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Trading Panic, gold, and safety heaven

Discussion in 'Shares' started by wdongli, 19th Aug, 2011.

  1. wdongli

    wdongli Well-Known Member

    31st Mar, 2010
    Another panic selling day in US and Europe!

    Another day for the warriors desperately run in the ruins of the stock market. There are too many warriors run away first and think second.

    What will your day be tomorrow? Would you join the panic selling? How many more days for the panic selling? How much money could you burn in the panic?

    I hate to burn the money on fire! I will not sell on fire at least not the day when herd is in panic!

    Selling the winners are painful. I am happy I could have the gut to sell the winners when the selling took pauses.

    I could not correct my mistakes I have made but I should try all to avoid new mistakes.

    How low could this new panic be?

    What should I buy at what price?

    Could XAO lead the crash again and touch the lowest part it made in GFC?

    No stimuli would be like those in GFC. Gold is up.

    Market always surprises the warriors! Could it crash everything down but let gold shoot up into the sky?

    Still have not got enough cash in hand. But what if XAO would get 3300 again? Could gold shoot up to $2000? $2500? or $5000?

    Would gold hopeful be in the ruins as the wing broken swans always?

    I would hold my cash very hard with the hope gold could shoot up my gold hopeful in surprises!

    Something should be bright at any given time. What black swans would hit the market and you?

    Fear was there. Panic selling is going on again. Capitulation could be felt in XAO but has not get its end. Despondence need more hitting.

    Ultimate bubble need displacement. Do you know what displacement is?

    Displacement is generally an exogenous shock that triggers the creation of profit opportunities in some sectors, while closing down profit availability in other sectors. As long as the opportunities created are greater than those that get shut down, investment and production will pick up to exploit these new opportunities.

    Investment in both financial and physical assets is likely to occur. Effectively, we are witnessing the birth of a boom. “A new confidence begins to germinate early in this period, but its growth is slow.”

    Herd mood about gold would change if the gold price just keep to up while all of others crash down. You could curse the bubble but when it comes in the herd would make the new theory to make the bubble sound rational!

    Is it the time for gold be in brightest in the darkness?

    In 1974, no too many people could see gold could be priced at $800. Now it is still too early to say that herd would jump for gold and gold hopeful. But gold price if high enough, could trigger the herd to jump for gold.

    Under some conditions, people could image anything! The imagination could push the things into the extreme.

    I have spent more than 3 months to sort out my mind for my mistakes. The herd should be much worse than me theoretically!
    Last edited by a moderator: 19th Aug, 2011
  2. Johny_come_lately

    Johny_come_lately Well-Known Member

    1st Jul, 2009
    SE Queensland
    Overseas markets have dropped 4.5 - 5 percent. I don't think it will be a fun day for Australia today.

    Johny. :(
  3. wdongli

    wdongli Well-Known Member

    31st Mar, 2010
    The way for warriors to be deep depressed

    Market is canny and cruel when it plays in the bottom. Bargain hunters are the last target to drag onto the slaughter table. It is a attrition war to grind any resistance into powders.

    In this sense, bottoming is a process, not an event. The new market plunge shows it very clearly. Have you put enough capital in the market? If yes, don't hurry to put the new capital into this market until DOW crash another 600 points. XAO has shown its worries and put its price below 3900, which could be true in quite high probability!

    I have capitalized too much in this bear market. If it just is at its bottom, I have done my job and I just need to hold them for some great recovery, which should happen after the November. If DOW would be lower than 10500, it should be much lower than that, such as 9000. If it could lower than that, I will buy more.

    September and October is extremely risky historically. It is quite possible the shorters would use all events and the fears to push the market down further during this period. I don't worry that the market are trying to put his feet on the rock bottom but I do want to buy more if it makes new great low.

    There are two scenarios: lower and bottom out or bottom out from where they are in two months.





    VIX is the gauge of the market fears. It has been shoot up just for about two weeks. It could make new high in next two weeks or a month. A good sign is that it is still at about 40. If it could come down to 30 again and stay there for one month, we could say the bottom is there even it seems to late for people to get the lowest position in the market.

    In my case, I have exposed more than 85% of my capital in this storm. It is still my priority to get more cash into my vault.

    A very interesting question is if DOW crashes more such as lower than 10,000 where would gold go? Since 2000, too many people failed to predict the Gold crashed down. Is it too high now? Looks so but if you think about the over printed money size, debt crises, inflation, and the stagflation risks, you may wonder what height is really high. Seriously saying I really don't know!


    I hope DOW and XAO are at the rock bottom and feel it is high likely. However we need to be roughly right rather than absolutely wrong in this bearish market. One of my friends disliked I sold my bkp. My point is that winning is never a problem but no cash and selling on fire are the fatal problem.

    What if gold up to $2000 and what Dow and XAO would do? Selling of the BKP has given me the cash reserve for more than 10 month living expenses and then I could hold my gold hopeful until the storm passes by. Don't trust your feeling too much. Something could be hot and red hot. I just could not feel gold is in red hot.

    If I didn't sell BKP, I would have nearly 100% chances to sell on fire, which was the risks I could not afford. What if gold shoot all of my gold hopeful into the sky when I am in good and deep sleep? Don't feel upset for these words which is one possible scenario in future and my guesswork only! What is the black swans for? To surprise us!

    Now I could have good sleep and don't worry the storm could be stronger and stronger if the sky is there for each day I wake up!
    Last edited by a moderator: 19th Aug, 2011
  4. wdongli

    wdongli Well-Known Member

    31st Mar, 2010
    Simplicity is beauty, right?

    In the market, all of big losses come with some complicated guesswork and assumptions. All of big profits come with some vital few, right judgment, decision, and actions. Simplicity is beauty but we tend to have too many tiny and impure feelings in running our market business.

    The road to run a successful service business in the market should be simple strategically which could be scanned everyday to be sure we not get lost. That is to say if our road is filled with dangerous turns and giant potholes, we never forget that simple logic and arithmetic about risk and return can enable us to moderate those turns and avoid those potholes.

    So do your best to diversify and time average in the degree you can to filter out the errors of your probability calculation or calculated risk for your business profit.

    1. Minimize business expenses;
    2. Focus emotions where they cannot wreak the kind of havoc that most other people experience in their market war programs.
    3. Rely on your own common sense.
    4. Emphasize all to keep portfolio in no loss position when market is in sale on fire.
    5. Get your bottom line target first, your labor value every time when you are in the market
    6. Once the bottom line target is in hand, extend the profit probability in the risk scope you could afford.
    7. Carefully consider risk tolerance and the portion of your capital or asset you allocate to equities.
    8. Then stay the course with trustful process for best behavior

    Once you feel you can behave as a man in the market, you have to extend your skill and your business. Market is a war place and you have to put your mind and heart into it for a successful business. Once you feel bored, euphoric, or desperate, force you out of the market until you feel you get your work mood back!

    How to make the decision simple(not easy) when gold is up and stock market is in havoc?

    1. Is it good to hold some gold hopeful or producers?
    Yes, but the price should be reasonable or dirty-cheap, right?
    2. Hold some positions in the stock market at very cheap price. The sale on fire should be the best way to make the price in great discount.
    3. Market could be worse than anyone's or system's calculation. Calculation can be wrong but we should not be wrong to lose the shirts. I lost part of my shirts in this bearish market. Bad example.
    4. Cash is king in all of the time especially in the troubled time. No trouble made to others and yourselves need you act as businesslike people. So don't fight for your feeling, ideas, and glosses! They are nothing in the market!
    5. Repeat what you believe you have to follow. Let them into your brains and bloods. Let them work with you once you put your feet into the market!
    6. Don't let system harness you but you have the process to check the application condition and necessary operational steps for any tools or systems.
    7. Once we could tell how to pick up the system and operator with big enough profit, we could hire some genius for tools and systems under the vision, mission, value, and plan you have developed for your business!
    8. Business should be the integrated control system for a smooth and trustful profitable production and service!
    9. You are the central processing chips in your business not anyone else. Me? No! Business is business!

    By the way please note the financial market seems try very hard to make new themes for gold, which is the necessary preparation for its ultimate bubbles. Don't confuse yourself and could not tell difference between the preparation and burst of the ultimate bubbles. It is necessary to understand:


    Which stage is gold at? It is still in displacement and possible put its feet into the stage of create the credit for people to hold gold! The special feature is this time government in emergent economies seem lead the way! When would Western IT-filled minds or government would like to hold gold again? I don't know!

    Displacement—The birth of a boom

    Displacement is generally an exogenous shock that triggers the creation of profit opportunities in some sectors, while closing down profit availability in other sectors. As long as the opportunities created are greater than those that get shut down, investment and production will pick up to exploit these new opportunities.

    Investment in both financial and physical assets is likely to occur. Effectively, we are witnessing the birth of a boom. “A new confidence begins to germinate early in this period, but its growth is slow.”

    Credit creation

    The nurturing of a bubble. Just as fire can’t grow without oxygen, so a boom needs credit to feed on. Monetary expansion and credit creation are largely endogenous to the system. That is to say, not only can money be created by existing banks but also by the formation of new banks, the development of new credit instruments, and the expansion of personal credit outside the banking system.

    During this phase “The rate of interest almost uniformly low. . . . Credit . . . continues to grow more robust, enterprise to increase and profits to enlarge.”

    Everyone starts to buy into the new era. Prices are seen as only capable of always going up. Traditional valuation standards are abandoned, and new measures are introduced to justify the current price.

    A wave of over-optimism and overconfidence is unleashed, leading people to overestimate the gains, underestimate the risks, and generally think they can control the situation. The new era dominates discussions, and Sir John Templeton’s four most dangerous words in investing, “This time is different,” reverberate around the market.

    “There is a morbid excess of belief . . . healthy confidence . . . has degenerated into the disease of a too facile faith. . . . The crowd of . . . investors . . . do not, in their excited mood, think of the pertinent questions, whether their capital will become quickly productive, and whether their commitment is out of proportion to their means. . . . Unfortunately, however, in the absence of adequate foresight and self-control, the tendency is for speculation to attain its most rapid growth exactly when its growth is most dangerous.”

    Critical stage

    Financial distress. This leads to the critical stage that is often characterized by insiders cashing out, and is rapidly followed by financial distress, in which the excess leverage that has been built up during the boom becomes a major problem.

    Fraud also often emerges during this stage of the bubble’s life. Public failed to be aware of the dangers that the use of leverage posed and how it could easily result in asset fire sales. “The . . . trader who employs, in addition to his own means, a proportion of borrowed Capital . . . has found, in the moment of crisis, the conjuring power of his name utterly vanished, and has been compelled to provide for inexorably maturing obligations by the forced sales of goods or produce at such prices as would tempt forth reluctant capital.”

    Final Stage—Revulsion.

    The final stage of a bubble ’s life cycle is revulsion.

    Investors are so scarred by the events in which they participated that they can no longer bring themselves to participate in the market at all. This results in bargain basement asset prices.

    “As a rule, Panics do not destroy capital; they merely reveal the extent to which it has been previously destroyed by its betrayal into hopelessly unproductive works. . . . The failure of great banks . . . and mercantile firms . . . are the symptoms incident to the disease, not the disease itself.”

    Prolonged nature of a recovery

    “Economy, enforced on great numbers of people by losses from failures and from depreciated investments restricts their purchasing power. . . . Profits are kept down to the stunted proportions of demand. . . . Time alone can steady the shattered nerves, and form a healthy cicatrice over wounds so deep.”
    Last edited by a moderator: 19th Aug, 2011
  5. wdongli

    wdongli Well-Known Member

    31st Mar, 2010
    In worst case: where would gold go?

    I don't believe the sky would crash down. But if the things become dirty bad such as:

    1. Japan would stay in stagflation and drags others into the black holes too.
    2. US debt would burst its economy into pieces
    3. Euro would tip off
    4. China would stop extending and inflation turns into revolution
    5. Mild East would be in war
    6. Russia would be in default again
    7. N. Korea would start a war against S. Korea.
    8. Australia can sell any resource to anyone!

    All we could say are possible but highly unlikely! So why does gold go up? What the market expect? Please note it is not what gold bugs expect and not what the gold doom genius expect, but what the herd of the market expect.

    So when you take the words from the gold bugs or gold doom genius, you would sell your soul to doomed-in-hell warriors in this bearish market. We don't need to pretend we hold the truth and future but we just don't want to miss the bubble when it is being formed or inflated but far away from the bursting.

    Few gold bugs or gold doomed genius could win for a decade even gold up and up for a decade. So as a businesslike people in the market, don't forget what's your direct goal and indirect goals. Don't just behave as though you hold the key of the future! No one has this key for all of his time.

    Don't be shamed to admit your mistakes. Don't be just think gold would give us all or get rid of all. If we could get the right position at the right time, we could magnify our return fairly and happily!

    Could you afford the risk if gold crashes down to ground? Could you enjoy if gold to be $2000 or $3000 or more? Bubble could be inflated much longer than anyone's calculation! Do you have the cash reserve if your home turns to be cold and very cold?
  6. wdongli

    wdongli Well-Known Member

    31st Mar, 2010
    Just think about why gold up!

    People have denied the value of gold while gold has been up for a decade. So the gold price shoots up is a fact they should deny or they should feel to be shocked. I could feel the shocking among the people. When Soros talked gold Ultimate bubble, most of people just link the burst pieces of the bubbles in the bath rooms. So many people are so eager to wait for its bursting. Yes definitely it would but when?

    Now the yellow metal was up more than people's expectation in Western World. It shoots up to $1,850 around. Bubble formation is a process not a event. No moms and dads involvement no bubble! It is a very simple fact and replayed in history again and again.

    What cause the shooting up? IT bubble gone. Resource bubble far from big enough but deflated prematurely in GFC. US dollars could not be trusted. Euro are in questions. China inflation is so scared high. What's the hope or bright point people could run to for safety? Called to my mom in China and shocked to know my mom suggested me to buy a few gold in case last week!

    1. inflation is not very high here but seems will be high around the world.

    2. US is in paradox: low interest would increase inflation pressure but high interest would kill the economies!

    3. Euro is in paradox too

    4. China is in paradox too

    5. Australia looks better but if everyone else in paradox, it would be confused too!

    This isn't yet like the inflation from the 1970s. But it is above average globally.

    With all that in mind -- plus continued fears about the debt situation in Europe -- it's no wonder why XAO would like to lead the sale on fire. XAO was the first advanced market to sell itself at the price lower than the price at the beginning of Nov 2008.

    I feel very shamed to know all too late!

    These problems aren't going to be solved overnight. And as long as we have a sluggish economy and higher inflation, the threat of stagflation remains very real.

    The problem is people in the market feel no hopes after US debt default drama and Euro debt crises and China's inflation rate...

    What is the next? No one could be confident to say anything or at least the genius don't get the answers. It is a game to feel and react. It is a stampede in mass movement. The problem is once the mass move toward one direction, it has to destruct something and be hurt terribly until it could not stampede anymore and longer.

    I could not afford to buy 20Kg gold in case the world is in stagflation. So I get some gold hopeful to moderate the risks if the stock market is in bust and deep bust! Yes, it is very true that there are falling knifes but bust just makes most of the fishes and swans in discount if they don't close the doors! That is why I learn the value and the margin of safety! Unfortunately the market doesn't give me the time....I have to pay more tuition fee for this unfortunate. Alas, it is unfair!
    Last edited by a moderator: 19th Aug, 2011
  7. Johny_come_lately

    Johny_come_lately Well-Known Member

    1st Jul, 2009
    SE Queensland
    Wdongli, Buying gold at the top of the market is just a bad as panic selling. I suggest you read your earliest posts on this site, and see where you started to stray from your convictions. Don't end up like the Moms and Dads.

  8. wdongli

    wdongli Well-Known Member

    31st Mar, 2010
    Thank you Johny. I would be very cautious to play my gold hopeful. I could not afford to buy gold if gold crashes without matter how good or bad I see gold ultimate bubble. I put about 8% of my capital into gold hopeful since 2004. I would try all to let prudence into my bloods and move against the market sentiment. A few things are in my concern:

    1. if gold become hot, some of gold hopefuls should shoot up; if one or two of my ones could be shot up, it would greatly improve the profitability of my portfolio.

    I paid for them at extremely low price, such as Rau at $0.0045 in average, ORO at $0.002, ARX at $0.01 and so on.

    Market sentiment is very powerful. It tends to swing the price in extreme. However it is impossible for all of gold hopeful would swing to extremely high. That is why I tend to buy a group of dirty-cheap gold hopeful and hope 2 of 10 of them would swing from the extreme bad to extreme good price.

    The question is when I should sell. I have chances to sell ORO and a lot of my fishes for 3-5 bagggers but I let them pass by without did I should do then. These gold dogs could not jump up everyday. But if they jump up enough to get our bottom line goals without great gold discovery, we should sell.

    However some gold hopeful could be extremely lucky to get some exceptional discovery. If these things happen we need to identify the asset rather than betting on our feeling.

    2. if gold could not be hot or get red hot too quickly and crash too quickly, I will deal with the gold hopeful as other dogs. I still hold about 30 dogs in my portfolio! It is my circle to play with the dogs in which I have spent more than 6 years.

    It is my observation, the lowest price to each dog would happen in some bad times and the price would jump up within a certain time horizon. We have to sell before this time limit is reached before the bad environment damage them too much.

    It is my understanding that debt crises need some times to settle down. It may take longer time than we expect. Before debt crises gone, gold price should keep quite high level so that there would be some chances for the gold hopefuls.

    Ultimate bubbles are phenomena in the market times by times. The key is if we could get a position before people become crazy. If we have the position, we should sell all before the market starts anxious, which usually come with significant gold price crashes down but still far higher than some pivotal points.

    3. We need to know the characteristics of bubbles and get the position before bubble could be felt by the public. I prefer to get them at extremely low price when they are deserted by the market.

    Gold to Western World as nothing for too long. Actually a lot of European central bank let the gold gone at the price below $300. Even after gold has been up for a decade, most of people here still think it has not value. However everything has its own cycle. People tend to sell on fire!

    It is the same as to the dirty-cheap fishes. Some just think they are hopeless but Fdl gave me a profit more than 10 times; PRR gave me more than 20 times; IAU gave me about 7 times; and so on. I bought all of them when the market was worst to them.

    However since April I failed to buy at worst time and sell at the bullish time. I allowed myself to be synchronized with the market sentiment. We need to get in at the right time for right position at right price! We need to allow shooting up but don't let the falling knife kill our capital.

    No loss! All of our actions should be organized for this goal.

    4. Since 2004 before April I had followed a set of rules and a process to choose the dirty-cheap fishes and check the reasons for any shooting up. I failed to follow the process and became ignorant and arrogant since April.

    I am working to consolidate my portfolio by

    a. selling winners which has got enough profit after holding long enough time
    b. buying some fishes with affordable capital at the lowest price to replace the losers in my portfolio for lower cost of my portfolio
    c. buying at least possible lowest price of short-term volatile range and selling to get more cash back into my hand.

    The goal is

    a. to get cash reserve back to the level I feel comfortable
    b. to get the bottom line profit for this financial year

    I have got cash reserve for about 10 month living expenses; The capital losses and very small part of paper profit have been recovered after I sold BKP, ady, and cig; I used some capital for some of AKK at $0.026 and CTO at $0.066; I bought some of exm at $0.002 and some of mdv at $0.002; all of these buying happened in the worst selling days; So the total cost of my portfolio have been greatly reduced.

    5. Buy for affordable risks when market is full of blood and sell for profit when market becomes better and better.

    Everything has its value if it could be in the market. Market sentiment make the price lower or higher or match to the value. Market sentiment could add or destroy the value. Could we buy all at the lowest price? If we can no falling knifes.

    Tropo raised a very serious issue, the value trap. How could we avoid it? The lowest price, diversification, time average, and a process to be sure for the lowest price, is the answer. How could we diversify, average in time, and setup a process for this lowest price?

    I am more interested in QAN and turn it up and down everyday to see if I could get some at its lowest price!

    6. Don't act based on our feeling when we see the good or bad results!

    Market is full of distractions. When we get some results due to market sentiment change, we tend to synchronize ourselves to the market sentiment. It is wrong! It is a natural process to let us to be the warriors in the market.

    a. the most dangers in this bearish market is fearful
    b. it is the time need to get deep understand some very basic things and ask some very basic questions.

    How lower could it be?
    What is the feeling of the herds?
    Is the price lower enough?

    Do you have enough cash reserve to hold them for profit?
    Could we say if XAO would be 3000 all of fishes and swans have been greatly discounted?
    What's the risk of the stagflation?

    If it would be there what our fishes and swans would perform? If it would not be there what our fishes and swans would perform? Could we get a portfolio which would be no losses in both conditions? How should we rebalance our portfolio to get this goals?

    It is impossible for all of fishes to shoot up into the sky but could you get a calculated probability for your portfolio to get some of 2 baggers, 5 baggers, 10 baggers, or more profit? What is your bottom line acceptable profit under the flag of NO LOSS?

    Good profit needs good internal things happen for more value. If gold has great chances to be very hot or red hod, is it necessary to get some of gold hopeful with the affordable capital? It never works we bet all on one things. It is gambling. What is the best rate to allocate your capital among a group of fishes or swans at lowest price?

    10 baggers definitely come with great surprises to the market warriors! Could you get a portfolio you could have 80% probability for some 10 baggers when most of them are around break-even and a few become falling knife but the combined consequence is great to your portfolio?

    Let's all be cool when we should cool and buy everything with great margin of safety and sell for our bottom line goal first and then extend the chances for more profit without losing the margin of safety!

    Let's trade in the bottom to get the lost paper profit and capital back!

    Let's run with the rising Sun and get the necessary cash reserve by selling all of winners before the Market become anxious and in denial next time!

    Changing mind and feeling is easy but to change behavior we need the process!

    I am studying the stock market between 1974 - 1980, which had a lot of similarity as the situation now in the market:

    By the early 1970s, as the costs of the Vietnam War and increased domestic spending accelerated inflation, the U.S. was running a balance-of-payments deficit and a trade deficit, the first in the 20th century.

    The year 1970 was the crucial turning point, because foreign arbitrage of the U.S. dollar caused governmental gold coverage of the paper dollar to decline from 55% to 22%. That, in the view of neoclassical economics and the Austrian School, represented the point where holders of the U.S. dollar lost faith in the U.S. government's ability to cut its budget and trade deficits.

    By 1971, the money supply had increased by 10%. In the first six months of 1971, $22 billion in assets left the U.S. In May 1971, inflation-wary West Germany was the first member country to unilaterally leave the Bretton Woods system — unwilling to devalue the Deutsche Mark in order to prop up the dollar. In the next three months, West Germany's move strengthened their economy. Simultaneously, the dollar dropped 7.5% against the Deutsche Mark.

    Due to the excess printed dollars, and the negative U.S. trade balance, other nations began demanding fulfillment of America's "promise to pay" – that is, the redemption of their dollars for gold. Switzerland redeemed $50 million of paper for gold in July. France, in particular, repeatedly made aggressive demands, and acquired $191 million in gold, further depleting the gold reserves of the U.S. On August 5, 1971, Congress released a report recommending devaluation of the dollar, in an effort to protect the dollar against foreign price-gougers. Still, on August 9, 1971, as the dollar dropped in value against European currencies, Switzerland unilaterally withdrew the Swiss franc from the Bretton Woods system.

    All the above caused economic stagflation, which left the room for gold to shoot up since 1975. It last so long until the stagflation was removed!

    History would not repeat itself simply but the risk of stagflation would lead different forces to react and response! The debt crises and US treasury default drama force the market to think about all of possible scenarios. If gold ultimate bubble would be formed, in my feeling it is just start to inflate!

    It is human's nature that we tend to pick up least effort road until we could not do son any more. I really feel US treasury default drama was the start points for foreign governments to think very seriously the safety of their investment in US government. This is a very important time point and any events if reinforce the trend for people to worry about, the things would be worse before becoming better!

    Please note I am not forecasting the collapse of the financial system but try to get insight for different scenarios.

    The reasons of gold up before GFC and now are different in my view

    It is my feeling that the gold up in last decade actually was just the result of the new economy failure and global economy structure shifting. Now the gold price moves up is just because the looming risks of the stagflation! Where it will go at last? We don't know but it seems we could say gold would be more than $1,500 for some time much longer than we expected before!

    As market players we need to get insight and vision for the economy fundamental and prepare for the risks and rewards from the future development. It is not speculation but the necessary works for fundamental!

    Why did gold down when economies became worse since 1980? Why does gold up when people started to worry economies? US is dubious for its debt responsibility! The risks for stagflation becomes ore probable than not. Could US government work with others without paying the debt? It is impossible! So what is the worst case? So what should a government do for their safety? South Korea bought Gold after 20 years! Why?

    What's the risk and chances to you if gold up or down?

    If the world gets into the stagflation, we need to think how to get our portfolio safe. We could lose the job. We could get crashed stock market. In some extension, I want to use my gold hopeful as some kind of insurance. History sometimes could play quite differently from some time points!

    There are a lot of black swans are not black swans if we could invert our thinking different from the popular fears and greed.

    Any deduction and induction have the risks to get the wrong conclusion. In the market if we want to do anything we have to be sure we could afford the worst scenario. To gold, it means the gold ultimate bubble would not come in or deflated before it is too hot and cause system in the edge to fall down!
    Last edited by a moderator: 20th Aug, 2011
  9. wdongli

    wdongli Well-Known Member

    31st Mar, 2010
    How to pick up the big fish?

    Do you like fishing? Do you want to get the big fishes without extra risks and the help of advanced fishing ships in ocean?

    1. we don't have the ship so we just give up to get the big fishes
    2. we don't have the ship so we just take life risks to get the big fishes

    Are you hopeless? Not sure but sound something wrong!

    Do you agree with these attitudes if your business is fishing? Could you get clear rules to tell difference between the prudence and coward? We always have the problems what should do and what should not, right?

    Gold just jumps to the distance that now everyone could see how it becomes more glossy everyday. It means risks, chances, or nothing to you?

    Whom are you? It is terrible important!

    Are you value kind of market players? How to use the value to play this glossy monster with no loss warranty? Are you traders or speculators? How could you speculate wisely not emotionally?

    Could buy as a value investor and sell as the wisest speculators before the music suddenly stops? Do you know when the music starts and stops? What cause the music starts and stops?

    In the worst days there are some place where it is peaceful, right?

    How could we find some peaceful place where there are big fishes appear and patiently use the best fishing devices we could use properly? Do you have this kind fishing devices which you are the masters?

    We are not designed to question ourselves everyday. It is not true even when we work hardest in offices and workshops. Unfortunately the market is a war place and we have to redesign ourselves. Could we win to redesign ourselves?

    Could we expect it is smoothy process and could be finished in one day? Any big things, good or bad, need the time to be true logically. Could we sustain the pressure in this process?

    What if you are in trap or have made some serious mistakes?

    1. pay the least to get out the trap if survival is in problem
    2. consolidate your positions to recover the cash reserves
    3. prudently find the chances for lowest buying with affordable capital in a logical and rational process
    4. sell for profit if no facts but momentum cheering up
    5. keep to get the cost lower and lower until VIX become lower and lower with less and less doom and gloom headlines in paper and on line.
    6. get some insurance for your portfolio for no loss
    7. change behavior now not later!

    How to completely get rid of the value traps?

    Until now I mainly try to update my mind to know what market really is, what top-bottom and bottom-up approaches are, what is the herd and its sentiment in different market seasons, what is the market philosophy and views I should hold, how to get the value with the analysis of probability distribution in price.

    Having known the falling knife effects for quite long time, I try to use diversification and time average plus proper asset allocation to get rid of the falling knife effects from my portfolio. Really know I need to know value and quality both to get rid of the value traps but do feel before I could know myself and market as a whole, I could not change my behavior as a profitable business require.

    Do feel at anytime we have limited knowledge and skills to the scope of the market as a whole. Fortunately or unfortunately I have chose the dirty-cheap fishes as my circle. How to use the value rules and prudence process to play in this circle is a task I have to do. I don't know quality now and it needs the time and efforts to be good enough for quality. Yes, the challenge is if you could not know enough about quality they also could be falling knife to cut your capital into pieces.

    1. first business rule is if you don't know don't touch.
    2. but if something is really important you have to start at some time somewhere
    3. when you start to put your feet into the uncharted water, you could not ignore what you could do reasonable good.
    4. so the logic process should be to work on what you need most urgently and what you are reasonable good together
    5. it is a process to know quality and then it is necessary if you are not sure, you have to ask the proper question for the inherent logic and rationality. If any wonder, stop and sort out the mind first.

    Get the habit to question for risks and affordability of risks, the chances and the cost of the chances, the margin of safety for our portfolio or business, the probability for the assumed good buying to be falling knifes, the prevent process to stop the possible damages of the falling knifes, the balance between the risks and chances, the process to stop synchronization to the market sentiment as early as possible.

    Learn the quality and learn to buy quality at lowest price first.
    It is necessary to let the buying itself have fail-safe capability. It is extremely important to let the first quality buying right. If it is wrong it would affect my effort and result in the market service business terribly!

    If we could master the quality for profit we could move to get the quality and growth at reasonable price! If we could go so far we could buy for holding forever and sell for reasonable profit or income for business survival and extension! I tried to recall what Warren Buffett did after he moved into the sunk textile business, Berkshire Hathaway, as a cigar butt player.

    "In 1962, Warren Buffett began buying stock in Berkshire Hathaway after noticing a pattern in the price direction of its stock whenever the company closed a mill. Eventually, Buffett acknowledged that the textile business was waning and company's financial situation was not going to improve.

    In 1964, Stanton made a verbal tender offer of $111⁄2 per share for the company to buy back Buffett's shares. Buffett agreed to the deal. A few weeks later, Buffett received the tender offer in writing, but the tender offer was for only $113⁄8.

    Buffett later admitted that this lower, undercutting offer made him angry(wdongli: sale on fire is not acceptable at anytime under any condition to anyone). Instead of selling at the slightly lower price, Buffett decided to buy more of the stock to take control of the company and fire Stanton (which he did). However, this put Buffett in situation where he was now majority owner of a textile business that was failing. (wdongli: it forced Buffett has acted as investlike businessman since then and it started Buffett to hold the core value of cigar butt and accept the growth as the soul of the business)"

    No cigar butts no Warren Buffett. Only cigar butts would only make another millionaire fund manager only! Why? You need to bargain for lower cost for your business! The cigar butts force all of value investors have the bargain blood under any conditions.

    I don't know cigar butts enough and don't know quality and business, which is the real problem! It is the fundamental problem when I could make a series of mistakes when I feel bullish!

    Johny didn't say I am a gambler but I have to admit naturally I am a risk taker and have all of gens to be a gambler in Casino! Actually times by times I turn the market to be one biggest Casino after I got some good enough chips on the table through my hard word for margin of safety and discount!

    Is it bad? Yes if I could not ingrain the prudence and bargaining for discount into my blood. But if I could ingrain the prudence, wisdom to balance risks and chances, and determination to hold enough cash reserve for no loss, I have the gut to make the future! Could I go far enough for this ingraining process? I am a very committed and passionate people and if I could keep no loss and with the new blood, I should have chance to update me to another level in the market.

    Any indirect goal? No too much for a old man in 50s but just want to get a very personal legend!

    Be aware the black swans

    Market could stay in one mood for quite long time. Something in hindsight seems reasonable or not reasonable but at the time we make the decision, we always have the chances to miss some important scenarios unfold in future.

    1. the challenge is if we are not lucky enough and we are just hit by the bad black swans again and again.
    2. sometimes you have more chances to be hit by the good black swans and sometimes at some place you just have more chances to be hit by the bad black swans.
    3. how could we plan and organize our process to be sure we could be survival with the bad black swans and revival with the good black swans.
    4. this kind of thinking is not about the IQ and smartness or even not about the lucks but the balance and wisdom, the introspection and deep awareness of self and environment
    5. the wisdom in the market is about 1+1 = 2: the lower cost and prudent plan for no loss; the income to be self-reliant in worst case; the gripping the chances to leverage 1+1 with the lucks and never let unlucks turn 1 + (-1) = 0.
    6. in bullish time we focus on the leverage and then we have extremely high chances to be hit by bad black swans; in the worst time, bad swans usually are fatigued or bored and then good swans could have chances to leverage your 1 and another 1 to be 5 or 10.

    Now the market is extremely bad but is it bad enough?
    We could not tell when it is the worst point but could we identify this enough and move ourselves to some places where good black swans would have the biggest chances to appear.

    When we move us into a position, do we challenge some basic rules and laws? If human can do anything in the name of the God, could we repeat to be insane and mad? We could be wrong but we should not be mad. We should sense the market but we should not use our biases to lead our emotion based on our senses of the world and market.

    Since I locked enough profit and new betting worked, I stopped to ask questions, stopped to follow my prudent buying process for margin of safety; stopped to lock the profit just caused by the momentum movement driven by the market sentiment; so that it forced me to sell BKP which could be a wonderful black swan and put myself at a position if I didn't sell BKP, I would break up the basic rule, no loss; so that when I open the door for bad black swans I shun the door for good black swans too!

    It is easy to be wise when you are cool. It is impossible to be wise when our mind are full of water. Who don't want to be right in the market if you can? When your mind is full of water how could you be right? Do we know when our mind have high probability to be full of water or could we be shocked when any water is got into our minds?
    Last edited by a moderator: 21st Aug, 2011
  10. wdongli

    wdongli Well-Known Member

    31st Mar, 2010
    A popular path: Brilliant, stupid, and then failed!

    Are you brilliant sometimes in the market? Yes, if you have the mind to put the money into the stock market, you should be brilliant sometimes.

    We have a tendency to congratulate ourselves for our brilliance when we succeed. It is not wrong but often than not it would let us feel we don't need to do our job and pay our efforts for living. That is very risky!

    Most of us are normal but far less than excellent in the market. We are brilliant is just because we are lucky to be in a fad or hype! It is different between you put yourself into a place where bubble would be inflated, and something else put you there. We tend to believe but usually not the case that we put ourselves at the right position, which would let us feel the life is good and become ignorant and arrogant!

    When we feel brilliant and believe we are brilliant we just put our first step into a new valley of death in the market. No one is really brilliant if he celebrate his brilliance too often in a war. He wastes his scarce emotion resource and time for their job done. He needs the pains to get him back to normal!

    What the profit usually bring to us?

    We are happy and want to have a break; we believe everything is under control when we should be alerted to lose control on ourselves; we want to get more. Yes, if you can get more why do you stay for less? We let cost run and cash reserve depleted.

    But market doesn't care how we feel. Suddenly, we feel but market has warned us for quite long time. We are hurt by the bear just too short after we celebrate our brilliance.

    What do you feel now? Pain is overwhelming and then we start to blame outside influences for our failures. Somebodies are so stupid and make so much stupid themes. We never really enjoy to ask the reasons why we listen to stupids and what we do for our responsibility.

    It is your money and you don't pay for any advices. You try to explore others but don't want to take the duty. You are not just stupid but immoral somewhat! Who is more stupid to follow the stupidity?

    When you repeat to do the stupid and immoral things, you are doomed to be failed.

    Why? We would repeat the same process to approach to the hell until we are there: when a stock we picked goes down, it’s the economy, the Federal Reserve, the stupid broker, or those gosh-darned hedge funds that made things go wrong. So when boom comes back we could be brilliant again.

    A potentially fatal side effect of this all-too-human trait is: what happens when we get good results from bad decisions!; We do the same thing again, usually to bad outcome. Not only do we lose money; we lose the time we might have spent making improvements in our portfolio.
    Last edited by a moderator: 21st Aug, 2011