Trading What is too good to be true?

Too many retail market players don't know what is too good to be true(me? Between March - April 2011, I was one of them!).

Now I thought I know but in case someone don't know, I just list some examples below:

Example 1:

In 1999 Amerindo Technology Fund rose an incredible 248.9%. Its portfolio manager Alberto Vilar ridiculed anyone who dared to doubt it. To him the Internet was a perpetual moneymaking machine:

“If you’re out of this sector, you’re going to underperform. You’re in a horse and buggy, and I’m in a Porsche. You don’t like tenfold growth opportunities? Then go with someone else.”

How about this fund now? You could guess.

Example 2:

• Did you know the fever of funds about internet? In February 2000, hedge-fund manager James J. Cramer asserted that IT companies “are the only ones worth owning right now.” These “winners of the new world.” They “are the only ones that are going higher consistently in good days and bad.”

“You have to throw out all of the matrices and formulas and texts that
existed before the Web. . . . If we used any of what Graham and Dodd teach us, we wouldn’t have a dime under management.”

Where is he now? I don't know but most of his clients had lost their shirts between 2000 -2003.

***
How many retail market players ridiculed "Warren Buffet" as a man out of date? How many retail market players cursed his self interest? These market players don't understand "consider self-interest" in the market is the basis of market intelligence.

How many intelligent retail market players are here? So far I could not see anyone(including myself) is intelligent enough!

***
When too many people in the market claim that the next “sure thing,” good or bad, the market tends to go towards to the opposite.

It doesn't matter it will be health care, or energy, or real estate, or gold. If your head becomes hot, you should let it cools down. If your head is too cold, you need the guts to check the reality and find the opportunities.

Could you hear crying at the peak such as IT booming or that before GFC? Don't follow the crying and cheering but using your brains for wisdom and intelligence.

 

No price is low enough...

In the market there are times that no price seemed too high, such as that in 1999/2000 and peak before GFC; there are times that no price appears low enough such as 2003 and 2008/2009. How about now? If it is not low enough, it would mean EU, China, and US broken into pieces. Could it be broken? I don't know but I would monitor it for my mental framework change.

In 2002, market players yanked billions dollars out of stock mutual funds and some said one out of 10 investors had cut back on stocks by at least 25%. Nearly all of my IT insane market players I had known sold and left the market before 2006. The same people who were eager to buy stocks in the late 1990s—when they were going up in price and, therefore, becoming expensive—sold stocks as they went down in price and, by definition, became cheaper.

These clever IT insane people did their business by buying high and sell low.
They could not understand stocks become more risky, not less, as their prices rise—and less risky, not more, as their prices fall. You need to dread a bull market, since it makes stocks more costly to buy. And conversely (so long as you keep enough cash on hand to meet your spending needs), you should welcome a bear market, since it puts stocks back on sale.

If we are intelligent enough we should take heart: The death of the bull market is not the bad news as everyone believes it to be. Thanks to the decline in stock prices, now is a considerably safer and saner, which is the time to be building wealth. Do you understand that? Could you survival in this bust? It is a test for your intelligence and wisdom.

 

Are you wise and intelligent?

All like to be wise but are you really wise and intelligent in the market?

An wise and intelligent market operation is that:

1. it depends on thorough analysis including yourself and market
2. the analysis promises safety of principal and an adequate return.

All of operations else are not meeting these requirements are not wise and intelligent.

If you are not wise and intelligent, what could you expect from market?

Everybody now could tell you something about the market but do you think everyone is wise and intelligent? It is a time everyone can cry very impressive. Is it the louder you cry the wiser you are?

Too many warriors believe they are the best in the war regardless of

1. what to buys, or
2. for what purpose, or
3. at what price, or
4. whether for cash or on margin.

But do they really make money in the market?

***
It needs to remember in most of the time we must recognize the existence of a speculative factor in our shares or holdings of share.

It is our own task to keep this speculation element within minor limits, and to be prepared financially and psychologically for adverse results that may be for short or long time.

Do you have this kind of preparation financially and psychologically?

 

Why do you guess and gambling?

In the market few retail market players admit they are speculating. However when you put your money into the hands of rumors and facts in the past you do act as gamblers.

Don't mistaken me that I hate gambling. I do gamble in my life. However if you are gambling you should know you are gamblers! There are distinction between gambling and business in the stock market. Some gamblers could be very intelligent and wise: they know when to buy, hold, sell and run away with the chips and they know how much they could afford to gamble.

Everyone who buys a so-called “hot” share, or makes a purchase in any
way similar thereto, is either speculating or gambling. Speculation is always fascinating, and it can be a lot of fun while you are ahead of the game or you are very young. Some betting is very profitable but expect all of betting would make you very rich is stupid.

Never forget you could lose all in any gamble or wise investment! Something could be wrong in the market just as any business has the risk to close the door. Everything is OK but a drop of water could choke a very healthy people to die. Don't believe that? You could ask somebody put a drop of water when you are in sleep on not in notice. That is all about accidents!

***
However you don't need to hate speculation and gambling. Speculation is beneficial based on B. Graham:

1. without speculation, untested new companies would never be able to raise up.
2. it is always attractive a long-shot chance of a huge gain.
3. It is the grease that lubricates the machinery of innovation.

Some losers never understand the above. Gambling in a society with great second wealth distribution is great collectively. Anything could be bad or good and context dependent.

In the market the risk is exchanged (but never eliminated) every time a stock is bought or sold. If you buy you would have risk for the price down. If you sell you could see the train leaves away without you!

***
What's the logic to sell out all without context or after most of your money has been burnt into ashes? It is ridiculous to see the titles about selling out. If the sky is not here anymore you just would be in hell!

Wisdom and intelligence are not the game to play the words. It needs the gut to get the right things at the right time for right reasons with calculated risks! Do you know that after you lose your shirts? Do you put the time to set up a right mental system?

Stupidity and wisdom have a thin air. Don't rush across the line with the desire to be right! Don't let you across the thin air and cry loudly and self-confidently!

However you have to be warned by any chances such as "Opportunity for 20 people only!" It is not saying it is not true but it does sound too good to be true. If you want to take it, it is fine but don't sell your house and put all of the money in!

If there is 1% chance to be very rich and you are very lucky, you would be very rich! Too good to be true could be very true under some conditions. You just need to question yourselves: do you trust your lucks? No? Forget it!

Big fortune needs great lucks in my view! Don't forget to say thank you if you could be very rich!

***
It is horrible and boring time if you don't like to cry the darkness in the darkness. It is the time everyone hates the gearing especially negative one. However most of people are wrong at the wrong time.

A gearing is a way to magnify the consequences for what you deserve. It enables you to what you could not afford. If you are right, you could get big gold from the air with little effort. It sounds as magic, right? However it really helps some to get what they could not afford.

The problem is not about gearing but what's for from the gearing, what's your affordability for the gearing, what's effort you would like to pay out if you are not lucky. The gearing could not gear you up but gear you down! What do you want to gear up? Is it too big for you to gear the good thing up without breaking up your back?

Gearing definitely is not for everyone. Don't forget you can be wiped out when they go down. However if you could not afford to use the gearing doesn't mean gearing would hurt everyone!

Too many losers in the market tend to hate the gearing. The reason is that the gearing makes them lose too much. If you are bad lucky anything could beat you down!

You are losers? Stop to use your losing experiences to tell others how to win in the market. Why? You are not qualified! Why? You are the losers! No words would be listened in the war. It is true in the market!

 

What should be done generally in the market?

The conditions and context about this topic is that you are not sure what will happen in future. So if you are believers for something, you should not think about this matter.

Good ideas have their inherent risks but could bring in life change points. Could you be sure all of good ideas could bring some life turning points? No one could but big success needs great ideas and have gut and courage to start.

So when you jump into an idea you believe, it is your own personal matter. Anyone else should appreciate your guts and courage even he could not agree with what you do.

In my life I jumped into a lot of academic great ideas, which has kept to change my life even not so greatly in money senses. When we jump into great ideas for money, you have to target the money as your goal. You have to think if you are wrong what could be left for you. It is very important for anyone who has family responsibility!

You could not leave your family without your cash contribution and put all into the market for some great ideas. You could fail even the chance is 1%. It is not to stop you but just hope you could make great money but never have chances to be a life loser!

If you lose all, no one would life to hear your crying and wipe out your tears. Why? You deserve that and it is one scenario for all of market player.

***
So generally if you don't have some great ideas, you need to think about how to be balanced between your bond capital and stock investment.

Don't narrow the bond capital just for EU bonds. To you your labor value is from your labor value bond. Bond seldom makes your very exciting for the return but it could bring in some valuable cash flow for your family and you.

B. Graham suggested

1. each of us should divide his holdings between high-grade bonds and leading common stocks;
2. that the proportion held in bonds be never less than 25% or more than 75%, with the converse being necessarily true for the common-stock component;
3. The simplest choice would be to maintain a 50–50 proportion between the two.
4. he should adjust to restore the equality when market developments had disturbed it by as much as, say, 5%.

What if you felt the market was dangerously high(if you could feel. Unfortunately most of us would fail to feel so)? He should choose to reduce his common-stock component to 25% more or less.

Conversely he could advance it toward the maximum of 75% if he feel that a decline in stock prices was making them increasingly attractive.

Unfortunately, most of market players have not senses about the logic of the words from B. Graham. Most of us don't sense the market sentiment and price at all but buy when price moves up and sell when price moves down!

***
We are too specialized and then we could not accept the most basic logic and common senses. That is great points of the modern education system.

Too many specialists without any strategical views and minds want to beat down the market. They are trained for special tasks. When they leave away from their fields they are idiots. They seldom have self-awareness which isn't really needed in their field. They are self-esteemed. In most of time they just could not figure out why they could lose the shirts while they are proud for their cleverness.

What a good businessman is? Most of market players just want to get the money but have the mental frame to lose all. Still could not figure out why genius becomes bum after some great boom? Think about it.

 

After you saw the facts in the past...

In somewhat we know or we don't know the past laid out the seeds for future and form the future consequences with the help of black swans. Past is linked with the future and is the force to make the future. However past could not decide what future is.

It seems reasonable to say that the great advance in the stock market
in 1990s has laid down the seeds of this miserable decade between 2002 - 2012. The advances of stock market led the price was too high even most of market players expected in 2001 expected good returns such as more than 15%.

After this miserable decade, few people started to accept some very pessimism view about the future. Most of market players are not willing to consider seriously the possibility that the IT bust and GFC in the past only could result in that stock prices are “now too low,” even it could be down further.

Therefore that “the miserable results since 2001 or 2008 would imply not
very bad but good results for the future if you know what could be bought. Human kind lives in vicissitudes always. Low valley of the waves if deep enough usually forms the peak of the waves in future.

If anyone tells you the ocean would be dried up in years, you would feel this people is insane. However in the market in the bad time the title such as "sell out all" could make a lot of people take as clever advices. However it is wrong to make this kind of call. It is not because anything but it is illogical and insane.

Do you think the ocean would give your a valley or peak for very long time? Do you know the deeper the valley the more chances it move up much more powerful and go much far than you could expect?

Do wonder why don't use your brain for something basically is right? All of predictors are trying all to make their predictions look right even few could be right. You may know the past but you definitely don't know the black swans.

Who could see what ahead in the darkness? Something in the pitch darkness just could not see by anyone! Don't believe that? Using your valuable brain not eyes and hand to google the article to let your cry or cheer too much!

***
There are always some exceptions for what we deal with. Is it a universal and general right assertion? If it is how could you be sure your system and business ideas would give 20 people only the chances for excellent return?

History has shown almost always bonds have fluctuated much less than
stock prices, and people generally could buy good bonds of any maturity without having to worry about changes in their market value.

However there were a few exceptions to this rule, and it was said that the period after 1964 proved to be one of them since high interest rate and dropping down of good corporate bonds.

For quite long time all have felt BHP is great, which is true. However how many people know it has been sold at about $10 as though it had no tomorrow. Who could see BHP could be so profitable 10 years ago?

 

Future is unpredictable, isn't it?

Before I lost all of my profit and capital in IT bust, I never asked this question. Do you think future is predictable or not?

Now I believe the future of stock prices is never predictable. Could the rumors and facts in past be used for future prediction? Too many clever people think experiences could help them to predict the future. They believe the chart has all in the future. 10 years ago I believed so. Now I don't believe it any more.

It is important to ask this question. It is a very fundamental question. If you could get the right answer, you would put you in a winning position psychologically. It would force you to think again and again before you buy and decide to hold at the peak!

You need to grapple with that truth: future is unpredictable. Since you don't believe you could predict future, you would realize you have to learn how to predict and control your own behavior.

Why don't you win in the market? You don't have the necessary mental frame and behavior. Both of them need the mental system destruction and rebuilding. If you really want to win in the market you have to act as the market requires.

 

Who don't want to get profit...?

Who don't want to get profit in the market? You, of course, will desire and
expect to attain better overall results than anyone else. But if you could not sort out your mind you would lose more than you could make.

Do you know some very basic points in the market? Let me tell you:

1. First you must make sure that your results will not be worse than the market average.

We google everyday and hope everyday. We have experiences in the market. However you just don't know this basic: don't do worse than the market main stream.

Have you achieved this goal? I can bet on most of retail market players since IT bust have done much worse than the market as a whole. What after you lose more? Your guts are broken. You may be experiences but you just know how painful after you lose.

Have you learned how not to lose too much? If you could not learn to do so, your experiences are rubbish. You have more rubbish in your mind you will lose more!

2. Don't say you are experiences and work hard in the market! It is no difficult trick to bring a great deal of energy, study, and native ability into market and to end up with losses instead of profits.

Who don't read a lot of trading books with the hope to make killing by click the keyboard? After you have lost for a decade, you just tell one fact: you fail to make money and you don't have any credibility to tell anyone how to play in the market.

I have to say they are virtues for anyone to work hard and google hard. However as a market player you have to know these virtues, if channeled in the wrong directions in the market, become indistinguishable from handicaps. Thus in this sense, your losing experiences, if could not help you to be wiser or more intelligent, are negative elements for your market playing.

it is most essential that you start with a clear conception as to
Investment versus Speculation and know you are invest or speculate. You have to understand which courses of action offer reasonable chances of success and which do not. Unfortunately most of experienced day traders and lovers of rumors and facts in the past don't want to do the basic work.

It is a good advice that if you hear anyone say he is experienced market player, you should be warned before asking their trading results in long run. Don't listen anyone tell you they just how great today or yesterday. Dogs have dogs' day. In their days they should get some foods and joys. However it is more important what they get when the days are not their days!

 

What do retail traders do in the market?

Most of retail traders have some mechanism systems but generally speaking they fail to trade for losses rather than for profit. It is very true for long term after market crash and the reasons they could cry so loudly now. If you could profit in all of market seasons you should not motivation to cry in the darkness.

1. They usually buy stocks when the market has been advancing and selling them after it has turned downward. The stocks selected are likely to be among those which have been “behaving” better than the market average.
2. A small number of professionals frequently engage in short selling. They will sell issues they do not own but borrow through the established mechanism of the stock exchanges. Their object is to benefit from a subsequent decline in the price of these issues, by buying them back at a price lower than they sold them for. Sometimes some retail traders try their unskilled hand at short selling.
3. Trading means buying stocks of companies which are reporting or expected to report increased earnings, or for which some other favorable development is anticipated.
4. There are some of retail market players put their emphasis on an
excellent record of past growth, which is considered likely to continue
in the future.
5. Some may choose companies which have not yet shown impressive results, but are expected to establish a high earning power later. They often are developing new processes or products that are deemed to be especially promising.

***
History in last decade at least have already expressed a negative view about the overall chances of success in these areas of activity. Stock trading is not an operation “which, on thorough analysis, offers safety of principal and a satisfactory return.”

The retail traders always think they are best to get quick and easy money even so far most of them lose the shirts in the market. Some of us are so confident on what they could see and then proud to beat others since they could not be right in the market.

If you don't believe that you could read the posts here to feel how many of the retail traders really could get the profit for long enough time.

In their endeavor to select the most promising stocks either for the near term or the longer future, the investor faces obstacles of two
kinds:

1. One is stemming from human fallibility and
2. Another is from the nature of his competition.

He may be wrong in his estimate of the future; or even if he is right, the current market price may already fully reflect what he is anticipating.

In the area of near-term selectivity,

1. the current year’s results of the company are generally common property in the market.
2. the next year’s results, to the extent they are predictable, are already being carefully considered.
3. you selects issues chiefly on the basis of this year’s superior results, or on what he is told he may expect for next year.
4. However it is likely to find that others have done the same thing for the same reason.

Just as now everyone predict the things would be worse and everyone is crying and doing the same thing. The market is a predicting machine and the price usually reflects what the price the market expects in next 6 - 12 months.

Could you get money from others who expect the same thing as you just buying and selling? Yes you may be experienced but do you think others would be more stupid than you?

 

Human and resources

Are you human and do you need resources or would you like to the resources for what you want to do? A lot of retail market players don't understand they are human and all need some resources, which means competitions for resources, right?

As a human, it is always possible he makes some outright errors to predict the future. The longer the time in future, the greater he makes errors. Who doesn't make human errors with some great computer system? You, me, or anyone else? I have made a lot of human errors. There are always too many bugs from my software even after I have debugged them for some times.

How about the experts or the people with great experiences in the market? They make mistakes too. What's the meanings of mistakes in the market, you would lose some money! If you don't protect yourselves and make your mistakes affordable, you would be broken out!

When I see anyone burst to say how great they are and their systems are, I feel very disappointed about them. The lessons in the market are if you put too much your capital into somethings without great enough protection you could lose your shirts and lose all of chances to let yourselves standup again!

Market is fair and cruel! If you are right you could be rewarded with the money(resources). If you are wrong, without matter how great your experiences and IQ, your chips would be taken away. In worst case you could trade yourselves in. All of us know Jesse Livermore, a great speculators in 1900s. One human calculation error put him at the position to commit suicide!

Winning in the market for one time is easy if you are lucky enough. Winning in the market for life is hard. It should be so since who don't want to get more resource and let their life more colorful?

***
Please take a note that experts could frequently go astray in forecasts and you will do so too.

Theoretically it is possible for any individual to benefit greatly by making
correct predictions when market as a whole is making incorrect ones. But you have to remember that is only theoretical.

How many retail market players have the acumen or prophetic gift to beat the experts? How many, so-called long term, investors could sense the future right in the game of estimating long-term future earnings? Get the mental framework right and get enough skills but it means time and your behavior changes!

So we could get disconcerting or not lovely conclusion, that is to enjoy a reasonable chance for continued better than average results, you must follow some very basic life logic and common sense first; you must make your market playing policies:

(1) it is sound and promising inherently
(2) it must be not loved by everyone in the market.

Do you understand "buy when the Wall Street is full of bloods or sell when the Wall Street is euphoric?" Do you understand the importance of quality? Are the rumors and facts in the past would give you the conditions for good prediction and operation in the market?

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If you accept the logic above, have you asked whether or not there are this kind of policies are available and put yourself in to get them? If you don't go so far how could you overcome the human errors and avoid to lose the shirts in the market?

Most of retail market players never think the market so let alone asking the questions right. If you never question yourselves this way, how could you say you are experienced and knowledgeable market players and beat others just for twisting the words?

We have to say in theory once again, all of us could get this kind of policies. We have to say there are reasons to think that we could get the answer in
practice as well. Otherwise we just could leave away from the market painfully!

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The question is now about how to get this kind of policies! Since IT bust I put a lot of time to get these policies. It works but far better than I could expect. Why? It is about behavior and psychological framework in our minds.

All of us know that market rolls too far in both directions, frequently in the general market and at all times we, as individuals, have bipolar disorder mentally. It is normal for anyone of us is emotional to buy and sell psychologically. It is just too dangerous for our hard-earned money.

A real experienced retail market player should know in bad time and only in bad time a common stock could be undervalued. It is because of lack of interest or unjustified popular prejudice. Do you know group thinking? All of us tend to follow the trends, right or wrong!

We have to understand that most of retail traders don’t appear to
know the reasons why they have to cry in the darkness or cheer in the euphoria.

***
Do you go to shopping? Do you know each thing has its value and price if needed by human kind. There are discrepancies between price and value. Do you agree that any intelligent person, with a good head for figures, should have a veritable picnic on the market? Do you believe that you should batten off other people’s foolishness?

However it seems but somehow it doesn’t work out that simply. Your mental framework has to be there to support this simple operations in the market for the profit. Do you agree the followings?

1. You must be patient if you buy a neglected and therefore undervalued stock for profit.
2. You must sell cruelly a stock which has generated reasonable or great profit. The great profit makes them too popular and therefore overvalue is unavoidable.
3. You have to be courageous and energetic to buy the undervalued and deserted shares with the confidence that they would not become zeros.
4. You must have deep enough pocket for your human errors!

All of greatness has simple and right logic. However the successful application is very hard even not impossible. It needs the changes of minds and behavior. Do you know it is hardest part to change anyone if he is old enough?

So would you want to change? How far could you change? Do you have the deep pocket to support your change? Do you have the guts to change?

I would change as that I believe right and workable without matter the results at last. I like to make my own personal legend, good or bad!

 

“An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return.” Have you heard these words before? Is it a clever or intelligent principle for any market practice?

• No thoroughly analysis of yourself, your targeted companies, you could not have the sound judgment of the underlying businesses. If you don't do so how the rumors and facts you could see now would give you the different view from the public and then find the bargain?

• You could miscalculate something or miss something completely let alone black swans. If you don't deliberately protect yourself against serious losses, how could you be survival in the market?

• A lot of us expect some killings in the market. What's the chance for these killings. You have to aspire to “adequate,” not extraordinary performance. Adequate performance is the expectation of your return for your job. Killing is the hope and greed!

B. Graham defined the investment very comprehensively that

1. “thorough analysis” means “the study of the facts in the light of established standards of safety and value”
2. while “safety of principal” signifies “protection against loss under all normal or reasonably likely conditions or variations” and
3. “adequate” (or “satisfactory”) return refers to “any rate or amount of return, however low, which the investor is willing to accept,
4. provided he acts with reasonable intelligence.”