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Trading Risks and your selection

Discussion in 'Shares' started by wdongli, 9th Jun, 2012.

  1. wdongli

    wdongli Well-Known Member

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    The risk of something to someone (an individual, a group of people, society or all humankind) is always there.

    The risk is perceived not solely by technical parameters and probabilistic numbers, but in our psychological, social and cultural context. Individual and social characteristics at a given future horizon form our risk perception and influence the way we react towards risks.

    Our risk perception is attenuated or amplified in some social and personal psychological patterns. Can we get the right risk perception under bad or worst conditions?

    ***
    Perception of risk is attenuated if the risk is chosen voluntarily, but amplified if it's imposed.

    Even though the risks might be similar, the voluntarily chosen risk is more acceptable than the imposed one. Accordingly, people tend to accept risks that are voluntarily chosen even if those risks are approximately 1000 times as
    risky as accepted involuntary risks.

    This involves freedom of choice and the perception of one's own autonomy and responsibility. Traders and investors choose the risks voluntarily so that they can run in the valley of death.

    ***
    If the risk is chosen and not imposed, it is a wanted risk. It is mainly because of some expected benefits related to that risk.

    The affected person is convinced that he or she would be able to stop the risk at any time. That is one of possible reason why so many traders love "stop the losses."

    However we are vulnerable to expose ourselves to the unaffordable risks, which once happen, we end at nowhere but the hell.

    ***
    The chosen risk is the best alternative available because it is the best of all possible bad or good choices.

    Being able to choose the best alternative also means being able to refuse other and even worse possibilities. Therefore, rejecting less attractive alternatives means a "relative improvement" of the situation.

    Chose risks are about analysis of contexts and conditions. In a extremely risky conditions, all of selections could have no benefits at all to an individual even good to the society.

    ***
    The context in which the chosen risk is situated is dominated by worse risks, and within that frame the selected choice is always better, relatively better, reducing the impression of the absolute risk of the selected choice.

    Few traders and investors can see all of the alternatives. They don't see the whole lot of risks and benefits. They tend ignore the worst cases. They usually don't know when it is for extremely goodness, badness, or normality.

    The individual right to choose is crucial to society since it means alternatives for the society. However each individual tend to do the similar things which means no alternatives. Warriors are consumed in the market but market last for generations.

    ***
    It is challenging to see alternatives for traders and investors, who take the risks voluntarily. Traders and investors should know their voluntariness need some control for what they should select based on the possible outputs.

    Why am I putting so much of time on English Listening? I want to update my mental framework to see alternatives, protections, and balance among different options, so that I could safely service the warriors.

    Why are you so upset? You have no alternatives and stay in the financial graves after losing the shirts. You voluntarily take the risks usually the unaffordable ones even you tell everyone you are genius to trade. You fail yourself and then market fail you.
     
    Last edited by a moderator: 10th Jun, 2012
  2. wdongli

    wdongli Well-Known Member

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    Business: play what controllable!

    There are always things we can or we cannot control in life, market, and society. We don't want to hurt others but we should know we could avoid the avoidable unaffordable risks.

    We could not avoid the risks but we should not take the risks which we could not measure and control in the stock market. We should not be ignorant and arrogant as though we can risk-free in the uncontrollable situations and context.

    If we lose some big enough capital or profit we would hurt ourselves. We need to put money into the business which could give everyone's hopes. If your shares make you lose the shirts, you just let you and anyone else around you lose the hopes.

    ***
    Before you explain how great your ideas are, could you check your records for your profit? It is your responsibility for you, your loves, and the hopes. You have to learn how to protect your first. You have to be profitable even in the worst case.

    How couldn't you lose your money first? How couldn't you allow your head hot? How could you be wise and intelligent in the stock market? They are the questions before you turn yourselves to be traders or investors.

    I understand why you don't admit your failure; why you read to find the materials to support what you feel good. We all have some times to feel we are unbeatable. However no one in the stock market could be pain-free after big losses are in hands.

    ***
    What makes difference between winners and losers? Some lucks or not lucks definitely! But is it all? Success for long term is about playing what you can control as consequences. Buffett buys and hold with his tight control financially for what he plays. Soros trades with tight control on his capital and output.

    Do your buy and hold with the control of the business? Traders have to play with the trends but do you buy with the control of the profit you could get? Before you could play the controllable you have to control yourself. Could you control yourself and just play for a controllable profit outputs even you could not control what exactly you could get?

    As traders you have to know how to buy at around lowest price for the horizon you would hold but could you be sure? As investors you have to know the shares of the business should be profitable and grow but could you be sure when you cry for buying and holding?

    ***
    Once we play the things uncontrollable we become gamblers. We hand ourselves over to the lucks. The most risky matters in the stock market is you play the uncontrollable as though you can control.

    In all of stock market forums, we can copy and paste the words but we seldom ask what we can control and how to use the controllable for our own profit.

    We have to know it is fundamentally wrong; it makes us stupid, insane, ignorant, and arrogant. If we are stupid even god could not save us!

    ***
    Just have watched "East West 101" which tell too much about the sins in our societies. All of the sins come from the ignorance and arrogance rooted in the fear and greed.

    Since I came into the Univ, I simply have cut off to know them while I moved from one after another offices around the world. I need to re-touch the sins and risks so that I could be wise rather than stupid to believe I was smart in the stock market. Life is not perfect and market is full of risks. How could we never put our toes into the place we could die when we try to get what we want or we deserve?

    We never could get skills which protect us if we just put ourselves in the crashes. So don't join the crashes. We never could be die with the margin of safety which can make you safe in the worse cases.
     
    Last edited by a moderator: 10th Jun, 2012
  3. wdongli

    wdongli Well-Known Member

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    Are you really in charge?

    Leverage is questioned in the stock market and economies. It is good sign for sanity but human tends to jump from one extreme to another extreme. Leverage has two sides and it runs from one side to another side desperately in cycle.

    Human naturally are short sight if no vision involved. What's the vision? It is the perceived future in our own minds. There are always gaps between our imaginary and real world. How bad have the leverage hurt you? You want to gear a huge stone with the leverage which definitely would be broken.

    Have you thought about the consequences from a workable leverage or broken leverage?

    ***
    There are three elements actually decide the fate of your leverage: your income, your interest, and the time.

    The income is the force you really put on. The interest is the length of the leverage(The more interest the shorter the length of the leverage). The longer the length and the longer the time need less force.

    All of us want to get the gain, which are the consequence of these three elements. However if the leverage is broken you would get loss. There are some basic rule to use the leverage:

    1. is the gain expected too much?
    2. is the income is too little to cover the interest and your living?
    3. is the time too short to get any enough gain?
    4. is there any black swans could change them? What ifs?

    Yes, all of posts here sound very colorful about the future markets based on the history. However I do feel few get the nuts. We are not trying to prove we are genius but we do our job with or without the leverages.

    ***
    Change when environment changes is great to the market as a whole. The cruel reality is most of people changes but individually they would still fail.

    Everyone has his time. Time would change. Human could not change out of the range of his vision. Is your vision limited by your mental framework? Could you figure out the leverage in all of its side?

    Just ask yourself a few of question:

    1. have you used the leverage for your gain before?
    2. if not, how could you say leverage is bad not good in all of the time?
    3. if yes, how much gain have you gain? If no gain but broken heart, do you know the inside and outside of leverage?

    ***
    Knowledge is power. Feeling with the supported words are the seeds for fades, which could be very powerful for your losses and gains.

    Fads are nice if you can control the controllable to use them but usually we cannot or fail to identify the controllable. Few of us know what are controllable in the stock market and property market. Fads and ignorance work together for people to cheer or curse the leverages.

    Who wants to leverage their own home house into the sky?

    Who refuse to leverage their heavy furniture into the trucks for new home?

    No one if they have right mind, does he?

    So please use the leverage for your sure gain which you can get and much more than the cost of the leverage.
     
    Last edited by a moderator: 10th Jun, 2012
  4. wdongli

    wdongli Well-Known Member

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    In and out of control

    Who don't want to play the controllable in the stock market but who are really can control the stock market?

    You are out of control even you guess you are in control such as we deal with leverage in the last decade or two decades. In 1994, I didn't feel I could control anything but I did use the leverage in the stock market. No one around me thought I play the matters out of control but I did play it in control.

    When a forum as a whole feel leverage is the devil, it turns to be no harm sooner or later. Logically it would turn to be your best friends as in 1994. Do you know what then? I borrowed all and got three properties at $83,000 each, which scared all around me terribly.

    1. The debt scared everyone then and it scared me too.
    2. The property market just moved nowhere for quite while

    In 2006, my first leverage worked very well which excited me to get the second gear. My second gear, $200,000 to the stock market, was a terrible and broken gear. You know what? 2008 just came in and we come to a new normal time, deleverage.

    1. all like gears when I got my second gear
    2. the stock market and property market had boomed for years.

    Wrong! Completely wrong! Insane, stupid, and hopeless were all I was around my second gear.

    You could not be always right or always wrong, which is not important but you have to get the right lessons from your mistakes and get the right understanding what make the market agree with what you do.

    ***
    Why do the deleverage come in? Since there are too many to use the leverage without little income from the gear, having too much expectation for the gain, giving too short time for the gain.

    I got the leverage when all felt no way to use it. It played out excellently. The leverage with the property booming for nearly 7 years from 2000 to 2007. It turned out the property investment in 1994 with 400-500% return.

    I got the leverage when all wanted the leverage. The leverage broken after 2008. It gave the losses more than 50% to me. Generally the leverage between 2006 - 2008 generated nothing but pain. Once the leverage is broken you would be buried there.

    ***
    Fortunately my first gear used when all hated it. Fortunately my second gear happened just when the crowd started to use the leverage. Fortunately the collective gears to me are still very positive. Unfortunately I failed to lock the profit in the stock market to reduce the gears to zero.

    Who said timing is not important? The timing is linked with the crowd sentiment. The timing is linked to the performances of the economies. If you want to be in control you have to timing when the crowd is out of control.

    Don't let anyone and anything to limit your vision. Don't just pick up one side which is approved or chased after by the crowd. Fortune is not about average. The crowd means average. If you want to use leverage don't use it when the crowd is using it euphorically.

    ***
    Don't hit out if you are not sure. If you hit out it should be decisive, right, and precise, and leave margin for your safety. Be focus to think how you can be decisive, right, and precise at the target you want to hit at! Very challenging and constant paradoxes.

    Each cycle has its up, down, and turning point. What you do should base on the nature of the cycles by which your target perform. Do you know the cycle? The stock market has been driven down for years. When is it the time to change the course? The property market is about location.

    If you can go up to see all you have to come down to check where you are and what time it is now. Don't forget things development is in processes. What would depress the crowd enough in next decade?
     
    Last edited by a moderator: 11th Jun, 2012
  5. wdongli

    wdongli Well-Known Member

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    Feel control over: false or true?

    We usually don't take action if we feel out of control. So why do we lose especially when we are in full of control as masses together? Have you remembered what the posts talked about before GFC or IT bust? At those time who really felt out of the control?

    We tend to take more or unaffordable risks when we perceive the risks are in control. The more feel the in control the hotter our head.

    1. I didn't lose in GFC
    2. I did get profit for about 4 years after I quit my job
    3. I did feel I could have touched the pulses in April 2011
    4. I felt I bought excellent tough and two months of May and June should not have destroyed my profit even a little bit could happen.

    ***
    Whom am I? In hindsight, I was arrogant and ignorant even I knew enough is enough then. Feeling in control stopped me to do the conscious and sensible things.

    If I didn't profit in paper, I would not dare to be so ignorant and arrogant; I would not dare to allow $180,000 money gone. A lot of traders and investors don't take the paper profit as money but it is. Some big profit if gone, would change your future financially!

    I didn't know or I didn't want to know how I was stupid and crazy when I let my greed heat my head red hot. We tend to find the words to support our own stupidity and insanity.

    ***
    It is never easy to be environment-aware. It is nearly impossible to be self-aware in extreme conditions. We have to know the extreme conditions and the context before we deal with them. We have to remember

    1. under normal conditions we are unwilling to enter “out of control” situations because we lack security under such circumstances.
    2. We tend to have the impression that as long as we maintain control we can, at least partially, remedy that evil.
    3. Being unable to gain control of a situation does create a feeling of powerlessness and helplessness!

    We could not avoid these feeling as human but we could change our mental framework to control what we should do to counter the bad effects of these feeling.

    ***
    We have to know it could be false for us to feel good or the control. We tend to overestimate our capability to control a situation. The false control or not control would destroy our protection line and let us expose in the financial tsunami.

    It was said that we tend to estimate our personal risk to be lower than the average risk. In reality it is statistically impossible and reflects an unrealistic optimism. Not all people, can get more safely than the average traders and investors. We apparently have great confidence in our own abilities.

    We tend to get positive illusion of control, especially in such uncontrollable situations as tsunami in financial markets. The consequence is so-called risk denial, expressed by the average risk minus the personal risk; this is clearly correlated with the level of perceived control.
     
    Last edited by a moderator: 11th Jun, 2012
  6. wdongli

    wdongli Well-Known Member

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    Attenuated or amplified perception of the risks

    Risks are always there. Psychologically our perceptions to the same risks are affected by a lot of social and personal elements.

    Our perceptions about the risks would affect our behavior and action to deal with them. So knowing what would affect the perception is helpful to protect us to avoid unaffordable losses.

    Usually if the risks are familiar with, the perception of the risk would be amplified; but if exotic, the perception would be attenuated. The followings are pairs of the elements to attenuate or amplify the perceptions of risks.

    amplified perception ↔ Attenuated perception
    individual control ↔ controlled by others
    natural ↔ manmade
    statistical ↔ catastrophic
    clear benefits ↔ little or no benefit
    fairly distributed ↔ unfairly distributed
    voluntary ↔ imposed
    information by trusted sources
    ↔ information by untrusted sources
    in the media ↔ not in the media

    ***
    Even after a decade work in stock market, most of traders and investors don't have these basic knowledge about the risks.

    1. We have to know the trading or investment is exotic to us even a lot of us have traded or invested for a decade.
    2. Similarly we are controlled by others not ourselves since we seldom analyze, judge, and make the decision.
    3. All of disasters in stock market are not natural but man made and most of traders and investors don't believe they put themselves into the traps if not the hell.
    4. Most of traders and investors don't understand how to think statically. All of failure happen in catastrophic way as GFC and IT bust.
    5. We want to get the profit but we never make the calculated profit. We just say "buy and hold" or want to trade for "stop losses."
    6. Risk is not distributed in probability fairly to everyone which depending on the vision, knowledge, and personal disposition.
    7. We could not say we don't know the risks and don't want but we tend to be imposed by the risks we really don't understand.
    8. Internet is a huge library. Everyone can access it but few really know what source of data is trustful or not.
    9. It should be true the longer the risks are in the media the less the risks. However few can evaluate the risks shown in media. Some risks are simply a matters we don't know.

    ***
    We need to know ourselves and what risks would be amplified due to our own limitation.

    Could we pick up the piled gold no one else can see? If it is too hard could we amplify our risk perception for our own protection?

    Where is the piled gold ahead no one could see? Where is the place you would die financially? You have to find the truth rather than to hold the false feeling!

    If we don't have ideas of these places, where would we go?
     
    Last edited by a moderator: 11th Jun, 2012
  7. wdongli

    wdongli Well-Known Member

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    Trivial many vs Vital Few

    All seem have convinced that Aussie economy was weak, but the Bureau of Statistics produced figures showing it was remarkably strong. Who is wrong?

    It's not the first time all've failed such a reality test. we prefer not to think about such embarrassing, humbling occurrences, but it's important to ask ourselves why we got it so wrong.

    It is necessary to know what the crowd or we think about the reality of the economies. It is necessary to know the reality. We need them to see the gap between the mass imaged and real world.

    ***
    One possibility is the statistical calculations are wrong. That's likely to be true, to some extent.

    They're highly volatile from quarter to quarter and month to month, and much of that volatility is likely to be statistical ''noise'' rather than ''signal''. But even if the latest figures ARE likely to be revised down, their ''back story'' still contradicts the conventional wisdom.

    Cut March quarter growth back to the 0.6 per cent economists were forecasting and you're still left with above-trend annual growth of 3.6 per cent.

    ***
    We can say the March quarter figures are ''backward looking''. Actually all the news since March has been bad. They ALWAYS use that excuse. But there's nothing out of date about job figures for May, and they too tell a story of strengthening growth.

    It's less surprising our perceptions are off the mark.

    1. Most of us are not students of economic theory or statistical indicators or stock market;
    2. Our judgments are unashamedly subjective, based on direct experience and anecdotes they hear from others, plus an overlay of what the media tell them.
    3. We don't have trustful data source and then we just amplify what we feel.

    ***
    All of us have some traits as gamblers who probably overestimate the MACRO-ECONOMIC significance of falls in the stock market.

    Once you fully were immersed in the news from YouTube or internet, you just cannot stop to guess rather than analyze. It is a extreme time in stock market. XAO is taking its lead from overseas markets reacting to economic news in America and Europe that doesn't have much direct bearing on our economy.

    Similarly, all the bad news from Europe that we're hearing from the media night after night can't help but infect our views about our own economy.

    ***
    Now the theory, two-speed economies, are becoming magic words and all bad things could be linked to it as all of the good things were linked with "world is decoupling with advanced economies."

    The alleged two-speed economy is a concept tailor-made for the media. It is an exaggeration of the truth. Once a declaration is hold by all of us, the exaggeration is unavoidable. It is very risky to traders and investors, who need the truth rather than any false declaration.

    The risk is the more we repeat the two-speed story the more it becomes a self-fulfilling prophesy. This may be part of the explanation for the weakness in non-mining business investment spending, but it would mislead all of us, as crowd.

    ***
    The media needs sensational news, which could be true but not necessary display the whole picture and economic fundamental. The media inevitably selective reporting of good or bad things to feed the needs of the crowd. It is what they make its profit and living.

    All of us, including business people and maybe even economists with a falsely negative impression of the state of the economies. I do wonder what really mean total job losses of 17,000.

    When people wonder how the bureau's employment figures could be right when we know so many jobs are being lost, we're showing our ignorance of how selective media reporting is and how big the labour market is.

    ***
    The media is telling us about just some of the job losses and about virtually none of the job gains.

    The unvarnished truth, which none of us can admit, even to ourselves, is we THINK we know what's happening in the economy and stock market, but we don't. We're too fallible and it's too big and complicated.

    If we are too fallible, we should be defeated in the reality or stock market. Vision, analysis, judgement, and decision could not be made based on the fallible data or perceptions.

    Leave the room for your safety and opportunities while you put the risk into a box to limit your damage.

    ***
    For safety I need to wait until Greece decides its will. For chances, I could not ignore the excessive fears.

    Do the warriors shed their blood enough? How could I find what are my next targets now? All say you cannot timing the market but I have to since I don't want to do the same as all of us do instinctively. I must be careful and patient for my chances while I work hard on my mental framework.

    After a lot of inverting, I decide to spend another three months in my English Listening, which would speed up my grip on more knowledge and trustful data; I decide to do nothing before 17 June in the stock market.

    I am ready for Greece to exit!
     
    Last edited by a moderator: 12th Jun, 2012
  8. wdongli

    wdongli Well-Known Member

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    All should work for your profit

    All should work for your profit in the stock market, shouldn't they? They are such as your posts here, your loved YouTube video clips, your favorite words coped from someone in the internet.

    Generally saying all of human successes involve with key elements: human sources; all of individual successes involve with your mental framework.

    If your brain is crap, you would just get craps without matter how excellent you copy and paste. Few traders and investors know it or believe their crap brains are not crap.

    ***
    The internet could have helped with connections and so forth. Something has to play the parts to connect what you want to connect with. If you cannot set up right link, internet would speed up your running to your graves financially.

    If we thought that the internet is a magic lantern for profit, you are stupid. If you just thought that you could just Google "secret fund" and out would come all the data you need, you are insane.

    Some would be good and some would be always bad. You have to choose. You have to form your own thoughts for your mental framework, which can link your capital with the profit.

    Don't link the internet to support your ever changed feeling. Turn internet to be your school for vision, knowledge, skill, and view of the world and market.

    ***
    History are full of turning points for big or small cycles, which are triggered by some precedent or unprecedented events. The stock market are full of similar turning points and the significant events to trigger the booms or busts.

    Things tend to run in its old way at some constant or fine-tuned speed or accelerated speed until something can trigger the forces bigger enough to overcome the fraction or initials. I could not figure out the future of humankind but I do feel that some very bad events in Greece or Italy or Spain would trigger some positive or negative forces to work.

    Do you know Y2K bugs? They failed to destroy the modern human systems which people prepared very hard to avoid. After expected disasters no happened, all could see the cakes in the sky. Boom in the sight. We all were crazy.

    ***
    Greece is expected to exit from EU. It is real risk and could result in domino effects. Could we say we have got ready for the domino crash of the financial institutes globally?

    Greece would destroy the EU or let it reborn!

    EU is a premature child. It has not power to stop the bust or every member could enjoy the splashed spending. Right or responsibility are two things which good people or nation or economic union have to hold.

    Greece can push EU to a point that it has to decide: survival and revival or dead. It is a strategic time point or pivot point.

    ***
    There is now a much clearer awareness among European member states about the need to go further in terms of integration, especially in the euro area.

    1. EU President said E.U. banks need to go beyond measures proposed last week and submit to a single cross-border supervisor.
    2. Last week, the EC proposed measures such as tighter coordination among national regulators.
    3. The EC president is now calling for a deposit-insurance scheme and a rescue fund for European banks.

    This is one of the lessons of the crisis. Seriously saying I really Greece could put the EU policy maker to choose between dying or surviving on 17 June 2012.

    EU has to decide its fate and then the fate of the human kind. The earlier the better if it can make its mind.

    ***
    I need a turning point in my English Listening and the process of updating my own mental framework for a turning point to be wise and intelligent enough in the stock market.

    Before these turning points, I could not be qualified in the stock market as a disciplined, analytical, self-reliant, and businesslike people to service the warriors who desperately needs my hands at the time they mostly need.

    I do hope I could not let my cost run before I could be qualified. When the crowd joins in something, such as deleverage, it would be normal for XAO up/down in bottom range until a turning point.

    Enough is enough but the content to be enough would be changed. How could I change for the new normal for safety and profitability?
     
    Last edited by a moderator: 12th Jun, 2012