What Trading teaches is about life

Jay's market outlook for 20th nov, 06 : European markets fell quite heavily on Friday, while US stocks were mixed with the Dow up moderately, and the Nikkei slipping a little. Asian markets are down this morning, and the global short-term trend appears to be largely down. This could lead to another decline here today.

What Trading Teaches us about life:

'What Trading Teaches Us About Life' is a good top 10 list from Brett N. Steenbarger, Ph.D.
Trading is a crucible of life: it distills, in a matter of minutes, the basic human challenge: the need to judge, plan, and seek values under conditions of risk and uncertainty. In mastering trading, we necessarily face and master ourselves. Very few arenas of life so immediately reward self-development--and punish its absence. So many life lessons can be culled from trading and the markets:

1) Have a firm stop-loss point for all activities: jobs, relationships, and personal involvements. Successful people are successful because they cut their losing experiences short and ride winning experiences.

2) Diversification works well in life and markets. Multiple, non-correlated sources of fulfillment make it easier to take risks in any one facet of life.

3) In life as in markets, chance truly favors those who are prepared to benefit. Failing to plan truly is planning to fail.

4) Success in trading and life comes from knowing your edge, pressing it when you have the opportunity, and sitting back when that edge is no longer present.

5) Risks and rewards are always proportional. The latter, in life as in markets, requires prudent management of the former.

6) Happiness is the profit we harvest from life. All life's activities should be periodically reviewed for their return on investment.

7) Embrace change: With volatility comes opportunity, as well as danger.

8) All trends and cycles come to an end. Who anticipates the future, profits.

9) The worst decisions, in life and markets, come from extremes: overconfidence and a lack of confidence.

10) A formula for success in life and finance: never hold an investment that you would not be willing to purchase afresh today.

The Myth of Stock Selection

Jay's Market outlook for 14th November, 2006 : European markets were mixed last night, with France and Germany making fair gains while London dropped. US stocks made modest gains once again. Asian markets are up this morning, but below their best at 0930. Still, the global short-term trend is up for now. This should help our market rise further today

The Myth of Stock Selection

Since most people believe that stock selection is the key to making money, I'd like to share with you the source of that myth.

1) Mutual funds are by charter supposed to be fully invested. Furthermore, their job is NOT to make money but to outperform the market (which most of them cannot do).

2) If you must be fully invested, then you cannot really practice position sizing or proper risk control. And even asset allocation (which is really position sizing) seems like finding the right assets.

3) Mutual funds, by the way, don't get paid for performance, they get paid by the amount of assets they manage...they get paid if they keep your money.

4) When the market goes up, most funds make money and most people are happy to be a little richer...and the fund managers go on CNBC and talk about which stocks they like.

5) When the markets go down, most funds lose money. The funds that make money do so by stock selection. And what they do is find stocks that are selling for less than their assets are worth if they were liquidated.

6) And when we have mutual fund crises (like the one recently when funds were selling to mutual funds when the public couldn't buy), it was all blamed on market timing.

7) What most people don't understand is that the best traders get out of mutual funds and become hedge fund managers where they can really trade. And very little of what they do has to do with stock selection. It has to do with cutting losses short, letting profits run, and proper position sizing. So much for our little myth.Welcome to the world of how money is really made in the market.