask how lower or how higher the market could go with the limitation of the market laws.

 

Only one thing is sure in future

Too many people in the market like to predict future. The history has told us that the only thing we can be confident of while forecasting future is that we will probably turn out to be wrong. The only indisputable truth is that the future will always surprise us—always!

Were we surprised by the IT bust? I did. Were we surprised by the GFC brutal crash? Were we surprised by the V-Shape recovery? Were we surprised by the crash since the April? The corollary to that law of financial history is that the markets will most brutally surprise the very people who are most certain that their views about the future are right.

We need to be humble for our ignorance about the future. We need to recognize our limitation to predict the future. Every time when I tried to put my wish and will onto the market, I lost terribly. We need to be conservative which will keep us from risking too much since the future may well turn out to be extremely different from what we hope or predict.

So, by all means, we should lower our expectations and should take care not to depress our spirit. For the intelligent market players, hope always springs eternal, because it should. In the financial markets, the worse the future looks, the better it usually turns out to be.

A cynic once told us that “blessed is he who expecteth nothing, for he shall not be disappointed; blessed is he who expecteth nothing, for he shall enjoy everything.”

 

You decides your future!

I believe that whom we are makes our future generally. However in the market I never thought so before 2005. The market is not exceptional and whom you are would make your future.

The basic characteristics of your market personality determine your market behavior. Your behavior rather than your IQ usually determines what you hold and when you buy and sell.

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At one extreme, we have a lot of retail traders. They buy and sell based on the direction of the wind or storm. They tend to sell when the market is bad and buy when the market is high.

At the other extreme we have the experienced businessman. They buy and sell based on their calculation about the attractive purchase. They tend to buy after the market crashes and believe the crash itself with full of blood in the market would generate good chances to buy qualities at extremely low price.

They usually don't trust their own feeling but the historical means and margin of safety. The margin of safety is the gap of the price which is much lower than the means. They usually look as though they are out of date when the market is hot. Did you remember how many retail market players joked at Warren Buffett in IT booming time?

***
To human kind, there are some old and sound principles. All of the great debacles are due to the insanity that drives the market crowd breaks the principles.

Do you know that those who cannot afford to take risks should be content with a relatively low return from their savings? Do you know we have to compromise for what we want since the affordability? Sometimes I just wonder why these people cry for a house at $1,000,000. If you could not afford you just need to forget and try to find alternatives if you really need it.

A lot of retail market players don't understand their trading is a high risky cause. If you are not absolutely lucky, you would lose your shirts. How many traders in this forum or others else could get their living from trading? How many traders have to work hard to compensate their losses from the normal incomes?

***
How many people would like to be bargain hunters? How many bargain hunters lost their shirts in GFC and this crash since the April? We don't need to jump into the ruins of a burnt house to tell how bad the fire is. We could see how badly the people cry around a burnt house.

No winners would cry for others' pains!

A market player should be wise enough and should know the risks for his market playing. The rate of return sought should be dependent, rather, on the amount of intelligent effort he is willing and able to bring to bear on his task.

If you just want both safety and freedom from concern, you should forget to chase after maximum return which much higher than the market allows. “In many cases there may be less real risk associated with buying a ‘bargain issue’ offering the chance of a large profit than with a conventional purchase in the market.

***
One of my friends just wonder why I like the life logic and common senses. Chances need to wait and you have not make silly and basic mistakes. All of basic mistakes usually are fatal.

A lot of traders believe "stopping loss." They are right at most time but they just lose too much when they fail to stop the loss one time! Is it possible you could make human errors?

Some said their system make them free from the human errors. Do you believe that? I don't believe it anymore!

 

Balanced life? It is boring!

History said the sound reason to buy anything should be the appearance of the “bargain price” created in a protracted low demand. Conversely, good selling should happen when the demand becomes dangerously high. All would be recursive to means sooner or later!

These are copybook maxims. However as all of wisdom matters they have always been easy to twist and always difficult to follow. Too many market players don't understand that all of wisdom matters go against that very
human nature. Human nature would like to produce excesses of bull and bear markets.

All of us feel the contradiction in terms to a so called feasible policy for a retail market player: he sells and locks profit when the market advances beyond a certain point and buy and hold them after a good enough decline or crash.

The average man operates, and apparently must operate, in opposite fashion that we have had the great advances and collapses of the past. IT bust and GFC have made me believe: we would have booming and busts in future.

Just using our envisaging: a shrewd and experienced group of market players sell out to the heedless, hapless gamblers at high prices and buy back from them at depressed levels. The problem is that modern education system makes too many clever but no sense people.

Most of them are experts to get new ideas but don't have any sense about life and market logic! They don't want to be balanced since the balance means boring!

 

Profit, price, fade, and quality

All of us naturally want quick and big returns, which could give us the necessary resources to choose what we want in life. This is not wrong even often it comes with insanity and unacceptable greed.

Profit is the result of function of price, fade, and quality. Most of retail market players just have not the necessary mental framework to understand or could not act based on their understanding this function. They often than not put too much attention on the price movement in days but ignore all of other things. Fade can disappear in days. Quality often drive the price high when the fade favor them. Price could be over marked or under marked.

Generally by sacrificing quality we can obtain a higher income return but with the risk for us to be default; High qualities in their days always over priced; Fades are in due to the price up of some qualities could be seen by the crowd, which always means price has been increased too much; Too many paid too much in IT peak, the peak before GFC, and there are no too many doomsayers among retail market players.

Long experience has demonstrated that the ordinary retail market player is wiser, who would like to keep away from the market when the yield or return from the market is too good to be true. While, taken as a whole, these market players may work out somewhat better in terms of overall return than the first-quality stocks even these pennies expose the owner to too many individual risks of untoward developments, ranging from disquieting price declines to actual default.

At another side, it is true that bargain opportunities occur fairly often in lower grade stocks or pennies, but these require special study and skill to exploit successfully. These higher return and sometimes killing buying are possible but perhaps the high risk without patience, carefully analysis, and good enough protection, would damage more than the profit. Any successes to play the pennies need to identify the lowest points of the bottom in history and should be used with diversification and time average.

Too many market players are clever enough to twist the words, such as "stop losses" or "buy rumors and sell news," but they just could not understand the function of price, fade, and quality, have made we are prone to the mistakes in our buying and selling decision. When we say we should be disciplined, analytic, self-reliant, and intelligent, we just google to find the data which support our insanities.

Back to Engineering, which is the spade I have used for decades, I have to design the system from architecture design, analysis of different models to build the project, and designing the system from bottom to the top. No architecture design I could not be sure the implemented project would give me what I want. No detail design and debugging from bottom to top I could not get the enough confidence to get what I want.

In the market we do quite differently: we follow the doomsayers and clever hypothesis about the IT and resource without any our own opinions; we buy without understanding why the price is so low and how risky this or that share would be in default. All of us twist too much in words but we never put enough time to understand the function of fade, price, and quality.

Are you surprised for your failure and are you confident about your procedures to get in at the worst time from the function of the price, fade, and quality could give to you?

As market players you have to be less personal aggressive but intelligent and wise enough. So far in any trade and market forum I just find the insanity from the googling for what the posters want and believe. However life, market, and future never work as we wish but the function of price, fades, and quality. Most of experienced market players just get better to google for their personal feeling and post to pretend they hold the future handbook of life.

How about me? I am in a way to set up my mental framework to make me wiser even I tend to make more human errors than those who are very clever and experienced.