When to use it: Any time a market or stock has already gone up a lot.
Why it’s smart-sounding: It implies wise, prudent caution. It implies that you bought or recommended the stock a long time ago, before the easy money was made (and are therefore smart). It suggests that there might be further upside but that there might also be future downside, because the stock is “due for a correction” (another smart-sounding meaningless phrase that you can use all the time). It does not commit you to any specific recommendation or prediction. It protects you from all possible outcomes: If the stock drops, you can say “as I said…” If the stock goes up, you can say “as I said…”
Why it’s meaningless: It’s a statement of the obvious. It’s a description of what has happened, not what will happen. It requires no special insights or powers of analysis. It tells you nothing that you don’t already know. Also, it’s not true: The money that has been made was likely in no way “easy.” Buying stocks that are rising steadily is a lot “easier” than buying stocks that the market has left for dead (because everyone thinks you’re stupid to buy stocks that no one else wants to buy.)
I just finished reading Jason Zweig’s new book “The Devil’s Financial Dictionary” and boy is it good. If you’ve ever been overwhelmed by all the jargon used in finance and economics then this is right up your alley. Jason offers up a witty, brilliant and most importantly, useful collection of honest definitions. It’s a collection of all the things most people think about these words, but are too afraid to actually say. For instance:
ACCOUNT STATEMENT, n. A Document from a bank, brokerage, or investment firm that is designed to be incomprehensible to the CLIENTS, thereby preventing them from asking impertinent questions like “Who set my money on fire?” You might be able to recognize your balances and recent transactions on an account statement, although that will be easier if you earn a PhD in cryptography first.
EFFICIENT MARKET HYPOTHESIS, n. A theory in financial economics believed only by financial economists. In theory, the market price is the best estimate at any time of what securities are worth; it immediately incorporates all the relevant information available, as rational investors dynamically update their expectations to adjust to the latest events. In practice, however, investors either ignore new information or wildly overreact to it, regardless of how relevant it is. Even so, that doesn’t make beating the market easy, because you must still outsmart tens of millions of other investors without incurring excess trading costs and taxes. As behavioral economists Meir Statman puts it, “The market may be crazy, but that doesn’t make you a psychiatrist.”
FEE, n. A tiny word with a teeny sound, which nevertheless is the single biggest determinant of success or failure for most investors.
Investors who keep fees as low as possible will, on average, earn the highest possible returns. The opposite may be true for their financial advisors, although that is still not widely understood.
The International Monetary Fund (IMF) has issued a double warning over higher US interest rates, which it said could trigger a wave of emerging market corporate defaults and panic in financial markets as liquidity evaporates.
The IMF said corporate debts in emerging markets ballooned to $18 trillion (£12 trillion) last year, from $4 trillion in 2004 as companies gorged themselves on cheap debt.
It said the quadrupling in debt had been accompanied by weaker balance sheets, making companies more vulnerable to US rate rises.
Stocks ended mixed in choppy trading Tuesday as Wall Street staged a partial rebound from Monday’s sharp sell-off that edged the broad U.S. market ever closer to its 2015 lows hit in late August.
The Nasdaq’s losing ways continued, though, as it lost 0.6% and sunk further into the red for 2015.
After initially struggling to gain traction, stocks jumped higher after a report showed consumers grew more confident in September despite increased market volatility. The Conference Board’s consumer confidence index rose to 103.0 from 101.3 in August. Economists expected a drop to 97.
But investors were unable to hold onto those gains as stocks pulled back and headed lower in afternoon trading — then up again. The Dow Jones industrial average finished up 47 points, or 0.3%, after having risen as much as 118 points earlier in the session.
The Standard & Poor’s 500 index ended up 0.1% after tumbling 2.6% Monday to 1881.77 — putting the broad U.S. stock gauge perilously close to its low for the year of 1867.61 back on Aug. 25, a scary low that followed a 1,000-point drop in the Dow Jones industrial average a day earlier on Aug. 24.
The Nasdaq composite index added to its 3% drop on Monday.
The volatile trading was worrisome as the so-called “retest” of the S&P 500’s August lows is what Wall Street was focused on. The market’s failure to hold those levels means the S&P 500, which kicked off Tuesday’s trading session down 11.7% from its May 21 record close and off 8.6% for the year, could have farther to fall. The closely watched stock index is on track for its worst quarter since the third quarter of 2011.
How the market reacts when stocks get down to the August lows is critical, Wall Street pros say. The storyline is simple: If the market holds at those levels, a floor could develop under the market. If the old lows don’t hold, prices will go even lower in search of lower support levels.
Cargill is winding down Black River Asset Management, the hedge fund arm it started in 2003.
The US-based agribusiness company said the board of Black River met Friday and decided to fold two commodity funds that trade agriculture and energy under another branch of Cargill and spin off three other funds as independent, employee-owned companies
Black River had $7.4bn under management as of June. In July, it decided to shut down four other funds including the two that traded in emerging markets and commodities.
Cargill will continue to be an investor in both the internally managed and newly independent funds, a spokeswoman said.
1. Discipline, while necessary for success, is never sufficient. Discipline does not substitute for skill, talent, and insight. Strict, disciplined adherence to mediocre plans can only lock in mediocre results. If it were otherwise, there would be no losing automated trading systems.
2. It is not enough to find an “edge” in financial markets; as any tech entrepreneur can attest, competitive advantages are perishable commodities. Those who sustain success continually renew themselves, uncovering fresh sources of competitive advantage. That requires processes for assessing and challenging our most basic assumptions and practices. It takes a good trader to create success, a great one to recreate it. Nothing is quite as difficult— and rewarding— as letting go of what once worked, returning to the humble status of student, and arising phoenix-like from performance ashes.
3. This productivity is readily apparent on a day-to-day, week-to-week basis: The greats simply get more done than their colleagues. They organize their time and prioritize their activities so that they are both efficient (get a lot done per unit of time) and effective (get the right things done). How much time do we typically waste as traders, staring unthinkingly at screens, chatting with people who offer little insight, and reading low-priority/ information-poor emails and reports? The successful traders invariably are workhorses, not showhorses: They get their hands dirty rooting through data and make active use of well-cultivated information networks.
4. Successful traders I’ve known work as hard on themselves as on markets. They develop routines for keeping themselves in ideal states for making trading decisions, often by optimizing their lives outside of markets.
5. This, for me as a psychologist, has been one of the greatest surprises working with professional money managers: The majority of traders fail, not because they lack needed psychological resources but because they cannot adapt to what Victor Niederhoffer refers to as “ever-changing cycles.” Their frustration is a result of their rigid trading, not the primary cause. No psychological exercises, in and of themselves, will turn business around for the big-box retailer that fails to adapt to online shopping or the gaming company that ignores virtual reality. The discipline of sticking to one’s knitting is destined for failure if it is not accompanied by equally rigorous processes that ensure adaptive change.
Emotional stability and discipline is the foundation upon which a trader has to build his trading methodology. Without the ability to control emotions and the impulsive trading decisions emotions cause, the best trading system and the best thought-out risk management approach are useless.
I truly feel that I could give away all my secrets and it wouldn’t make any difference. Most people can’t control their emotions or follow a system. – Linda Raschke
Markets are never wrong – opinions often are. – Jesse Livermore
I don’t get caught up in the moment. – Ray Dalio
If you argue with the market, you will lose. – Larry Hite
The psychological factor for investing has 5 areas. These include a well-rounded personal life, a positive attitude, the motivation to make money, lack of conflict [such as psychological hang ups about success], and responsibility for results. -Dr. Van K. Tharp
It is hard enough to know what the market is going to do; if you don’t know what you are going to do, the game is lost. – Alexander Elder
These quote highlight the fact that, before you get into the nitty-gritty of your trading system and try to tweak your stop loss or take profit placement, you have to work on your discipline. It is not a stop loss order that should have been placed 5 points higher or lower that makes the difference between a consistently losing and a profitable trader, but the degree to how a trader can avoid emotionally caused trading mistakes.