Trading Vicissitudes and crowd reaction

All of us accept the assertion, the life and market is full of vicissitude and all of us tend to react over optimistically and depressingly. How could you be happy when the storm beats all down outside? How could you be depressed when you are in a party you really enjoy?

When we reply what happened in history, do you wonder how wide the life and market can be? How could image the vicissitudes in price of a excellent Australia enterprise, BHP or FMG in little more than a single decade.

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When you read the old news how could we stop the wonder that what miscalculations and excesses of optimism and pessimism the crow has valued its shares. In 2000 or before 2003, all of Aussie Resource companies were really being given away, with no takers; in 2007 the crowd was clamoring for the shares at a ridiculously high price.

After peak in 2007, it came a quick loss of 1/3 of the market value, we got so called V-shape recovery a few months later. 2011 started with the euphoria and then we got substantial further decline.

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With the vicissitudes the company was to turn from outstanding money making machine to mediocre earnings performers; When the profit or profit expectation shot up in the boom-year, the things become worse. The price became too high and then the yield were unacceptable low.

Bull pushed the economies into full capability or over used. Once the trend or crowd was hit big enough, all of market players have to choose to run away or hold defensive position. Yes some companies are still excellent business but could not run, not as profitable, and not as attractive.

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There are two chief morals.

1. the stock market often goes far wrong, and sometimes an alert and courageous market players can take advantage of its patent errors.

2. Most businesses change in character and quality over the years, sometimes for the better, perhaps more often for the worse.

We should not see any companies with the template we have made. We need not to check companies’ performance just based on what happened; We should give them good and hard look from time to time.

The bust and bull change everything and generate the elements for black swans for them.

 

Businesslike market player?

The market needs the businesslike people, who have the balanced cautions and boldness in the market, and would like to put efforts on buying for margin of safety and refuse the pressure to sell on fire.

As a market player, you need to understand what an owner of a private business would do. Do you think you have to buy the shares for parts of owners and win out when the business could make chances and win out? Do you just want to be a holder of shares which are salable at any time you
wishes based on the price and market sentiment?

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We need to know a important fact: Any good business people scarcely ever were forced to sell their shares, and at all other times they are free to put efforts for their business without regard to the current price quotation. They just need pay attention to the price and act upon it only to the extent that it suits his direct and indirect profit goals, and no more.

Thus as market players if we permits ourselves to be stampeded or unduly worried by unjustified market declines in our holdings, we would perversely transform our basic advantage into a basic disadvantage. Long times ago I just could not understand why W. Buffett said he didn't mind the market was closed for a decade.

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Yes, if the business could make good enough money and your payment for the shares was reasonable low so that your yield is good enough, you could get the cash inflow for what you deserves, why do you worry about the price? The problems are we seldom know enough about the business of which we have bought the shares. Since we don't know the business and we expect the price go up only, we could not avoid the mental anguish since the price just drops down and down.

Unfortunately most of us have not got the necessary mental framework and in a decade we have got two great busts, IT bust and GFC, let along the current market crash due to EU debt crisis. Seriously saying, there is a psychological advantage in owning business interests that had no market for its price. Too many people who just think about the price fluctuation in daily basis. However which business could double its value in days?

I didn't understand really that fortune could not stay in quick hand before. I didn't understand really the vicissitude of the life and market since even I worked hard but in office it generally is peaceful and the headache is about a very special matter.

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When market is in the busts, even the price dropping has greatly reduced the chances for further great dropping as GFC, the price dropping of the shares make their owners believe they were growing distinctly poorer.

In reality the shareholders could be better off with busted share prices. Yes, all were crashed down and no light could be seen at the end of tunnel, but if they had wanted to, or were compelled to, they could at least have sold the issues, and quite possibly they could exchange them for even better bargains.

If shareholders have the cash inflow, they could just as logically have ignored the market’s action as temporary and basically meaningless. Of course it is self-deception to tell yourself that you have suffered no shrinkage in value if you paid too high. So value and cash inflow from your shares in busts is very important.

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Seriously saying dirty-cheap fishes are more risky since they could not give you any income. If the busts last too long, you have to find other income sources. That is why I had to take the old spade.

When I work in my office I just wonder why I was so stupid by refusing the paper profit, $180,000, in exchange to sell my labor for a few ten thousands per year after being full-time market student for three years?

Have to admit my insanity and if I was insane I had to pay the cost. It was fair. Regret? Yes but useless. You make the mess and then you have to find the solution to clean it up! If I could not beat the primary me down, I would be hopeless. I would do what I have to do for my new mental framework.

Don't protect your insanity in the market at any time even when you write the posts here! The primary instinct can play its parts significantly in the market if you give any chances to it.

 

What do you do?

Behavior and personality decide your road to choose, which is not about right or wrong, but could you play hard and get what you want. Someone wonder why someone has fortune but work extremely hard. You have got a billion dollar in hand but you still want more. Greed? Maybe or maybe not. If making money is a matter you enjoy, why not? Often than not you want but you could not get. That is painful.

To get right behavior you need right mental framework to persist on something without what others cry or cheer. In GFC crash, Sept 2008-Mar 2009, most of market players burnt the money on fire as they did now. People tend to do things they just get used to. If you do the things for fortune, it is your gift. If you do the thing for nothing you deserve.

It is sad to see and know most of market players would choose the wrong road. You want to be excited and then your enjoyment need the cost and payment. You have to know something enough and then you can go the way. If you don't know where to go and then nowhere you could go. If everyday you want to go different place you could not get your home house.

In the crash of GFC, you could choose to burn the money or found your corners for shelter even for short term. I always think it is stupid and insane to run in the eye of tsunami with your own home made system. You are nothing comparing with the storm and tsunami. All around me wonder why I started to work again. They don't know if you want something you have to pay something out.

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It should be obvious that as long as we held on to our shares we suffered no loss in their price decline, beyond what our own judgment may have told us was occasioned by a shrinkage in their underlying or intrinsic value.

If no such shrinkage had occurred, we had a right to expect that in due course the market price would return to the 2006's level or better. It is a assertion no too many believe so. However if you know history enough, in fact it did so always.

In this respect our position was at least as good as if we had owned an interest in a private business. We might or might not have been justified in mentally lopping off part of the cost of his holdings because of the impact of the GFC and the current gloom in the market

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Most of market players appreciate the value but never use it as a scale for his money, return, and losses. They feel the socks cannot properly be regarded or appraised in the same way as an interest in a similar private enterprise, because the presence of an organized security market “injects into equity ownership the new and extremely important attribute of liquidity.”

But what this liquidity really means ?

1. the market players have the benefit of the stock market’s daily and changing appraisal of his holdings, for whatever that appraisal may be worth. the market player is able to increase or decrease his holdings at the market’s daily figure if he chooses.

So the existence of a market gives us certain options that we does not have. But it does not impose the current price on an wise market player who prefers to take his idea of value from some other source.

 

Too simple to know enough...

All of market disasters happen after simple and basic mistakes have been made. Most of market players would not do stupid things to lose the money if they really know what will happen. Most of market players believe they know the future but few really make money from their belief.

Market is not stupid as each of us. In hindsight all of us know what have happen and would correct the mistakes in price. The only difference is Market can sustain any loss if the sky is there but each individual just needs a few "losing the shirts" and then lose any chances to come back let alone accumulate big enough fortunes in the market.

Every day Market offers either to buy you out or to sell you an additional shares based on its will. Sometimes the price appears plausible and justified by business developments and prospects if you know them. Often, on the other hand, Market is in its enthusiasm or fears. You could choose to run away with market. But you also could choose to use your mind to find the true or intrinsic value and be self-reliant or independent. Unfortunately followers are always those who would be consumed in the wars.

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Are you a prudent businesslike market player? Will you let you lose your self-reliance and let market's daily price determine your view about your own business? Yes we need to be sure we want to trade with market only when our views are the same as the market. We may be happy to sell out when the price is ridiculously high and equally happy to buy when the price is ridiculous low.

That sounds very simple but most of market players don't think about it carefully. As always life logic and market senses are simple but hard to grip on since they challenge against our human primary instinct.

So do we need to buy and sell daily? You can but could you find the chances to win safely, effectively, and efficiently every day? Making money is not easy. The chance to grip on the money should be few and need the time to look after. At last you need to be right, decisive, and persistent for winning. Have you seen any army win the war without long term planning?

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So most of the time it will be wiser to form our own ideas of the value of our holdings. These ideas should be based on full reports from the company about its operations and financial position. Seriously saying we can take advantage of the daily market price or leave it alone, as dictated by our own judgment and inclination.

We must take cognizance of important price movements, for otherwise our judgment will have nothing to work on. Conceivably the price, the value, the market sentiment may give us some warning signals which we will do well to heed.

Yes, we are able to sell our shares because the price has gone down, foreboding worse things to come. That is a clever action most of market do always at least in the last decade when I played in the market.

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However in my view after three year full time study, such signals based on the fluctuation of market always result in misleading to these clever market players. The daily movement is more risker than helpful in my view.

Basically in any business you need to reduce the cost for your raw materials or parts. In the market the price fluctuations have only one significant meaning for a businesslike market player. They provide you with an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal?

What if market is dead still? We will do better if we forget about the stock market and pays attention to our future returns and to the operating results of our own market business.

 

Whom are you?

Market is the world to a market player and he could not change it but adapt himself to the world to live.

Do you use the chart every day when you buy the bargains in the shopping centers? Do you buy a lot of bananas since the price turn to be much more expensive? Bargains to the buyers mean that he believe the things are worthwhile to consume in the daily life. What's the bargains to the market players? What're the difference of the bargains in shopping center and the stock market?

I can bet few of the market players have got the time to think about the differences. If not, it is good for your market life to think about it again and again.

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Bargain or not depends on what reference you set at. Most of TA guys don't have a reference which set by the basic logic and common sense. They tend to change their reference every day. Could you think they could buy the true bargain with their changed mind and references in days if not months or years?

In the past decade, the fact or reality was that most of traders acted as wind chaser. They were clever and worked hard but did against basic logic and common senses. Why did you feel it was expense when banana was marked at $18 since you have long enough experience that this was not normal price even you didn't know what really happened. You would try to use alternatives rather than paying $18 if you were not true lovers of the bananas. Who would like to pay $18 since the price is lovely high?

Did you believe the people who paid $135 due to the chart shew RIO's hotter and hotter price, was not clever and skillful? They were clever maybe but they did have been confirmed that they were stupid. The stupidity and insanity have been found in the attitude toward the price movements. The stupidity is based on the interest which lies in anticipating and profiting from market fluctuations.

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Market is always fluctuated. The wisdom of life need the market players to tell the differences of trivial many and vital few. The cleverness needs the stupidity to play the trivial for nothing. Trivial never could make any hands to hold enough fortunes.

A wise market player has to acquire and hold suitable shares at suitable prices. A wise market player has to hold if he wants to buy. A wise man at the cliff in the cloud and doesn't know what are or will around him, he has to be keep steady and refuse to move any step out of his existing position. Why did I choose to take my old spade?

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I could not see what are around me with my shares. I did know it is the most stupid thing to run in the pitch heavy cloud when the crowd was running down from the cliff. I wanted to sell to stop my pains but I did believe I need the last defensive line more than anything else if I didn't want to follow the crowd to burn my own money on the fire.

Damage had been done. It was a time you had no too much better option to bet on your last defensive line only. Tropo told me I had only one option, that was hara-kiki. I never thought so.

Hara-kiki is the result that the believers of some causes feel completely hopeless about their future and the causes. If you have the last defensive line you have more options than hara-kiki and you would never put you at the edge to take hara-kiki!

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Please note what is happening is very important for anyone in his environment. It could tell him when he would take the chances, hold his position, and run away before the damage would be done.

Market movements are important to the market players in a practical sense, because the movements alternately create low price levels at which they would be wise to buy or high price levels at which they certainly should refrain from buying and probably would be wise to sell.

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Most of shirt-losing retail market players in the last decade didn't fail in the TA but in the wisdom, the life logic, and common senses. Wisdom is not a matter need the gift to make rocket but know whom you are and where is your weakest points in your mental framework.

Do you know what means to you if your mental framework is wrong to live in the market? No! If you don't take the hara-kiki you would disappear from market or post the words for nothing only!

Don't pretend we are better than anyone. We don't need to be better but we do need to know when we could be very stupid and learn to stop us to get into extreme when the market is in the extreme mood at least.

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Cleverness make you skillful to play the trivial many. Wisdom make you pick up the right options for the unpredictable future.

Have you heard the words "D day?" Yep, it was said the day to land in Normandy but why this day was good day to land? Have you wondered why the commanders didn't just make their decision based on some TAs? Could we say the TAs and wisdom together to make them get the wise and clever decisions? Do you notice that the commanders did worry about the development but have to make their judgment and decision? Did you worry after you put one after assertions that the market should act like this or that?

Never thought about it? Why don't let you have a try? So that you can use TA to find the lever to magnify the effective of your wisdom?

 

Certainly you are clever in the market!

No anyone could say anyone in the market is not clever. All of market players know something and can give a lot of words to show their cleverness but most of market players lose the money.

We all know you only could get the return if we could pay less than what we get. However no too many have the guts or boldness to buy all else are burnt their money in the market.

Most of us want the quick and easy money and get what we could not get in anywhere else. Most of us could not regularly hold off buying until low market levels appear, because this may involve a long wait, very likely the loss of income, and the possible missing of investment opportunities.

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On the whole most of us feel better to buy whenever the general market level is much higher than can be justified by well-established standards of value. How many people could sell before 2008 GFC? We fail to be shrewd to look for the ever-present bargain opportunities in the ruins as we fail to be shrewd to lock the profit when the whole market is euphoria.

Certainly most of us are clever but we tend to pick up the trivial many but lose a few vital matters. Most of us cheer for the trivial profit to jump over the fences by following the winds but lose the vital few big capital times by times. Most of us show the cleverness to rush into exit at the same time, too many stampede each other into the hell, and then most of us are the losers in the market.

Driving by the primary instinct, most of clever market players become insane in the similar psychological patters with the wonder whey the charts don't work as they expect.

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Have you heard people said:

1. “Never buy a stock immediately after a substantial rise or sell one immediately after a substantial drop” or
2. "buy after the resistance line is broken up"
3. "Stop losses?"

They are so contradictory, don't they? What they were said for what conditions? Never ask questions for this contradiction?

 

Price and management

We all know we need good management to increase the value of our shares. So how to know the performance of a management team from the price movement?

It is significant to measure the average market prices as a measure of managerial competence. How could we tell a business is managed by a competent management team? It seems we have to say it depends on both of dividends received and of the long-range trend of the average market value.

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We need to test the effectiveness of a company’s management and the soundness of its attitude toward the owners of the business. However so far we don't have any accepted technique or approach by which management could be evaluate confidently based on the bar of market opinion.

Generally managements have always insisted that they have no responsibility of any kind for what happens to the market value of their shares. Of course, no management team are accountable for those fluctuations in price, which bear no relationship to underlying conditions and values.

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However it is wrong if market players accept the assertion that the price does never move relatively to the underlying value. If we do so, we would be lack of alertness and intelligence. We could not permit the idea that price could be far away from value in short terms, extends to the entire realm of market price.

We could not accept any permanent establishment of a depreciated and unsatisfactory price level. We have to remember that good managements produce a good average market price, and bad managements produce bad market prices.

 

Everything around us fluctuates!

Is it right to say everything around us fluctuates, everything never fluctuates without limitations; some fluctuates are in some defined patters regularly if some significant forces could control the fluctuation, some are in irregular patters since the dynamic changed driving forces.

Could we say
1. Market fluctuates always?
2. There are defined and clear patters in the market fluctuation?
3. What the forces to limit the fluctuation of the market price?

Most of the retail market players have ever believed the charts have all of the information about the market fluctuation but few of them could interpret the info correctly for their profit and return. Most of retail market players don't know anything about the black swans, which could make all of the info in a chart lose its value to get the future return and profit.

Do you know any difference between your interpretation of the charts and real market movement could wipe out all of your capital in the market? Stopping losses sound quite reasonable but it means you have made some mistakes. Do you know you are are human and your human errors could fail your stopping losses. How could you be sure you would not make some new mistakes after you made some silly mistakes?

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Have you ever played BOND before? No? It is worthwhile to think about the fluctuation about bond to sort out your mind and make your mental framework better for your market return or profit.

Why do the people play the bond? With whatever the reasons, we should be aware that even though safety of its principal and interest may be unquestioned, a long-term bond could vary widely in market price in response to changes in interest rates.

Do you know the inverse relationship between the price and yield of bond? Don't know? Something wrong in your mental framework. You miss some important basics of the market. Let's see a little bit more.

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1. The decline in the price represent mainly doubts as to the safety of the bond.

2. The recovery in the price usually means confidence for the safety of the capital and premium.

3. The price of bond could be all time high or all time low, which turns in cycle.

4. The price could take quite long time to be all time high or low.

5. However if you buy at all time high, you would lose, which seems always true.

6. Bond prices do not fluctuate in the same (inverse) proportion as the calculated yields, because their fixed maturity value of 100% exerts a moderating influence.

7. However, for very long maturities, prices and yields change at close to the same rate.

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Could you see what are the limitation of the fluctuation of BOND? No? You get lost in this very significant factor in the market for your return since you would fail to understand the economies of the BOND.

If you could not understand the basic of bond, you would only have one choice, jumping over the fences in the winding or busy to burn your money and fail to stop losses since you would lose your mind. Why? At last you need some bond type of investment which could replace your natural bond, labor value, for your cash income.

Don't think so? Check what happened to one of the greatest speculator in 1990s, Livermore!

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Do you know Newton's law? Do you understand how it works in the market? Do you know Newton’s law is about “action and reaction, equal and opposite," which works itself out repeatedly in the stock market, the bond market, the economies, and your emotion with the market sentiment changes? Do you know this law would play its part when you see the market as a whole?

The most noteworthy example was XAO, which rise from 2900 in 2003 to 6600 at the end of 2007 and in 2008 it was followed by a record collapse to 3000 in 2009. Before GFC the widest pendulum swings took place. The bond yield was swinging out from its lowest level at the crash of XAO too.

To most of market players, nothing is important if it doesn't happen just as what happen a few days or months ago. Have you heard the words, “The more it changes, the more it’s the same thing?” How many so called "intelligent traders" know what it really means? If you could not figure out what these words mean how could you be intelligent?