Embrace The Trend

Aug 27

Hmmm a Big iPad

I think I quite like the idea of this.

I’ve been thinking of how I can streamline my computer set up in an ongoing quest to be more minimalist whilst at the same time increasing my mobility.

I went through one iteration of my computer set up as I morphed from trading intraday to end of day. I originally had two large monitors and a laptop. I now have a single monitor and a laptop.

As I have become more than accustomed to this set up I realise I can reduce things even more.

It always helps to hear of people you look up to being able to trade very effectively with a simple set up. In a podcast I heard Market Wizard Tom Basso say that he now trades comfortably whilst traveling on a single laptop.

I envision a ‘trading desk’ that I can take on the road. Really what I would like is a set up that is the same wherever I am. This would basically mean I can have my preferred office set up anywhere in the world.

I like two screens and so I was originally thinking of a MacBook Pro and Air combo.

I read a post by +Mike Elgan on working whilst traveling in Europe where he made a case for how good an iPad with an external keyboard is.

I think I may be a buyer of a larger screen iPad rather than an Air. After all my main requirement for this is a little expansion of screen real estate when trading but after that is complete it would be used for research, reading and writing. If it has a good battery life, the portability and the space saving factors would be a good fit for the wannabe digital nomad trader.

As it is yet to be confirmed officially I mull over whether this could be the ideal location independent trading desk for me.

http://www.bloomberg.com/news/2014-08-26/apple-said-to-prepare-new-12-9-inch-ipad-for-early-2015.html

Question: Are you a professional trader and if so what setup do you take on the road with you? Please share in the comments below.

#trading #apple #ipad #macbook #digitalnomad  

» If you liked this please follow me on twitter and Google Plus

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Disclaimer: Embrace The Trend / Richard Chignell does not provide investment, financial or product advice.  If you are going to trade / invest it’s at your own risk and you must take responsibility for your actions.

Aug 18

The Pro’s Process - Derald Muniz

I am very excited to be able to offer the twenty fourth in my series of posts asking Pro Traders (Investors) about their psychological processes.  Delving a little into how it feels to them when trading / investing.  The good and the bad.  How this has changed over time and what preparation they do mentally for performing as a trader / investor.

One of the key features for me was that I wanted traders / investors with experience who have been through the mill over the years and of course those who were kind enough to broach this subject publicly.  This I hope gives developing traders / investors more to learn from.  

I’m very fortunate to have a great line up and this week is: 

Trader: Derald Muniz

1) How long have you been investing?

I have been actively trading my personal accounts for over 15 years with an increase in my time spent in the public markets since 2009. I make my living as an investor and so one thing I look for are meaningful cycle bottoms amongst a variety of asset classes. 2009 looked like a good opportunity to increase the focus in U.S. stocks so I diverted more of my investing time there. Over the past year I have moved into a more professional capacity with my involvement in Presidium Capital where my partners and I provide Managed Account services.

2) What style of trading / investing do you practice (technically driven, fundamental, systematic, a combination etc)?

I would view my style as Hybrid. I incorporate fundamental analysis with technical chart review. I utilize Options in my trading so this expands the trade design greatly and allows for a LOT of flexibility in optimizing
trade returns. I trade across all time-frames but the largest percentage of trade efforts are with Swing to longer term trades. A large part of my short-term trading centers around specific trades for Earnings reports (a known catalyst, expected larger short-term moves).

I would also add that I trade several “baskets” of stocks where the trade setup is very specific. These are:


- 50/50 Basket (stocks that have very outsized UP moves, they trigger when they are 50% above the 50 SMA)

- The Fab 5 basket involves stocks that trigger at a break above the $90 level with the thesis being they make a run at the $100 level

- The Submarine Basket are stocks in a pullback to a solid Support level (the reason for the pullback can be a wide variety of reasons, I try to keep this basket under 10 stocks at any one time).

3) How do you feel when an investment goes against you?

I am sure that I feel as most do but as long as I follow my trading process I consider this a normal part of trading. Not every trade can work as you expect but you are in control of the trade management process so there are still things that can be/need to done on every trade.

4) How do you feel when an investment goes for you?

Actually, I think I answer this the same as the last question.

5) How have these feelings changed over your trading career?  (Can you recall how you originally used to feel and elaborate on how this has changed over time?)

I am not sure I can answer this with any real specifics but I am sure that I was more emotional in my trading early on versus how my mindset is now.

With that said, if I were to discuss the evolution of my mindset
change - and where I could see a shift - it would have to be after I began to actually study the Stock Market in more depth (reading books, meeting with trading groups, discussions with colleagues that were involved in the stock market at some level, etc). When I started out I didn’t have a lot of investing capital - like most young people - so I wanted to be sure to treat it with care.

6) Do you have any practices that you do away from the trading screen to help you mentally and emotionally handle trading? 

I do have other investing interests (private equity, real estate as examples) that take up some of my time and focus. I keep a regular weeky workout schedule at a gym so I am away from my trading/investing routines to refresh and stay healthy.

7) Have you always done this? 

Yes, this has always been important to me

8) If not, how have you learnt to deal with the feelings that come up when trading?

N/A

9) Can you describe a time in your trading life which really rammed home the point that so much of trading comes down to psychological factors?

1999 comes to mind. I owned $YHOO stock at the time and it was trading over $300 a share (pre-split). EVERYONE was bullish and that seemed crazy to me. Shear craziness. I can’t tell you how many times I heard “but it will keep going up, I’m sure of it”. Everyone was on one side of the boat. That never turns out well.

I wouldn’t say that my Risk Management was “strict” at this point but I did use price levels where I would exit if it got anywhere near them. Yahoo was so volatile so I got a lot of practice lol.

10) If you could give aspiring traders / investors one piece of advice about emotionally handling the market what would it be?

Find/seek out other traders, a trader community that you can be a part of / learn from / contribute to. A mentor would be ideal.

Why is this important?

From my perspective it can be easy to get into a pattern of doing things
and when they stop working it will not be easy to beginner traders to make adjustments. Being a part of a community allows for an environment to seek out discussion / advice / comments on what can be done in general and specifically in many cases. A mentor is an additional bonus in that you get 1 on 1 conversation.

***

I’d like to thank Derald Muniz for sharing about the way he tackles the market from an emotional / mental side of things and for his willingness to allow me to post this as a free resource in the hope that traders who have been in the market for less time or are thinking of entering can perhaps pick up some A-HA’s.

If you are interested in finding more out about Derald Muniz you can find him:

Twitter: @1nvestor

Blog: http://deraldmuniz.com/

***

Previously in the series:

Charles Kirk - read it…..here

Matt Davio - read it…..here

David Blair - read it….here

Mike Bellafiore - read it….here

Mark Holstead - read it ….here

Brian Shannon - read it…. here

Mike Dever - read it…. here

Anthony Crudele - read it… here 

Derek Hernquist - read it … here

Ivan Hoff - read it… here

Brian Lund - read it… here

Greg Harmon - read it… here

Michael Bigger - read it… here

Jon Boorman - read it…. here

Darrin Donnelly - read it….. here

Stephen Burns - read it…. here

Tony Rohrs - read it…. here

Bruce Bower - read it…. here

Richard Weissman - read it… here

Larry Tentarelli - read it… here

Chris Ebert - read it… here

David Merkel - read it… here

Ian Cassell - read it…. here

***

[If you liked this please follow me on twitter and Google Plus

***

Disclaimer: Embrace The Trend / Richard Chignell does not provide investment, financial or product advice.  If you are going to trade / invest it’s at your own risk and you must take responsibility for your actions.

Opinions Galore

I’m not entirely sure why this popped into my mind today. Perhaps it is due to all the talk from traders and investors when I skim twitter. 

There are opinions galore and whilst that is nothing new there is another common thread; the need to quote Jesse Livermore ad infinitum. 

Now we all do it.  I do. You do.  And that is OK. 

(What is not OK is if you have never heard of him or Reminiscences of a Stock Operator. If that is you - stop what you are doing get the book and read it cover to cover.  In fact, read it three times as you have some catching up to do). 

What is mildly amusing however is how often he is quoted and yet how much of what he wrote is continually ignored by the twittering masses. 

I’ll cover an aspect here. There is an edition of this classic with a forward by the great Paul Tudor Jones and from within his commentary this: 

The whole point of Reminiscences was that all of those very serious economic issues should be largely irrelevant to a great operator. Yes, they are interesting to debate, important to know, but always secondary to the tale the tape tells us on a continual basis

Now no matter what angle we look at the trading and investing world…. the tale of the tape subsumes opinion. 

As one of the earliest Pro’s in my Pro’s Process Series +Brian Shannon  is fond of saying:

Only Price Pays

Are you listening to the what the tape tells you? 

I wrote about this a little in the post Interesting Sh*t Isn’t Always Profitablehttps://plus.google.com/+RichardChignell1/posts/RhNPhHmwYXw You might like it. 

You can also find the Pro’s Process series, totally free, here:http://embracethetrend.com/

Reminisences amazon link http://www.amazon.co.uk/Reminiscences-Stock-Operator-Commentary-Livermore-ebook/dp/B007U303R0/ref=sr_1_1?ie=UTF8&qid=1408103138&sr=8-1&keywords=reminiscences+of+a+stock+operator

Post previously featured here

Aug 06

The Pro’s Process - Ian Cassel

I am very excited to be able to offer the twenty third in my series of posts asking Pro Traders (Investors) about their psychological processes.  Delving a little into how it feels to them when trading / investing.  The good and the bad.  How this has changed over time and what preparation they do mentally for performing as a trader / investor.

One of the key features for me was that I wanted traders / investors with experience who have been through the mill over the years and of course those who were kind enough to broach this subject publicly.  This I hope gives developing traders / investors more to learn from.  

I’m very fortunate to have a great line up and this week is: 

Trader: Ian Cassel

1) How long have you been investing?

I started investing my own account when I was a teenager. I lost it all very quickly. Around this same time I started looking at smallcaps and microcaps. I quickly fell in love with the microcap space because of the accessibility of management teams. While in college I skipped a lot of classes to travel and visit microcap companies. I had a couple of successes that allowed me to build up capital only to lose it again and again.  Over the next few years and into Graduate school I continued to learn by losing my own money over and over again. Then all of a sudden I started losing less money. I did some advising work for a few microcap companies right out of graduate school while managing my own account. In 2008, I quit advising and became a full time private investor focusing on microcap companies.

2) What style of trading / investing do you practice (technically driven, fundamental, systematic, a combination etc)?

There are 23,000 public companies on all US and Canadian Exchanges. This statistic might be a surprise but over 8,000 of these companies are below $50 million market capitalization. This is my playground, the smallest of the small. In general, I’m trying to find the diamonds amongst the dirt. I’m looking for great high growth companies that are profitable with great share structures, meaningful management ownership, with little or no institutional ownership. I try to find unique companies in an emerging trend where there aren’t many public comps so that a high scarcity value propels the stock once the rest of the market awakens to the opportunity. In general I’m trying to buy undiscovered and undervalued great companies that have the potential to get very overvalued.

I’m a concentrated investor normally investing in six companies, and I will hold them as long as management executes and the story or trend doesn’t change. I’m a high contact, high due diligence investor that enjoys the process. The “edge” is knowing your investments better than anyone else. It will give you an early indication on when to sell before the masses and the conviction to hold for big gains. I try to find the companies sub $25 million market cap, and sell them at $100+ million when they become institutionalized.

The stocks I buy are very illiquid so it can take days, weeks, even months to buy a full position. In most cases I take a 2-5% position of a company to stay under filer status. I don’t use technical analysis when I buy because the stocks I’m buying might only trade $5,000-$10,000 of volume per day so TA is rather useless. If a company is successful, the stock increases and so does the volume so TA can become more useful when selling.

3) How do you feel when an investment goes against you?

As long as the story (aka investment thesis) doesn’t change it doesn’t bother me. If the story does change, I sell. Since I spend a lot of time talking to management, contacting customers, suppliers, other investors, there is an initial let down because of the emotional energy I put into the due diligence process. However, because I’ve lost a lot of money in my investment career it has helped me to emotionally detach from my investments. I’ve learned to move on quickly.

4) How do you feel when an investment goes for you?

I feel great, but I don’t let it go to my head.

The biggest mistake an investor can make is to develop an ego. Your ego clouds your judgment and slows your thinking. Only fools think they know it all. Investing is a life long education and its teacher is loss.

I will continue to have losses and make mistakes, but I can continue to increase my success rate, and most important, decrease the time it takes for me to realize I made a wrong decision.

5) How have these feelings changed over your trading career?  (Can you recall how you originally used to feel and elaborate on how this has changed over time?)

You cannot learn the real lessons in investing by sitting in a classroom or reading a few books. You have to experience investing by going through every emotional extreme from going broke to making a lot of money. I went broke several times in my early 20’s. Losing all your money either motivates you or you give up. Either way losing money is the best educator there is. After you fight and claw your way out of the hole, you have made it. I had to claw my way out of the hole a few times.

The same goes for making money. In an early season of my investment career I made a lot of money and starting buying cars, Rolexes, etc. I wasn’t mature enough at the time to deal with the success. Tying this back into “ego”, you will normally make your biggest investing mistakes after a big win.  Soon after these early successes, I made bad investing decisions because I thought I knew it all, and Mr. Market broke me again.

You need to go through both extremes.

Over time I’ve refined my investment philosophy, and I pass on a lot of companies. I try to invest in the best companies with the best management teams I can find. My decision making on both the buy and sell side have also become much quicker.

6) Do you have any practices that you do away from the trading screen to help you mentally and emotionally handle trading? 

At the beginning of each day I spend 30 minutes reading or listening to something that will inspire me. I try to stay passionate and keep my motivations in check. I listen to a lot of leadership lectures and even sermons and try to take bits and pieces and apply them to my life. I’m also quite the fitness fanatic. I try to get out everyday in the middle of the day for 1-2 hours to keep my body in shape. I found it’s very unhealthy to sit in my office from 6am to 6pm.

I get very active in the investments I’m in, and if I can positively influence managements to make the right decisions, hundreds if not thousands of employees, shareholders, and company stakeholders will be positively impacted. I take that very seriously.

In 2011, I founded MicroCapClub.com which is a private social network for experienced microcap investors.  There is no subscription fee or monetization. It’s an agenda free zone I like to call it. The site is meant to be an idea generator for the membership. We also produce educational articles on our public blog. Our membership ranges from Peanut Farmers and Construction workers to Attorneys and Doctors to Small Institutions and $15 billion PE Funds. Administrating the site is almost like a full time job except I love to do it.

A couple other things..

I’ve learned that nothing you can purchase will ever make you happy, so finding good uses for your wealth is very important. You won’t be remembered because you made $5-10-20 million in the market. People turn ideas into millions everyday. But you will make a legacy if you get passionate about a cause and use your wealth to change lives.

Always surround yourself with people that are better than you. Your friends have far greater influence over your future than you think. If you want to be successful, start hanging out with successful people. If you want a better marriage, hang out with other couples that have a great marriage. Your life will change for the better.

7) Have you always done this? 

Most of the things I do outside of my investing have also evolved. It’s sort of what getting older is all about, becoming less selfish.

8) If not, how have you learnt to deal with the feelings that come up when trading?

N/A

9) Can you describe a time in your trading life which really rammed home the point that so much of trading comes down to psychological factors?

Here is a lead in to an article I wrote on this subject.

When I was in college (1999-2003) I worked for a local stockbroker. He was a top producer and well known in the local area. During those years I witnessed an entire boom and bust cycle. In the office I was the person that answered any questions clients would have to save my boss the time, effort, and annoyance.

We had over 1,100 clients, and when the markets crashed I think I heard from all of them over a 6-month period of time. I witnessed sadness, anger, hopelessness, and despair. I would go to work, the markets would drop again, the phones would ring, I would get the sh!t kicked out of me, rinse-repeat. When I met with my old boss just last month he reminded me if I wasn’t there during that time period he would of quit. I was the first line of defense, a human punching bag.

This experience was probably the best education I would ever receive. First hand seeing how human emotion and the stock market are intertwined helped prepare me to be a better investor. What I witnessed during those couple of years saddened me, but I was also disgusted. It made me numb and since then I’ve always been able to distance my emotions from the markets. http://microcapclub.com/2014/03/master-your-emotions-before-you-go-broke/

10) If you could give aspiring traders / investors one piece of advice about emotionally handling the market what would it be?

Stay Cool. Keep a level head and you will have an edge on most other market participants. Persevere when you are tested on the extremes of taking losses and gains. Lastly, stay passionate and motivated and keep your goals centered on what really matters in life.  

***

I’d like to thank Ian Cassel for sharing about the way he tackles the market from an emotional / mental side of things and for his willingness to allow me to post this as a free resource in the hope that traders who have been in the market for less time or are thinking of entering can perhaps pick up some A-HA’s.

If you are interested in finding more out about Ian Cassel you can find him:

Twitter: @iancassel

Blog: http://microcapclub.com/

***

Previously in the series:

Charles Kirk - read it…..here

Matt Davio - read it…..here

David Blair - read it….here

Mike Bellafiore - read it….here

Mark Holstead - read it ….here

Brian Shannon - read it…. here

Mike Dever - read it…. here

Anthony Crudele - read it… here 

Derek Hernquist - read it … here

Ivan Hoff - read it… here

Brian Lund - read it… here

Greg Harmon - read it… here

Michael Bigger - read it… here

Jon Boorman - read it…. here

Darrin Donnelly - read it….. here

Stephen Burns - read it…. here

Tony Rohrs - read it…. here

Bruce Bower - read it…. here

Richard Weissman - read it… here

Larry Tentarelli - read it… here

Chris Ebert - read it… here

David Merkel - read it… here

***

[If you liked this please follow me on twitter and Google Plus

***

Disclaimer: Embrace The Trend / Richard Chignell does not provide investment, financial or product advice.  If you are going to trade / invest it’s at your own risk and you must take responsibility for your actions.

Aug 03

Critical Thinking: The Importance of Differentiating between Quality and Garbage

"The skill most are lacking these days is not an open mind but a critical one and the ability to differentiate between quality and garbage info sources"  
(Ido Portal)

Ido here was challenging the all too common statement about having an open mind

In the context of #trading / #investing there are so many information sources nowadays that the importance of being able to use critical thinking to differentiate between quality and garbage is very important. 

I try to ensure I do but I think it is something that you have to constantly keep in check..  

One of the safest ways to do this I find is by doing my own work.

A teacher of mine drummed home the importance of self-responsibility in trading.  

I listen to no one when it comes to my trading.  I couldn’t care less what markets someone else is in or what someone else may think of what I am doing.  

I do it for me.

I judge myself based on whether I am getting the performance I intend and focus on self to self comparison.

I find as a result that I can limit my questioning of whether an information source is quality or garbage. 

As I will never act on it to make a trading decision I remove the effect that could occur if it was garbage.  This is like a trading stop in my process that has the intention of keeping me safe from exposure to garbage.  

This leaves me in the position of using the information sources in the financial space (and there are so very many) in a pretty specific context.  I follow traders, read blogs, articles etc in the main to draw inspiration relating to process and psychology. 

Sure, sometimes I find areas that interest me and that I have little or no knowledge in.  If I want to know more about this I start a detailed research process with my bullshit detector set on high.  

However, before there is any chance of garbage having an effect on me financially - I do my own work - I test, test and test. Then when I get to the position of being able to take full self-responsibility for it I will act upon it.  (If you are just starting out this may well be helpful.  It was the process I went through to find my way and one I continue to utilise). 

This last process is in the context of trading but can be used in other areas of life.  

Are you critically aware enough to differentiate between what is quality and garbage for you?  Do you have a process for this?

Jul 28

The Difference Between The Indy 500 and S&P 500

I was once told of a very successful trader who was so agnostic to which market he was trading that “he wouldn’t even know the difference between the Indy 500 and the S&P 500”.

Often times being smart, sounding intelligent, discussing markets, predicting the future….. does little to nothing in terms of making money. 

The trader mentioned above manages his own account which is in the high millions and spends every day on the golf course. 

Not wanting to be seen as ‘smart’, or caring what others think works well for him.  

The priority behind his trading is perhaps to make a lot of money and spend time doing what he loves. 

I was once asked: “ How’s being smart working out for you ?”

The truth was that at the time the answer was not particularly well. 

The question also shook me into considering that since being ‘smart’ wasn’t necessarily producing the results I was looking for maybe I should be spending time working out what exactly would.

Taking a personal inventory of what components specifically add to your bottom line trading and which don’t is an important exercise.  

Consider stripping away the things that don’t or are dubious and seeing where that leaves you. 

My guess…… a lot closer to spending your days doing what you love. 

Sometimes the most profitable thing you can do is to not know the difference between the Indy 500 and the S&P 500

#trading   #makingmoney   #investing  

Jun 05

Can music make you a better trader? 1 song that improves performance guaranteed 


As a lover of music I’m never quite sure of what I think of muzak.

Did you know that according to Adrian North, a Professor of Psychology, the supermarkets may have a very good business reasoning for playing “background music” while you shop. 

“If you play slow music in supermarkets then people tend to browse more slowly and look at more products. As a result they spend an average of 10-20% more. I shudder to think what 10-20% on the bottom line for Tesco is.”

It seems from this niche area of research that personality types can be linked quite accurately to certain musical styles. As a result businesses can utilize music as a way of enticing particular stratum of society to be more comfortable spending time in their stores and thus increase sales.

I wrote about this at the MartinKronicle a while ago. You can read the original post here:http://www.martinkronicle.com/2012/09/07/muzak-spend-overtrade/

What it’s safe to say is that music has an effect on you.  Whether you like it or not.  

So ask yourself:

What effect is the music you are listening to while making trading or investing decisions having on you

Anyway as promised there is a song that will 100% improve your trading. 

You’re probably expecting a motivational ditty like Eye Of The Tiger from Rocky but as noted above that say’s something about your character, God knows what, and I’m not so sure it’s going to create the right conditions for a successful trading session. 

On the other hand there is one song that I listen to that I am confident will improve your trading no end. 

Market legend Ed Seykota plucking his beloved banjo and responding to requests to know the inner workings of his trend following system in the Whipsaw Song is just what the Doctor ordered. 

The Whipsaw Song

Now country music might not be everyone’s thing but the wisdom in this song should be. 

Ed’s Rules for those who really really can’t take country: 

► Ride Your Winners

▷ Cut Your Losses

► Manage Your Risk

▷ Use Stops 

► Stick To The System

▷ File The News

As Ed says, if you are currently a market-a-holic or have a mild case of market-itis adding his rules into your program may well save your account.

Now all together now, you get a whipping I get a saw honey, you get a whipping I get a saw babe….. 

Disclaimer: Embrace The Trend / Richard Chignell does not provide investment, financial or product advice.  If you are going to trade / invest it’s at your own risk and you must take responsibility for your actions.

May 28

The Pro’s Process - David Merkel

I am very excited to be able to offer the twenty second in my series of posts asking Pro Traders about their psychological processes.  Delving a little into how it feels to them when trading.  The good and the bad.  How this has changed over time and what preparation they do mentally for performing as a trader.

One of the key features for me was that I wanted traders with experience who have been through the mill over the years and of course those who were kind enough to broach this subject publicly.  This I hope gives developing traders more to learn from.  

I’m very fortunate to have a great line up and this week is: 

Trader: David Merkel

1) How long have you been trading?

I’ve been investing for my own account for 25 years.  During that time, I’ve done a lot of different things:

  • Played around with closed-end funds, and shorted overvalued companies 1989-1993
  • Value investing for myself 1993-98, with a lot of microcap value thrown in.  (Weird stuff, and very illiquid.)
  • Created multiple manager funds for group pension business 1995-1998 — got to interview many of the best managers at that time.
  • Set investment policies for a some major life insurers 1993-2003
  • For major life insurers — Mortgage bond manager 1998-2001, Corporate bond manager 2001-2003, Investment risk manager 1993-2003.
  • Small deal arbitrage for myself 1998-2000
  • Settled on my current value investing strategy, as expressed by my eight rules 2000-2014
  • Buy side analyst for a financials only hedge fund 2003-2007.  Managed the firm’s profit sharing and endowment monies using my value investing strategy.
  • Started my RIA in 2011, to offer clients my value strategy — they get a clone of what I own in my value strategy.  I am my largest client, and I eat my own cooking.

2) What style of trading / investing do you practice (technically driven, fundamental, systematic, a combination etc)?

Mostly fundamental.  Most of my trading is governed by these rules:

Rebalance the portfolio whenever a stock gets more than 20% away from its target weight. Run a largely equal-weighted portfolio because it is genuinely difficult to tell what idea is the best. Keep about 30-40 names for diversification purposes.

I tend to resist momentum in the intermediate term.  From my era of hiring managers, those that used this technique said it added 1-3% to performance.  I think that’s about right.

Make changes to the portfolio 3-4 times per year. Evaluate the replacement candidates as a group against the current portfolio. New additions must be better than the median idea currently in the portfolio. Companies leaving the portfolio must be below the median idea currently in the portfolio.

I limit changes to the portfolio, because it takes time for investment ideas to play out.  I turn over the portfolio at a ~30% rate.  I try to be as businesslike as possible when I sell a company and buy another.  Investors can be very good at evaluating whether a company or group of companies, is better than another company or group of companies.  What is harder is asking, “Would I rather hold cash than this company?”

3) How do you feel when a trade goes against you?

Good.  I get to buy a little more at a lower price, after I check my investment thesis, which if it does not check out, I sell the whole thing.  For the few trades that do badly for a long time — 20 of them over the last 25 years, of course it hurts, but the gains far outweigh the losses, so I ignore those, except to memorialize why the failure happened, and feed that back into my investing processes.  Every time I have lost badly, it was because I violated at least one of my rules.
4) How do you feel when a trade goes for you?
I like it, but I let my rules govern my trading.  Everything is done by rules; there is almost no discretion in my trading.
5) How have these feelings changed over your trading career?  (Can you recall how you originally used to feel and elaborate on how this has changed over time?)

When I was 20-25 years younger, every move in the markets would make me excited.  By the mid-90s, I got my emotions under control.  I learned to focus on eliminating risk on the front end, so that I would have fewer problems on the back end.

6) Do you have any practices that you do away from the trading screen to help you mentally and emotionally handle trading?

I pray to Jesus Christ every day, but that is not a means to handle trading.  I ask Him to guide my decisions, and that I would do my investing to glorify Him.

Because I use my rules, there is little, if any, stress over trading.  My processes are designed to take my emotion out of my infrequent buying and selling.

7) Have you always done this?

I’ve done this for the last 14 years.  Prior to that, I was experimenting and developing my methods.

My time managing bond assets for life insurers taught me a lot about trading 1998-2003.  I traded over $10 Billion in bonds over that short window of time.  I was far more active as a bond manager, because it was simpler to ascertain when value-enhancing trades could be done.  That fed into my value investing processes, which are designed to mimic the way a bond trader would look at stocks.

8) If not, how have you learnt to deal with the feelings that come up when trading?

Look, first, it’s only money.  If you don’t take some significant losses during your life, you probably aren’t taking enough risk.

Second, investing takes time.  I hold my positions three years on average, and the longest positions have been there for 5-10 years.  A tree in my backyard won’t grow any faster if I worry about it.  The same is true of my stocks.  I review them quarterly.  Between those times, I try to muffle the nose, aside from rebalancing trades which resist the market.

9) Can you describe a time in your trading life which really rammed home the point that so much of trading comes down to psychological factors?

As a value investor, I don’t worry much about trading.  In 2000 & 2008, I did detailed studies of my trading.  In 2000, I found that many of my best trades stemmed from getting the industry right.  In 2008, I found that my top 11 gains paid for all of my losses, 2000-2008.  That was with a 70/30 win/loss ratio, and 180-190 stocks held over the period.

10) If you could give aspiring traders one piece of advice about emotionally handling the market what would it be?

If we are talking traders, it would be this: start out each morning looking at the disasters of the day, and then wait for volume to climax, and price to nadir.  Wait about 5-10 minutes, and then buy.  Close out the trade within a week, maybe at the end of that day.

That said, I would encourage traders become investors.  There is too much competition at the short time horizons of the market, and not so much over 3+ year periods.  Study the greats: Graham, Buffett, Munger, Klarman, Price, Heine, Neff, Soros, Dalio, and many others.  Learn to recognize long-term value, and wait for it to be realized.  There are no barriers of entry to trading.  Long-term value investing has natural barriers to entry, because it is work, and as such, few do it.

I don’t worry about my stock portfolio.  Because my time horizon is long, day-to-day fluctuations don’t mean much.  That makes me free to research ideas that can benefit me and my investors in the future. That’s a great place to be.

***

I’d like to thank David Merkel for sharing about the way he tackles the market from an emotional / mental side of things and for his willingness to allow me to post this as a free resource in the hope that traders who have been in the market for less time or are thinking of entering can perhaps pick up some A-HA’s.

If you are interested in finding more out about David Merkel you can find him:

Twitter: @AlephBlog

Blog: http://alephblog.com/

***

Previously in the series:

Charles Kirk - read it…..here

Matt Davio - read it…..here

David Blair - read it….here

Mike Bellafiore - read it….here

Mark Holstead - read it ….here

Brian Shannon - read it…. here

Mike Dever - read it…. here

Anthony Crudele - read it… here 

Derek Hernquist - read it … here

Ivan Hoff - read it… here

Brian Lund - read it… here

Greg Harmon - read it… here

Michael Bigger - read it… here

Jon Boorman - read it…. here

Darrin Donnelly - read it….. here

Stephen Burns - read it…. here

Tony Rohrs - read it…. here

Bruce Bower - read it…. here

Richard Weissman - read it… here

Larry Tentarelli - read it… here

Chris Ebert - read it… here

***

[If you liked this please follow me on twitter and Google Plus

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Disclaimer: Embrace The Trend / Richard Chignell does not provide investment, financial or product advice.  If you are going to trade / invest it’s at your own risk and you must take responsibility for your actions.

May 19

Interesting Sh*t Isn’t Always Profitable

People need to learn the difference between information that’s interesting and information that’s actionable” (Josh Brown)

This is a great quote and one I find to be so very true. 

What am I on about you may be asking

One of the hardest things for those that like being ‘smart’ is not letting it get in the way of being profitable. 

I get this.  

I mean I really get this!  

I went to a great school, later did the whole University thing, I read like it’s a competition, have a love for travelling and sitting over a drink with knowledgeable interesting people.  It is safe to say I have a thirst for information. 

BUT as Josh highlights there is a big difference between information that is interesting and information that is actionable.  

A really big difference. 

An especially big difference if you are looking for information that is actionable for profit in the #trading  / #investing  arena. 

I was kindly invited to join an online traders group recently by one of the Pro’s from my Pro’s Process Interview series (you can read them herehttp://embracethetrend.com/) and I of course am on Twitter / StockTwits and you know what I see most in these places….. interesting information - loads and loads and loads of interesting opinions, theories, ideas - very very little of which is actionable. 

Now this is not to say that that information is not actionable in the frameworks that those writing it use for their decision making.  Who am I to know? (Although with the drivel that you often read I am not so convinced and think this is perhaps me just trying to soften the blow and be Mr Nice Guy).

Like many of my lessons I have found this out at a financial cost.   

Personally focussing on a process and ideally a KISS / minimalist one is the way to utilise information to generate actionable trades.

The information I focus on can be distilled down to one singular thing:

Price 

Now don’t get me wrong.  This is the information I choose to use to make actionable decisions.  It took me a considerable amount of time to realise that, for me, it is all I need to build my trading game.  

There are countless ways to skin the cat in trading.  As my mate +Matt Davio recently said: 

 Everyone has one or two ways they can learn to make money consistently. That’s all you need for long haul success! 

The only reason I write this post is as a jolt to those that are spinning their wheels as a result of confusing interesting with actionable.  

It is very important to get this straight in your head if you are someone like me who loves interesting information. 

Make sure you are not being your own worst enemy and confusing yourself over what kind of information is actionable and what kind is just interesting

I know the pygmy shrew (Suncus etruscus) pictured above (below?) is the smallest mammal by mass.  I find this pretty damn interesting and it helped once in a pub quiz.  I’m also well aware that this is not information that is actionable and profitable to me as a trader. 

For that I stick to price. 

Josh Brown (@ReformedBroker) has a new book out (Clash Of The Financial Pundits).  The above quote appeared in an interview he did with about.com(here: http://stocks.about.com/od/Must-Read-Books/fl/Interview-Josh-Brown-The-Reformed-Broker.htm)

(Image of pygmy shrew by Trebol-ahttp://en.wikipedia.org/wiki/File:Suncus_etruscus.jpg#filelinks)

May 17

Play Poker Don’t Day Trade

I was thinking about poker v day trading.  Like most people I initially thought that to be a kick ass trader you needed to be sitting in front of a multiple screen set-up and hustling everyday.  

Viewing multiple time frames, multiple indicators, multiple markets, deeply focussed, clicking my mouse a lot etc.

I went through quite a few iterations of day trading until I took a long hard look at myself and realised that it was not a great personality fit for me. 

I also realised that for most people it is not the most profitable way to be tackling the markets and of those traders I respected only a handful were daytraders (and of that handful only a couple were not in a large Prop Shop or commercial outfit - make of the advantages they may have over the at home trader whatever you will).

What I did realise is the toll it took on me.  Particularly on an emotional level. The concentration required and the constant focus on a screen left me mentally and actually physically exhausted. 

I think a lot of people look at daytrading because they feel that being a trader, which is more often than not some construct they have made up in their head as a result of too much TV, is exciting and fast paced. 

I’m personally of the opinion that excitement and making money do not and should not have much to do with each other.  

From all my research, conversations with Pro traders and modelling of them; most if not all would rank excitement and activity very low on a scale of the things that are important to become a successful and profitable trader. 

Now to link to the title: Why play poker instead of daytrading?

I sometimes get the urge to be active, to feel like a hustler, make quick decisions and get quick cash.  Have that excitement that comes in direct relationship to fast money and the ego related massaging of feeling smarter than the next guy.  

This is where I think should I really feel the need to exercise that, knowing what I do about the winning traders out there and how they play the game*, I would much rather be sat at a poker table with a pair of pocket aces going after your bankroll.  

How about this as an idea that I think will save you a lot of $$ in the long run? (you can thank me later :-).  

Develop a trading process based on making your decisions when the markets are closed.  

Put aside a few grand that is fun money and that you are totally OK with losing.  Roll it up in a gangsta roll to make you feel more the part.  

Whenever you get the urge for excitement and an itchy mouse finger take your roll and go to a casino cash game.  

It will save your eyes, there will probably be eye-candy around, you might even get comped drinks and fancypants meals and I suspect for the majority of you it will leave you a far more profitable businessman/woman. 

* For those that missed this point… once more…. it is normally not daytrading. 

Disclaimer: Embrace The Trend / Richard Chignell does not provide investment, financial or product advice.  If you are going to trade / invest it’s at your own risk and you must take responsibility for your actions.