18 January 2021
03 January 2021
Or Any Other Business Opportunity For That Matter
Happy New Year All.
Most of you are beginning this new year determined to have a more profitable 2021. Some of you may have even made money resolutions. Whether through upgrading your existing job or getting a new side hustle, you have resolved to improve your cash flow. As you might guess from the subject matter of this blog, I think one of the best ways to increase said cash flow is through trading… securities trading to be more precise. Since you’re likely to receive a ton of unsolicited offers based on the search that brought you here, let me share the 4 most important questions you should ask any provider of a “trading service.”
1) What’s In It For You?
This is the number 1 question and it should be asked of any potential service provider first. You’re likely to hear a stream of reasons that sellers of stock picks and trading strategies are willing to share their winning tactics. The first of those reasons should be “for an additional revenue stream.” Why? Because you have at least a chance of that vendor being honest, that’s why. The narrative around trading and trading related services has become so bogged down with negativity [yes, deservedly so in some places, but definitely not all] that vendors almost always start with some version of “I’ve made a fortune already, so I just want to share my super-secret strategy with the world.” I’m not so jaded as to say that’s impossible… but I’m practical [cynical?] enough to say that’s very unlikely. You should be as well.
2) Why Am I So Lucky?
This question assumes that part of the sales pitch is about the super-secret nature of the strategy’s very existence… and why you’re so lucky as to be let in for $19.95. Don’t get me wrong… there ARE trading secrets… proprietary information if you will. Things like exact formulas and, sometimes, even the exact combination of settings on a given timeframe for an existing indicator. But no one is giving those secrets away for $19.95. Or even $1995 for that matter… especially, if the tool or information is highly profitable.
What a vendor MAY sell you is the output of their proprietary tool. A license if you will. That’s a long-standing business practice that makes perfect sense.
So if a vendor offers to sell/teach you the underlying pixie dust of their strategy for peanuts…
3) Do You Currently Use The Picks And/Or Strategies?
This one is a bit tricky as I’m not a big fan of the notion that anyone who provides stock trading ideas must also trade those ideas… and not just because I share picks that I don’t trade (more on that below).
Here’s the main reason I feel that way. One of the core requirements of profitable trading is the effective management of your emotions. It is MUCH easier to be coldly efficient [i.e. exit a loser quickly] when you don’t have any stake in a company other than whether the stock price performs. If you own the stock… own it in size… and/or were “banging the table” to get your followers to buy it, it can be much more difficult to elect a stop when you should… and, more important, to advise your followers to do the same.
4) Is The Expectancy Positive?
Last in order perhaps… but no less important. Most people ask about how much money they can make...and how quickly. The slightly more advanced folks ask about win %... The more informed ask about expectancy. Expectancy is about how much you make when you win vs. how much you lose when you lose. If you are to make money with ANY trading strategy, expectancy must be positive.
If your wanna be vendor doesn’t know if the strategy has a positive expectancy, Run…
If he doesn’t know what expectancy is,
Don’t worry so much about what the exact expectancy number is… That will vary widely depending on a number of factors like timeframe traded, frequency of opportunity, average stop and target sizes, etc. If the expectancy is positive, you’ll have plenty of time to dig deeper and decide whether or not the strategy fits your trading personality.
As you might guess, my answers line up favorably with the questions. 😝
What's In It For Me? My service is first and foremost an additional revenue stream for me. If that offends you, you probably also hate that professional athletes have the audacity to make money from endorsements… or that hedge fund managers make a great deal of money from managing the money of others... That also means that I’m probably not the right mentor for you.
Why Are You So Lucky? You’re not especially lucky… smart maybe, but not necessarily lucky. You found your way here because you have at least a passing interest in making money from the market. As a result, I’m interested in you… interested in whether you’re a good fit for my community and the money you can make by joining us. You’re also not especially lucky because I won’t be offering you the “secrets” of my scans and tactics… just their output for your use if you choose to join us. At any rate, no luck involved.
Do I Trade The Picks/Use The Strategy? As I said, this one is a bit tricky… I don’t trade single stocks or options anymore, so I neither own nor will I own any of the stocks presented by my scans. I do however, trade the positive expectancy, simple strategies that I share with community members.
Is The Expectancy Positive? The short answer? Yes. I only trade positive expectancy strategies, thus that's all I share.
I hope you’ve found this helpful. If you have questions, don’t hesitate to reach out.
02 January 2021
Investigate trading long enough and you'll likely discover that successful trading is less about tools and tactics and more about emotional balance. In this 2014 video, I discuss how I achieve enough balance to keep the profits flowing.
01 January 2021
31 December 2020
30 December 2020
If you watch the video [around the 5 minute mark], you'll notice this year's low was contemplated by yours truly... in March.
19 December 2020
29 November 2020
I had the chance to catch up with an old friend recently. He’s the co-founder and manager of a small [$250,000,000 assets under management and yes, that’s small these days] systematic hedge fund here in the United States. Our friendship originally developed over the 5 years that I “covered” him for my old shop.
Let’s call him Roscoe too.
Roscoe is smart… like uber smart. Like start at the ground level (Hollywood’s Mail Room) and work your way to portfolio manager of a $1,000,000,000 fund at a major, global mutual fund within 14 years smart. Like co-found a hedge fund with your business school professor [and world expert in the space] smart.
But he doesn’t believe he’s smart.
He thinks he has to run at top speed all the time, just to keep up…
To prove that he’s smart… that he belongs.
And it’s killing his fund.
Don’t get me wrong… He’s doing all of the right things according to his methodology. According to traditional finance.
Theirs is a fundamental systematic approach.
And no, that’s not an inherent contradiction.
In essence, they’ve done deep fundamental research and discovered a large number of variables that when present and tilted in just the right way, they yield superior risk-adjusted returns.
Superior again, according to traditional finance.
Except the approach hasn’t yielded even those results for the last 4 years. They were flat for the last 3 years and they’re down about 10% so far this year.
I know what you’re thinking… “In THIS market they’re flat to down over the last 4 years?”
Yup… flat to down.
"It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong."
-- Richard P. Feynman
Being the curious sort, I asked him what he thought the problem was with performance. Is it the variables they use? Is it the level of correlation between some or all of the variables? Do they think they’re missing a variable? I also asked what response he’s getting from his investors… and what he planned to do.
His answers stunned me a bit… but also reminded me why the vast majority of money managers underperform against their benchmarks… to say nothing of absolute returns.
Roscoe’s short answer with respect to performance was simple…
The market is wrong.
He went into mind-numbing [for me anyway] detail about how fundamental value has been tossed aside in lieu of GAAC [Growth At Any Cost]. How less “valuable” companies are trading at a premium because of their marketing heft as opposed to because of their operating performance. He even shared a well written white paper he wrote on the topic recently. I won’t mention the exact title, but suffice it to say that both title and body suggested that everyone else is on a fool’s errand and value will inevitably outperform.
I remained silent.
"There is only one side of the market and it is not the bull side or the bear side, but the right side."
-- Jesse Livermore
He then told me that some clients were getting a bit nervous… but that the firm hadn’t had much in the way of redemptions… yet.
He also said that he thinks he’s found a significant new pool of investors.
I didn’t have the heart to tell him after that last bit that that sounds more like a Ponzi Scheme than I think he wants.
"Rules are not necessarily sacred, principles are."
-- Franklin D. Roosevelt
Roscoe is really killing his fund in 3 distinct ways…
He’s disavowing a cardinal rule of trading… TAOST Principle - The Market Is Always Right. There’s neither argument nor debate on this subject. Someone ALWAYS knows more than you… and the best reflection of that collective body of knowledge is via the price performance of a liquid, freely traded security. When you can be “right” about all of the data… sales projections… expenses… industry growth… etc. and STILL lose money because the market disagrees with your thesis about what that means, it’s time to stop trying to adjust the wind and to start adjusting your sails.
Roscoe is also attempting to use the markets to prove/affirm to himself how smart he is by making predictions based on his analysis of fundamental minutiae… a violation of TAOST Principle - Your Most Important Capital Is Your Emotional Capital. The market is not the place to seek emotional fulfillment. If you need to feel smart, take a class/test. If you need drama, find an unstable person and try to develop a balanced, fulfilling relationship with them. If you need unbounded risk, take sky diving lessons. Don’t try to use the market to fulfill these needs… it’s not likely to work out the way that you think it will.
Finally, while perhaps the right approach in a % of assets under management world, focusing on growth via increased AUM [as opposed to through performance] is the antithesis [or should be] of money managers. The average investor in a mutual fund needs growth… and significant growth at that. Not a holding place to provide income to the money manager… and little else.
What’s my point in all of this?
Not much… other than to tell you once again that you shouldn’t get caught up in the traditional personal finance rhetoric… also known as nonsense. And that you should focus on strategies and processes that deliver profits… Not a salve for your ego.
Your accounts will be better off for it.
You might also like:
9 Habits of Highly Profitable Traders [Slideshow]
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