Lesson: Perfectionism

what is the trader’s mantra?

it is ” buy low, sell high. seems easy to do right?

think again! i have seen lot of traders do the opposite. buying high, selling low. much worse is buying low, selling lower.

The point here is nobody knows the bottom or the peak. Deal with it!  Buying at the very low and selling at the very high requires pure luck!

Most traders, are perfectionist!

They want their trades to be perfect. They want to buy at exactly the very low and want to sell at the peak. Traders get in and out of a  stock trying to squizz every bit of gains they can get from it. In my own tagalog term, ” nilalaspag nila ang stock”. What do you think of the stock market? Your own ATM machines?!!

Even Jesse Livermore admitted that getting in and out on a stock is fatal. That is coming from one of the best speculator and I don’t think you even come close to his level so don’t try to do the impossible. ( well, respect for the momentum traders. i am referring to average traders.)

Nobody knows the low or the high. Because we want to buy at the very low, we miss the rally. Because we want to sell at the very high, we were caught in the decline when prices correct or collapse.

Perfectionism is also the reason why most traders stay on a losing position. Because they want to prove themselves right and  the market wrong (Dude, don’t go against the market!). Or because they want to look good with others and taking losses & admitting that they are wrong will make them look losers ( if you insist on staying on a losing position and do your wishful thinking, yup, you are a loser).

Even when it comes to developing a system for trading. They want it to be so perfect, it becomes complicated. You dont need a perfect system ( which by the way, do not exist). What you need is a system that works. That makes money.

Perfectionism sometimes result to greed. They are not contented with what they make, because they want all of it. Boy, you already made money. Be contented with it.

For perfectionist traders out there, i suggest be more realistic. okay? and stop basing your performance on the performance of others. It pressures you to trade more.Just focus on your own investment goals and don’t be bothered of how well others are doing.  I know that we are all after mastering the craft of trading. But set our own limits and be realistic.  Respect the market ( i have another article about it, check it out!).

Nathan Rothschild, one of the richest guy who made his money from the stock market said,

I never buy at the bottom and I always sell too soon.”

Keep learning and do your homework all the time guys! ( i mean study your stocks, funda or techni)

That’s all for today. Need to do my SCHOOL homework. I hate making HW, so high school!. haha

Don’t stress yourself much on trading. Enjoy and Happy trading!

Hope you learn something valuable. See yah!

 

 

 

Lessons from Warren Buffett

Value Investing, the Buffett Way

This is an excerpt from an interview made by Forbes Magazines about the investment principles of Mr. Warren Buffett. It’s a long article so I decided to summarize it and point out important things. As a value investor, these are the very principles I used in my investments. I hope that you will be properly guided and learn from it.

Buy stocks as if you are buying the company. Company that you want and you believe will do well in the future. Never buy it for a quick profit or fast turn on an earnings report or for dividend play. Remember that in investing, you don’t buy stocks because you want its price to go up but rather you want to become part of the business of the company.

When the stock prices are going down, such bargain prices produced panic rather than purchases. Such panics present buying opportunities for investors. Be greedy when others are fearful; be fearful when others are greedy. But consider always if it is cheap for the wrong season or the right reason. A stock price may go down not because it loses its value but because of the negative general sentiment for the moment.

Most analysts saw only good but fully valued stocks. But when we analyze stocks, we don’t base our decisions solely on things found on the balance sheet, but also for values that may not appear on it. Things like valuable brand names, strong market positions, consumer loyalty etc.  These off balance sheet values are priceless, virtually immune from inflation and capable of continued growth like compound interest machines. The key to investing is to determine the competitive advantage of any given company and above all, the durability of that advantage.

There are also good stocks but are cheap. Some analysts say yes it’s cheap, but it’s not going up. That’s silly. People have been successful investors because they’ve stuck with successful companies. As you see, the stock market in the short run is a voting machine, but in the long run, it’s a weighing machine. You are neither right nor wrong because people agree with you. So you keep cool, hold down the risk and go with what the scale tells you rather than what the trend of the moment says. Anyone who can do that consistently his stock is certainly worth a premium to the market.

Conventional wisdom says that no one ever went broke taking profits but that is not the way you must think as an investor.  There are huge advantages for an individual to get into a position where you make a few great investments and just sit back. You’re paying less to brokers and you’re listening to less non sense. You should never sell your stocks of great businesses as long as they stay great regardless of how high the stock prices may get. What would be the point? If you sell stocks of great companies, where can you find a comparable investment? You would have to reinvest the money in something less great. As Omar Khayyam says, “Oft I wonder what the vintner buys half as precious as the stuff he sells”.

Investing is picking good stocks at good prices and staying with them as long as they remain good companies. Essentially, don’t try and figure out what the market is doing. Figure out the business you understand and concentrate on it. An investor with a portfolio of sound stocks should neither be concerned by sizable declines nor become excited by sizable advances.

A successful investor has the ability to stand back and not be influenced by a crowd, not be fearful if stocks go down. There is no disaster proof portfolio. There may be worries of panics or depressions, but these uncertainties don’t bother an investor. Uncertainty actually is the friend of the buyer of long term values.

Understand that it’s smarter to look for a steady 15% or so compounding of your money than to search for hot stocks that would double or triple in a short time.

“You only have to do a very few things right in your life so long as you don’t do too many things wrong.”

In value investing, at first it will be difficult not to be affected by sizable declines and advances on stock prices. There will be moments that you are tempted to take profits or cut loss your positions. Here is a tip for you.

Invest in the stock market as if you had been given a punch card that only allows you to make a limited number of trades. Let’s say you can only make 3-4 trades per year or 20 trades in your entire investing career.  In that way you would only deal when you were absolutely sure on an investment decision and would avoid the temptation to dip in and out of the market on a whim. In my case, this is how I do it. I convince myself that I am impaired to execute any selling orders. In short no selling. In that way, I will be extra careful in my investment decisions because once I bought the stocks there is only one way in but no way out.

Remember this: We don’t want to become investors that are short-termist, make terrible timing decisions and are more fearful of losing money than are greedy to make it.  The future is never clear. But because something is unclear doesn’t mean it can’t happen. Now is the time to invest and get rich.

Source:  http://www.scribd.com/doc/31752060/Forbes-on-Warren-Buffett

Book: Trading for a Living

I was reading this book called trading for a living by Alexander Elder.  It’s about the market psychology, on how human behavior can influence and dictate price movements and overall performance of the stock market.

I really do believe that market is not just a battle of the minds but more of a psychological war. Our psychology affects how we behave in the market in executing our trades and choosing our stocks to invest.

There are 2 emotions in the stock market: fear and greed.  When you seek advices to people with experience in this field, they always keep on telling you that never allow your emotions go with your trading. Sounds easy to do, right? But believe me; controlling emotion over the market is far more difficult than reading charts and indicators.

You know it’s difficult because real money, your MONEY, is involved and any wrong trade may result to loss and further losses. It’s hard not to be emotional on times when you see your portfolio is all red and your paper profit is melting.

So, why we need to control emotions in the market? Well, it’s because trading ruled by emotions makes us do stupid trades. It makes us upset or excited on sudden changes in prices that deviates us from focusing on our trading plan. Emotional trading is for amateurs! The problem with most amateur traders is that when they enter the market, they only have one goal in mind and that is to earn big. It is possible that you can yield more than 10% of your initial investment in just a week but c’mon, the stock market is not your Santa Claus and everyday is not Christmas.

Every trader first goal must be long term survival. It’s not all about making money in the market. It is about trading well. If you trade well, then money follows. The first 2 years in the market is a battle for survival for amateurs. Afterwards, you can strive for a steady growth of capital. Making high profits should be your 3^rd and last goal in trading.

I am not yet finished reading this book. It’s a good book and I recommend it to people who want to take stock trading seriously. I will post more about this book.