Lessons from Hedge Fund Market Wizards: Scott Ramsey

Today we continue our series, "Lessons from Hedge Fund Market Wizards", with a look at Jack Schwager's interview with Scott Ramsey of Denali Asset Management. 

Ramsey, a futures trader and CTA who works on the island of St. Croix, spoke to Schwager about his first foray into the markets, his evolution as a trader, and the process he stands by to protect and grow his clients' money.

1). Ramsey started trading in college. He was roped into the OTC metals market via a broker's ad in the Wall St. Journal. The broker charged customers a flat fee to buy and sell as much as they wanted in a particular market for six month. At the time, Scott was a novice and didn't know about futures, so he traded metals in this fashion through the inflationary run-up of the late 1970s.

2). Scott had to rethink his trading strategy after he bought silver at $50 an oz., only to watch it collapse to $26 following a long string of limit-down days. He sold as soon as the market resumed trading, but he lost all the money he had made plus some starting capital.

3). "Losing money was what got me hooked", says Scott. He knew that some 90% of futures traders lost money and he was determined to be in the 10% that profited. This motivated him to succeed. He was so engrossed in trading that he left college 9 credits shy of graduating, despite being an excellent engineering student.

4). Scott learned to trade first w/ his own money, then by advising clients as a broker. He leased a seat on the IMM and tried trading from the floor. Being on the floor turned out to be a big disadvantage compared to screen trading. Scott felt there was a lack of meaningful info in the pits and he lost his feel from watching other markets. He soon left the floor.

5). Ramsey continued to broker and screen trade, watching every market and updating chart books by hand. He made money in his own account almost every year, but not a lot. Why? Ramsey says it was because he focused only on TA, not fundamentals. Also, because he regularly pulled money out of his account. He stayed a 1-2 lot trader instead of pushing it and increasing his size.

6). "The evolution of a trader is when you start letting your money work for you and increasing your size."
 
7). Scott is one of those traders who has used his time as a broker to his learning advantage. By observing retail clients, he learned what not to do - everything from holding losers and taking small profits to emotional decision making and chasing market activity.

8). In order to make the big money, Scott realized he had to embrace fundamentals. The transition began when he started thinking about prevailing sentiment in the bond market and why prices were where they were. He thought about how people were positioned and the psychology behind prices. He then initiated a trade that was positioned against the prevailing sentiment, which turned out to be a very profitable move. "I began to look at the market from the perspective of other traders."

9). Discussing market action during the Euro crisis, Ramsey notes, "The market's repeated resilience in the face of negative news tells me it wants to go higher. Chaos creates opportunity. We learn so much about the markets when we have crisis events."

10). Rigorous risk control not only keeps losses small, it impacts profit potential. You must be in a position to seize opportunity. The only way to do that is w/ a clear mind. Don't expend mental energy by managing poor trades. Cut those that are not working.

11). When asked what trading advice he offers to friends, Ramsey tells them that it's not about being right - it's about making money. Taking losses is part of the process, so don't dwell on losing trades. Think about your next trade. Trading is a business. Treat it like one, keep records of your trades and journal your experience.

Once again, I highly recommend reading Hedge Fund Market Wizards to get the full detail and feeling of these interviews. Hope you enjoyed this latest post and we'll see you back here, with more to come, soon. 

Happy New Year to all our readers and friends across the globe!  

If you're enjoying these posts and would like to see more, please subscribe to our free RSS updates and follow Finance Trends in real-time on Twitter and StockTwits. You can also check out our related posts below for more market wisdom and trading insights. 

Related posts: 

1. First 3 posts from "Lessons from Hedge Fund Market Wizards" series.

2. Lessons from Hedge Fund Market Wizards: Ray Dalio.

Photo credit: Trend Capture Futures.

Heads up: new "Market Wizards" posts coming soon...

Hi gang, just wanted to let you know that we'll have a new "Lessons from Hedge Fund Market Wizards" post up soon. In the meantime, you may want to check out the most recent posts from this series. 

Dive in with this introductory post: key interviews and a trading webinar with Hedge Fund Market Wizards author, Jack Schwager. The videos found in this post contain some excellent insights and quotes from the traders and hedge fund managers interviewed in Schwager's latest Wizards book.

Ready to learn from some of the most astute traders around? Here you'll find some choice trading and investing lessons from global macro trader, Colm O'Shea and noted hedge fund manager, Ray Dalio. 

You'll find the first 3 posts in our "Lessons from Hedge Fund Market Wizards" series below.

1. Jack Schwager shares insights from Hedge Fund Market Wizards.

2. Lessons from Hedge Fund Market Wizards: Colm O'Shea. 

3. Lessons from Hedge Fund Market Wizards: Ray Dalio.

Now if you'd like to keep up with our real-time updates and be alerted to our upcoming posts, please subscribe to the Finance Trends RSS feed or follow Finance Trends on Twitter (totally free). 

We'll see you next week with the latest in our "Market Wizards" series. Until then, thanks for reading and have a safe and happy holiday season!

Marc Faber's advice to young people and the meaning of "success"

 

Greatly appreciated Marc Faber's advice to young people and his thoughts on "success", heard near the 8:00 mark of this interview clip. 

Kids today might wonder if they need a college education, or the certification conferred by a degree, to do well in life. Given the rising costs (and diminishing returns) of higher education and the problems of widespread student loan debt in the US, this is a subject for serious consideration.

Faber offers, "I don't think a degree is important. If you have parents that can pay for your degree, then take one. If I had to borrow a lot money to pay for the degree, I don't think I would take one... 

"...I would try first to work for someone who is successful in any industry and acquire knowledge from them. Whatever the area, you should like what you do. If you like what you do, you'll do a better job than if you are indifferent towards your job." 

Speaking to the idea of success, Marc adds, "I think in life success comes on many different levels. Monetary success is just one of them. If you have a happy family life or you can help other people, these are also measures of success. Our society maybe overrates monetary success...". 

Something for people of all ages to consider, now that I think about it. What do you think of Marc's advice? What would you say to young people starting out in life?

Related posts:

1. Ray Dalio: Meditation is the Secret of My Success.

2. Self-Education and the School of Experience. 

3. Michael Bigger on Starting Over.

4. James Altucher: 8 Alternatives to College.

5. Gary North: Find Your Calling (Making a Difference in the World).

Ray Dalio: meditation is the secret of my success

 

Hedge fund manager, Ray Dalio credits meditation as the key to his success. 

Says the Bridgewater Associates founder, "Meditation has given me centeredness and creativity. It's also given me peace and health...  and it's given me open-mindedness." 

"Meditation, more than anything in my life, was the biggest ingredient of whatever success I've had".

I was very interested to hear Dalio's take on the benefits of meditation, since he's obviously a very successful individual who assigns a great deal of value to this practice. It's also a subject I've been wanting to learn more about.

While I am not a yoga practitioner and have never tried transcendental meditation, I've come to learn that my long walks through the forests may share some benefits associated with mindfulness meditation. For me, it's about taking time to exercise, relax, and just focus on the natural (or built) world around us.

As Dalio notes, the key for beginners is to challenge themselves to stick with meditation for the first six months. Those who try it must realize that the 20 minutes spent meditating in mornings and evenings is an investment that pays off in numerous ways, enhancing one's enjoyment of life.

Ray Dalio was also the subject of our most recent post, "Lessons from Hedge Fund Market Wizards: Ray Dalio". If you'd like to know more about Dalio and his ideas on trading and learning from mistakes, check it out. 

Related articles and posts:

1. Lessons from Hedge Fund Market Wizards: Ray Dalio.

2. Meditation: A Simple, Fast Way to Reduce Stress (Mayo Clinic).

Lessons from Hedge Fund Market Wizards: Ray Dalio

In our second installment of "Lessons from Hedge Fund Market Wizards", we'll offer up some trading and macroeconomic insights pulled from Jack Schwager's interview with Ray Dalio of Bridgewater Associates. 

You've probably heard of Ray Dalio if you have even a cursory knowledge of the hedge fund industry (or the Forbes billionaires list), so let's get right to it. These notes will fill in the rest of the story. 

1). Dalio is the founder and former CEO (now "mentor") of Bridgewater Associates, a fund that has returned more money ($50 billion) for investors than any hedge fund in history.  

2). Bridgewater still manages to achieve excellent returns on a huge base of capital and has done so over a long period of time. It is among the few hedge funds with a 20-year track record. 

3). Dalio believes that mistakes are a good thing, as they provide an opportunity for learning. If he could figure out what he (or someone else) was doing wrong, he could use that as a lesson and learn to be more effective.

4). His life's philosophy and management concepts are set down in a 111 page document called, Principles, which drives the firm's culture and daily operations. Identifying and learning from mistakes is a key theme. It also advocates "radical transparency" within the firm; meetings are taped and employees are encouraged to criticize each other openly.

5). "The type of thinking that is necessary to succeed in the markets is entirely different from the type of thinking required to succeed in school". Ray notes that school education emphasizes instructions, rote learning, and regurgitation. It also teaches students that "mistakes are bad", instead of teaching the importance of learning from mistakes. 

6). If you are involved in the markets, you must learn to deal with what you don't know. Anyone involved in markets knows you can never be absolutely confident. You can't approach trading by saying, "I know I'm right on this one." Dalio likes to put his ideas in front of other people so they can shoot them down and tell him where he may be wrong. 

7). "The markets teach you that you have to be an independent thinker. And any time you are an independent thinker, there is a reasonable chance you are going to be wrong."

8). Ray learned in his early working years that currency depreciation and money printing are good for stocks. He was surprised to see US stocks rise after Nixon closed the gold exchange window in 1971 (effectively ending the gold standard). The lesson was reinforced when the Fed eased massively in 1982 during the Latin American debt crisis. Stocks rallied, and of course, this marked the beginning of an 18-year bull market.

9). From these earlier experiences, Dalio learned not to trust what policy makers say. He has learned these lessons repeatedly over the years (much like our previous "Market Wizard", Colm O'Shea).  

10). Dalio vividly recalls a time when he was nearly ruined trading pork bellies in the early 1970s. He was long at a time when bellies were trading limit down every day. He didn't know when the losses would end, and every morning he'd hear the price board click down 200 points (the daily limit) and stay there. The experience taught him the importance of risk management - "I never wanted to experience that pain again".

11). "In trading you have to be defensive and aggressive at the same time. If you are not aggressive, you're not going to make money, and if you are not defensive, you are not going to keep money.". 

12). Bridgewater views diversification and asset correlation differently than most. As Dalio puts it, "People think that a thing called correlation exists. That's wrong.". Instead, he describes a world in which assets behave a certain way in response to environmental determinants. Correlations between say, stocks and bonds, are not static, but are changing in response to "drivers" (catalysts) that can cause assets to move together or inversely.

13). By studying how asset prices move in response to certain drivers, Bridgewater looks to build portfolios of truly uncorrelated assets. By combining assets that have very slight correlations, they are able to diversify among 15 assets (instead of 100 or 1000 more closely linked assets). This helps them cut volatility and greatly improve their return/risk ratio. 

14). We are currently in the midst of a "broad global deleveraging" that is negative for growth. Since the United States can print its own money, it will do so to alleviate the pressures of deflation and depression. The effectiveness of quantitative easing will be limited, since owners of bonds purchased by the Fed will use the money to buy similar assets. Dalio elaborates on our future economic course and possible policy approaches to these problems throughout the interview.

There's a lot more in Schwager's chapter with Ray Dalio. These notes just scratch the surface on Bridgewater's process and their quest for the Holy Grail of investing. 

There is also an addendum to the chapter containing Dalio's big picture view of long-term economic cycles and a historical "stage analysis" of the economic rise and fall of nations.

Be sure to check out this latest Market Wizards book (a very worthwhile read) and look for our upcoming posts for more "Lessons from Hedge Fund Market Wizards". In the meantime, you'll find more lessons and interviews in our related posts below. 

If you're enjoying these posts and would like to see more, please subscribe to our free RSS updates and follow Finance Trends in real-time on Twitter and StockTwits. You can also check out our related posts below for more market wisdom and trading insights.  

Related posts:

1. Lessons from Hedge Fund Market Wizards: Colm O'Shea.

2. Jack Schwager interviews on Hedge Fund Market Wizards.

3. Ray Dalio in Barron's: "It's a D-Process". 

4. Ray Dalio's 'Principles'.

*Photo credit: Ray Dalio Blog.

Lessons from Hedge Fund Market Wizards: Colm O'Shea

In our first installment of "Lessons from Hedge Fund Market Wizards", we examine the lessons offered in Jack Schwager's interview with noted global macro trader and hedge fund manager, Colm O'Shea of COMAC Capital. 

Last week we brought you a brief overview of Hedge Fund Market Wizards, including several interviews with author Jack Schwager on the trading insights found within this new Market Wizards volume. 

We'll expand on those ideas throughout this series by zeroing in on our favorite interviews and highlighting some key lessons and quotes. Of course, our notes are just a sample of what readers will find in these interview chapters - we don't want to give away the store!  

Today, we'll look closely at some key insights offered in the book's opening chapter. Here are our notes on Schwager's interview with Colm O'Shea. 

1). Colm O'Shea began his career as a young economic forecaster. He was kept behind closed doors by his firm, who did not want clients to know their research reports and forecasts were written by a 19-year old who had landed the job before starting at university. 

2). Colm realized he did not want to continue publishing consensus-hugging forecasts, and he landed his first job as a trader at Citigroup after graduating from Cambridge. He went on to work for George Soros' Quantum Fund before founding his own firm, COMAC Capital.

3). O'Shea view his trading ideas as hypotheses. Moves counter to the expected direction are proof that his trade hypothesis is wrong. O'Shea is quick to liquidate these positions when they reach a pre-defined price (a level at which his trade hypothesis is invalidated). He risks a small percentage of his assets on each trade - position sizing. 

4). Received early lessons in trading and macro thinking by reading Edwin Lefevre's classic, Reminiscences of a Stock Operator. Colm points out that the character, Mr. Partridge teaches the protagonist (a thinly-veiled Jesse Livermore) to size up general conditions - "it's a bull market, you know!". 

5). Price movements take place in the context of a larger fundamental landscape. O'Shea believes one must pay attention to both the fundamentals and the technicals (price as seen through technical analysis) to make sense of the picture.
 
6). In his first week as a trader, the British pound was kicked out of the ERM (the famous Soros trade), much to his surprise. Recalls Colm, "I had absolutely no comprehension of the power of markets vs. politics. Policy makers [often] don't understand that they are not in control...it's the fundamentals that actually matter."

7). You can't be short just because you think something is fundamentally overpriced. In the example of the Nasdaq bubble, you should have been selling Nasdaq at 4,000 on the way down, not on the way up. Wait until the market turns over, or until you can see a turning point (a la George Soros shorting the pound).

8). Being short credit in 2006-2007 was the same as being short Nasdaq in 1999. Bubble pricing was evident and the problems were obvious. However, being short was a negative carry trade (in which one must pay a certain cost to maintain a speculative position through instruments such as credit default swaps) and credit spreads went lower (the trade went against you) before a turning point was reached. 

9). All markets look liquid in a bubble. It's liquidity afterwards that matters. Can you get out?

10). There does not have to be an identifiable reason for every trade. O'Shea cites the LTCM blowup in '98 as an example. At the start of the '98 crisis, there was no LTCM story in the press, but T-bond futures were limit up every day. "Once you realize something is happening, you can trade accordingly.". Trade hypothesis = something big is happening. I will participate, but do so in a way that I can get out quickly if wrong.

11). Most great trades are incredibly obvious to everyone after the fact. O'Shea points to his bearish turn at the start of the financial crisis in August 2007, when money markets seized up and LIBOR spiked. To this day, equity people wrongly point to March 2008 (Bear Stearns collapse) as the start of the crisis. The great trades don't require predictions, but you must see what other market participants won't.

12). Big price changes occur when people are forced to reevaluate their prejudices. Crisis (such as the inflationary threat from growing U.S. debt) may hit in the future when people notice and start to care. Bond yields will only signal there's a problem when it's too late. Fundamentals underlying the trade/event exist all along.

Hope you enjoyed the first in our series of "Lessons from Hedge Fund Market Wizards". Look for our next post, featuring hedge fund titan Ray Dalio, later in the week. 

If you're enjoying these posts and would like to see more, please subscribe to our free RSS updates and follow Finance Trends in real-time on Twitter and StockTwits. You can also check out our related posts below for more market wisdom and trading insights. 

Related posts:

1. Jack Schwager on Hedge Fund Market Wizards (interviews). 

2. Lessons from Hedge Fund Market Wizards: Ray Dalio.

Jack Schwager on Hedge Fund Market Wizards

If you're a fan of the Market Wizards books by Jack Schwager, then you've probably read (or are looking forward to reading) the latest in the series, Hedge Fund Market Wizards.

The review copy Wiley was kind enough to send me this summer. I've taken my sweet time re-reading it...

We'll be taking an in-depth look at this book and the insights of the "Hedge Fund Wizards" in an upcoming series of posts, but for now I'd like to share some key interviews and webinars with author Jack Schwager. 

These videos will give you a great inside look at Schwager's writing process, as well as offering some key lessons found in this new collection of interviews with leading traders and hedge fund managers. 

First, an Opelesque interview with Schwager in Manhattan: "15 Hedge Fund Market Wizard trading secrets and insights".



This discussion opens by noting that while markets have changed since the first Wizards books were published, the main principles behind the various traders' successes have not. Certain strategies and opportunities may have gone by the wayside, but successful traders have continued to hone in on what works for them as they strive for superior risk adjusted returns.  

Of supreme importance, Schwager finds, is the need to find a trading method that suits your personality. He cautions young traders from trying to emulate their trading heroes, since top traders may have an approach or strengths that differ from those of the would-be apprentice. You need to develop your own approach. 

If you enjoyed this interview and would like to dig further, check out Michael Martin's interview with Jack Schwager, as well as this Schwager Q&A webinar on the behaviors of Hedge Fund Market Wizards. 

One recurring theme that runs through these discussions is the quote, "There is no single true path". The Market Wizards profiled in this book, and throughout the series, have all found success by managing risk and pursuing the methods that suit their personalities and strengths. 

Join us next week, as we examine some key "Lessons from Hedge Fund Market Wizards" in our upcoming post series of the same name. See you then.         

If you're enjoying these posts and would like to see more, please subscribe to our free RSS updates and follow Finance Trends in real-time on Twitter and StockTwits.  

Dell: a '90s market leader digests its prior gains

Happened to glance at the daily chart of DELL today. 

While I wouldn't be surprised if the stock caught a bit of a bounce into 2013 (once year-end tax loss selling is exhausted), I'm not exactly bullish on the longer-term picture for DELL. 

Here's why, from a purely technical (price) view. Backing up to the weekly chart, we see DELL approaching its early 2009 lows near the $7.85 - $9 levels. If it can hold above those lows and rebound higher after a dismal 2012, that would provide a cyclical respite from what has been an overall bearish trend since early 2000.  However, even a months-long rebound and a 50%-60% rise wouldn't negate the longer-term bearish trend. 

Zooming out to the monthly chart, we see the secular bullish trend that took DELL from an adjusted price of $0.09 in 1990 to a high of over $50 (a 600-fold increase) by the bull market peak of early 2000. 

During this nearly-unprecedented boom, DELL was a market leader among US stocks. The company reached a peak market cap. of $100 billion in March 2000 and its stock gained over 60,000 percent in the 10 years prior. 

After the dot-com bubble crashed in 2000-2001, the stock made a valiant effort to regain its old highs, climbing back to the low $40s in the bull move of 2004-2005. It was not enough, as the secular bear trend and an ever-changing tech environment continue to take their toll on DELL.  We can see the ensuing decline on the monthly chart above.

When I look at DELL's 23-year chart, I see a fallen leader slowly digesting the monster gains of a secular bull move. In fact, it reminds me of a python digesting a very large meal - lots of time and rest are required to complete the process. 

If you are squeamish, please don't click the python link. Nature, like the markets, can appear to be very cruel at times.

Sayonara Panasonic, hello Samsung and Apple?

Taking a look at the charts of Panasonic and Sony today, in light of Panasonic's $9.6 billion loss for the year ($25 billion in losses over five years) and the steadily eroding Japanese consumer electronics business.  

While Panasonic, Sony, and Sharp have been getting killed in the TV and electronics marketplace (and in the share market) over the past few years, others have prospered. 

Apple, which is increasingly seen as more of a design-focused electronics maker, as opposed to a computer company, has seen its stock price quadruple in price over the last five years. 

The US design-meets-Chinese manufacturing combo has helped Apple out-innovate its competitors and undercut their cost structure. A strong yen has also hindered exports of Japanese electronics. 

Samsung has been rising to the top and is now dominating the smartphone market along with Apple. In fact, the two now account for 106 percent of handset profits. That's right, the total is greater than 100% when offsetting losses of the other handset makers. 

 

So while the Japanese firms (who ate everybody's lunch in the '70s and '80s) struggle, Apple, Samsung, and US-based Vizio are making hay. Look no further than the charts above; they clearly show the shift towards the dominance of Korean and US firms (aided by low-cost foreign manufacturing) in electronics. 

So if you're trading or investing in an industry, and you see a trend unfold like this, be sure to go long or short along the line of least resistance - that's with the trend and not against it.

Nassim Taleb on Antifragility at Princeton

 

Nassim Taleb discusses the concept of Antifragility at Princeton. 

If you want to understand the long-term consequences of market interventions and other attempts to delay or remove stressors from real-world systems, watch this video. 

Taleb also makes clear that we are at an unprecedented point in history, in which those in power benefit on the upside while having no real risk (no "skin in the game") on the downside. In other words, our supposed "leaders" hold their positions and accrue benefits from them without having to display courage or face the consequences of their actions and decisions.

You can hear more from Taleb on this topic in an excellent econtalk interview from earlier this year. 

His new book, Antifragile: Things That Gain from Disorder is available on Amazon.   

Google earnings: surprise!

An inauspicious start to earnings season for the technology sector. 

A profit decline vs. last year's 3rd quarter for Intel (INTC) was followed today by a surprise (prematurely leaked) report from Google (GOOG). The early, and disappointing, 3Q report sent GOOG into a midday plunge, down 9% before trading in the stock was halted.

Retail stocks: the middle vs. high end

Took a glance at some names in my retail watch list and noticed (again) that Sotheby's (BID) and Tiffany (TIF) both topped out back in spring-summer of 2011. 

Are these two stocks sending a message on the state of the "merely affluent" buyer (or even the very rich, as some of Sotheby's customers may be categorized)?

Meanwhile, "everyman luxury" jeweler Zales (ZLC) has rebounded strongly off its spring 2012 lows and is currently near a 2-year high. 

Is this recent strength specific to ZLC or is there more here to suggest a pickup in buying power for middle-income customers?

Peter Thiel and Reid Hoffman talk Silicon Valley, hits and misses

 

High profile Valley startup founders Peter Thiel and Reid Hoffman (of Paypal/Facebook and LinkedIn, respectively) discuss innovation in Silicon Valley, the coming mobile economy, and their greatest hits and misses in this Forbes video interview.

Related posts:

1. Elon Musk and Peter Thiel on entrepreneurship and creativity.

2. Mark Cuban: How to Get Rich + Success and Motivation. 

3. Steve Jobs: Billion Dollar Hippy (BBC documentary).

Humans vs. algos: Mike Bellafiore on the future of trading

Mike Bellafiore of SMB Capital talks with MSN about humans vs. algos and the future of trading. 

A few notable quotes and points from Bella's interview: 

1. Bella and his traders don't look at the current environment as "man vs. machine". 

Instead, they trade around the computers. Most of the advantage that "black box" programs or algorithms have are based on micro-scalping, trading for sub-penny moves. SMB Capital traders have changed their methods, extended their trading time frames, and are adapting to the current market structure.

2. Play your own game. As Mike says, "Do your own thing, let the computers do their thing. Don't play that [computer's] game. Play a game that trades on a longer time frame. Find the trades that work for you."

3. On the large percentage of daily trading volume on US markets that is high-frequency trading (HFT) or machine-based: 

"We used to have market makers and they don't exist anymore. The HFTs became the market makers, but they're trying to make a penny or two cents. You're not trying to do that as a retail investor, you're trying to buy a stock because you have a thesis on it [holding for a directional trade or investment while managing your risk]".

4. Finally, Bella acknowledges the coming wave of exchange consolidations and technologies that will open up new opportunities in electronic trading. 

Increased access to new, international markets will increase our opportunities as traders, since patterns and underlying psychology will repeat themselves in other markets. 

Additionally, traders will learn to create their own automated programs to take advantage of new market opportunities. The future of speculation will be one in which traders apply techniques in their home markets to equity markets abroad, while also reaching into new products and asset classes.

Enjoy the interview, and ask yourself how you might prepare for the changes and opportunities ahead in a "smaller, and more connected" trading world. 

Related posts: 

1. Interview with Michael Bigger, trader and author. 

2. Mark Minervini interview: define and refine your approach.

Steve Jobs - Billion Dollar Hippy (BBC documentary)

Steve Jobs' brilliant life and entrepreneurial career are profiled in this BBC documentary, "Steve Jobs - Billion Dollar Hippy". 

Today is a big media day for Apple, given the hype surrounding the release of the new iPhone 5. A fine time to look back on the Silicon Valley landscape of the 1970s and the counterculture and tech hobbyist environments which inspired Steve Jobs and Steve Wozniak to start their own little computer company (now valued at over $600 billion dollars, market cap). 

This is a great overview of Jobs' rise and fall at Apple, his entries into the realms of interpersonal computing and filmmaking at NeXT and Pixar, and his triumphant return to Apple that kickstarted its reinvention as a design-focused electronics company. 

Enjoy the video, and check out our related items below for more on Steve Jobs and the tech revolution.

Related posts: 

1. Steve Jobs PBS interview from 1990, rarely seen.

2. Interview: Steve Jobs and Bill Gates at D5.

Marc Faber on the global economy, bubbles, and inflation

Marc Faber offers some forecasts for the global economy in this recent Dubai hedge funds world conference video. 

Faber makes 2 important points at the outset of this talk.

First, he notes that at the start of his career (1970) investment banks were all private partnerships. Not a one was a publicly traded corporation, whereas today most large banks are listed corporations.

As a result, the risk profile at investment banks has completely changed from the days when partners at investment banks were personally liable for other people's mistakes. Today, bankers risk other people's money and face no real consequences for their mistakes. In fact, they are often bailed out with taxpayer funds when they go bust.

Secondly, Marc points out that the (neo-) Keynesians want to make interventions in the capitalist economy and "smooth out" the business cycle with fiscal and monetary measures. 

In Faber's view, these interventions have actually made fluctuations in the business cycle more violent and extreme. As he puts it, "the Keynesians always try to address long-term structural problems with short-term fixes...with an emphasis on creating bubbles to "help" the economy. Whereas bubbles usually hurt the majority of market participants." 

Check out the full presentation above for Faber's thoughts on how to navigate our global course of negative real interest rates, understated inflation, serial bubbles, and centrally planned markets. 

If you're enjoying these posts and would like to see more, please subscribe to our free RSS updates and follow Finance Trends in real-time on Twitter and StockTwits. You can also check out our related posts below for more market wisdom and trading insights.  

Related posts: 

1. Marc Faber: final crisis yet to come (video).

2. Nassim Taleb on Anti-fragility.

Elon Musk and Peter Thiel on entrepreneurship + creativity

Elon Musk (PayPal, Tesla Motors, SpaceX) and Peter Thiel (PayPal, Facebook, Palantir) discuss entrepreneurship, capitalism, creativity, the educational system, and their own experiences building innovative companies in these PandoMonthly interviews.  

Good quotes about losers (and losing)

Great collection of quotes on losing from Jeff Watson's blog. 

You'll see that many of these observations apply to trading and business. Here are a few of my favorites:

"A loser doesn’t know what he’ll do if he loses, but talks about what he’ll do if he wins, and a winner doesn’t talk about what he’ll do if he wins, but knows what he’ll do if he loses."

“One of the first businesses of a sensible man is to know when he is beaten, and to leave off fighting at once.” -  Samuel Butler

"There may be as much nobility in being last as in being first, because the two positions are equally necessary in the world, the one to complement the other." - Jose Ortega y Gasset

"Wise men never sit and wail their loss, but cheerily seek how to redress their harms." - Shakespeare

"When wealth is lost, nothing is lost; when health is lost, something is lost; when character is lost, all is lost." - Motto 

Head on over to Jeff's blog to see the full (bookmark-worthy) list.

*Photo credit: The Frustrated Gambler, via Christies.com

Patents and copyright? "Great artists steal"

Came across this clip of Apple CEO, Tim Cook complaining that the ongoing tech patent wars are a "pain in the ass".

Granted, this is a topic that's recently been covered by Mark Cuban, or going farther back, by Bastiat in his "Three Stages of Invention".

However, one could look beyond Tim Cook's complaints to examine the very idea of the supposed necessity of patents and copyrights. The book, Against Intellectual Monopoly does just that, arguing: "Patents and copyrights do not promote economic progress but impede it."

Note this passage, from the same book, which calls attention to the fact that patents can block the market's progress by preventing product imitation, development, and refinement:   

"Imitation is a great thing. It is among the most powerful technologies humans have ever developed … imitation is a technology that allows us to increase productive capacity. Innovators increase productive capacity directly...". 

Without Matisse, would we know Picasso? Steve Jobs quoting Picasso: "good artists copy, great artists steal."

Why do traders still quote Jesse Livermore?

Found this excellent quote from the Elite Trader forums. 

In a response to one poster asking, "Why does everyone quote Jesse Livermore? He was a horrible trader, who blew up every couple of years. ", another forum member answered: 

"Simple. He was a pure artist of "the game."

Artists always reach beyond their grasp. They sometimes succeed brilliantly. They sometimes fail tragically. But they never fail to inspire."  

Speculation is an art form. And true artists, however flawed, never fail to inspire us.

Cliff Asness of AQR: Bubble Logic

I'm reading a passage from Scott Patterson's book, The Quants, that looks back on the .com bubble. Let me share a few brief quotes from this section with you here.

Backdrop: "A few months before the dot-com IPO frenzy began, LTCM had collapsed. Greenspan and the Fed swept in organizing a bailout. Greenspan also slashed interest rates...the easy money added fuel to the smoldering internet fires...pushing the tech-laden Nasdaq to all-time highs on an almost daily basis." 

The .com boom proved disastrous for Cliff Asness' hedge fund, AQR, which invested in value stocks while "betting against companies his models deemed expensive". 

After agonizing over the fund's poor performance and the perceived boundless stupidity of market participants, Asness finally came to a realization about markets and crowds: investor irrationality does not stay within expected, "just right" modeled bounds. 

Surveying the scene near the peak of the internet bubble in 2000, Asness expanded on his views in an academic paper entitled, "Bubble Logic: Or, How to Stop Worrying and Love the Bull". 

Enjoy the historical market overview - maybe you'll find some lessons that apply to the markets of 2012 and beyond.

Arthur C. Clarke predicts the internet and PCs

Arthur C. Clarke forecasts the future of 2001, a time when home computers and interconnectivity with others through technology are commonplace (via Eddie Markets).

Bernard Baruch: private speculator & public life

Bernard Baruch with Winston Churchill (left) and Dwight Eisenhower (right) in 1953 (via loc.gov).

Facebook buys Instagram for $1 billion.

"Just one word. Are you listening? Apps."

Early retirement? Cary Grant, Holiday (1938)

"It's always been my idea to make a few thousands early in the game, and then quit for as long as they last..." - Cary Grant, Holiday (1938).

Market update: S&P 500 at 3 year highs

It wasn't so long ago we were watching 1,260 as a key resistance level on the S&P 500 ($SPX).

Today we see the $SPX bumping up to 3 year highs.

Once the market closed above that same level and really held it after the start of the year, it stair-stepped higher with relatively tight pullbacks since. The last few months have been much more of a slow grind higher, as opposed to the choppy , volatile swings of last July through December 2011.

We are now approaching prior resistance levels near 1,440 from 2008. If the market can clear that, then pullback/consolidate and continue its move higher, we'll be approaching the prior peaks from the 2008 market top. 

Of course, a move towards 1,500 on the $SPX might be some time off given the extent of the move we've just seen.

Trader Interviews: Overcoming Your Fear of Pulling the Trigger

Tim Bourquin at TraderInterviews.com brings us this helpful discussion with top trading psychologists on, "How to Overcome the Fear of "Pulling the Trigger" On a Trade". 

The full interview (and transcript) with Dr. Brett Steenbarger, Dr. Doug Hirschhorn, and Dr. Gary Dayton has been made available for free, so click through to check it out anytime. 

Here are a few key insights from Tim's discussion with these trading MDs. Now, not all of the interviewees agree on each and every Q&A topic, but there are some very interesting common threads running through each of the 3 interview segments. 

• The interview begins with Tim asking Brett Steenbarger why some traders may have problems "pulling the trigger" on their trade ideas. Dr. Brett points out that we must first correctly diagnose the problem before offering a solution. In his view, there are likely two main reasons, one being a trader's lack of confidence (setup ideas haven't been tested, etc.).   

• Paper trading and simulation with real market data, followed by live trading with small amounts of money, may offer the proper testing and experience-building trials a trader needs to build his skills and confidence (Steenbarger's view).

• Performance anxiety is the 2nd problem highlighted by Steenbarger. He mentions some visualization exercises which can prepare athletes and traders for the anxiety of performing in a high-pressure environment. You should also focus on the process of trading, rather than the outcome of each individual trade.

• Dr. Doug Hirschhorn tells us that a lack of personal trust is behind a trader's failure to pull the trigger on trades. He does not favor paper trading, but says traders should trade smaller sizes to practice building their skills and get comfortable with their market and style.  

• Traders who get over the fear of failure more quickly tend to look at the larger statistical picture. They begin to see beyond the individual trades immediately at hand and instead look out to the next 100 trades, the collective picture of their longer-term trading process. 

• Increasing one's trade size, getting bigger in a winning position, is another major theme in improving trading performance. Dr. Hirschhorn briefly offers his perspective here, and this is an area we may want to explore and study further.    

• Tim's talk with Dr. Gary Dayton delves into the issue of dealing with fear and emotions in trading.  As Dr. Dayton points out, we cannot remove our thoughts and feelings from our daily work. He discusses the idea of practicing "mindfulness", which teaches us to defuse our emotions and be aware of what the mind is telling us (since our thoughts are impermanent and often inconsistent).

As you can see, there are some common threads running through this discussion. Anxiety, lack of experience or methods testing, and lack of preparation may hinder the trading process and lead to a fear of "pulling the trigger".   

These are issues I've had to deal with (and continue to work on) in my return to trading. What we can do, as businesslike speculators, is focus on defining our method/style and our edge.    

We also need some sort of learning process to help us begin to get comfortable with our chosen trading style. Whether it's some sort of realistic simulation or a "start small" process that has us trading real money with smaller position sizes, it seems some form of real-time trading education is key to building confidence and overcoming the fear of pulling the trigger.  
  
Have you faced these problems in trading? What have you done to overcome your fears? Share your experiences with us.    

If you're enjoying these posts and would like to see more, please subscribe to our free RSS updates and follow Finance Trends in real-time on Twitter and StockTwits. You can also check out our related posts below for more market wisdom and trading insights.  

Photo credit: Student Archer, via U of Iowa digital library.  


Related articles and posts:  

1. Zen and the Art of Trading.  

2. Mark Minervini interview: define and refine your approach.  

3. What Makes a Great Trader? Managing Risk

Mark Minervini interview: define and refine your approach

Veteran stock trader and "Market Wizard", Mark Minervini shares his story in an interview with the Your Money Matters podcast. 

I thought this interview with Minervini, a largely self-taught trader who transitioned into trading after working as a musician, would make a nice follow up to our recent post on self-education and the school of hard knocks. 

Here are some key points Mark makes in this interview:

• "I wasn't always successful. In fact, for the first six years I didn't make any money at all."

• Mark started trading in 1983. He began visiting the library and one day came across Richard Love's book, Superperformance Stocks. Mark spent "the next twenty-seven years" refining his approach.

• Persistence can be more important than knowledge. Learning to trade the stock market can be difficult, and there is a long learning curve. Mark stayed with one approach and spent his time mastering it. "It's not going to happen right away". 

• "I don't believe in failures". Instead, Mark says he views outcomes in terms of results. There are desirable results and undesirable results. We try things, we learn, and we make some adjustments while trying again. 

• "I made my big mistakes when I had the least amount of money, when I was just starting out". You have to define yourself as an investor or an aspiring trader with a given style, and know that it will take a long time and a lot of work to become a professional trader. However, the work is justified by the rewards. 

• You have to review and analyze your results to help build your approach. Minervini did this after an early losing period, and soon gravitated towards a more sound approach to stock selection. Keep a journal and track your trading performance so you can make improvements. 

• Is there a certain personality type that makes a standout trader? Mark says he's learned not to judge a book by its cover. As Mark puts it, citing his own experience, "I was a musician, I had long hair, I dropped out of school in the 8th grade...I'm completely self-educated so you might not have bet on my results." Good traders aren't necessarily born, but they are developed over time.

This is just a sampling of what you'll find in the interview with Mark Minervini. To sum up one of the main themes of the discussion, get started learning a particular style or approach, then "define it and refine it".

Related articles and posts:

1. Self education and the school of hard knocks - Finance Trends.

2. Mark Minervini interview via Pradeep Bonde - StockBee.

3. Interview with trading legend Mark Minervini - Global Growth Investor. 

4. Charles Kirk interviews Mark Minervini - The Kirk Report.

Self-education and the school of experience

You may find this next quote about self-education personally relevant, but then again, you may not. From Claude C. Hopkins' autobiography, My Life in Advertising... 

"...To poverty I owe the fact that I never went to college. I spent those four years in the school of experience instead of a school of theory.  I know nothing of value which an advertising man can be taught in college. I know of many things taught there which he will need to unlearn before he can steer any practical course."  

Having attended college (for a time), and from my own experiences and observations, I know that this passage rings true. You could substitute the words "advertising man" with the titles "artist", "writer", "economist", or "trader" and still get the same meaning.

You may have heard many entrepreneurs or autodidacts make similar remarks about the value of self-guided education and experience. You may also have heard many experienced, degreed professionals lamenting the need to unlearn much of what they were taught in universities. 

Someone mentioned Claude Hopkins in a book review I read today and I found my way to the aforementioned memoir from 1927. I thought I'd share it here with you. Hopefully, it will spur your thoughts on the value of formal education vs. "school of hard knocks".

Maybe we'll find some more chestnuts of wisdom inside. In fact, I'm sure we will, as the above passage came straight from chapter one! 

In the meantime, can you think of some important lessons (business, trading, creative, or otherwise) you've learned through self-guided education or your own passage through the school of hard knocks?   

Pour some sugar on me

Sugar has been creeping higher lately, as seen on the daily futures chart. 

Here's the weekly view which shows the longer swings going back to 2006. 

Note the larger uptrends and ensuing deep retracements that have happened from the 2007 base, near 10 cents, on. 

Of course, the latest move is more of a slow edge higher off the recent price shelf of 23-24 cents. Sugar will have to clear the 30 cent level and the recent highs near 32 cents before any major move is evident on the weekly charts.

Here's the daily chart of SGG, the sugar ETN. I'll be watching for a pullback on lighter volume in the days ahead. Since I'm not active in the futures market, I'll consider a long position in SGG. 

Cautionary note: volume is very light in many of these single commodity ETNs. That may lead me to consider other, more liquid, trade opportunities instead.  

For those who'd like to read more about sugar from a futures trader's point of view, please see Peter Brandt's recent blog posts. He is an experienced trader and knows far more about the long-term price action, as well as building a trade via back month futures contracts.

Disclosure: no position in SB_F or SGG at the time of writing, may initiate long or short positions any time after. Educational post, not a recommendation for readers to buy/sell any security.