No particular reason to post this except that all fundamental analysis sounds the same regardless of decade:
It must be obvious, from the start, that there is a contradiction in wanting to be perfectly secure in a universe whose very nature is momentariness and fluidity. But the contradiction lies a little deeper than the mere conflict between the desire for security and the fact of change. If I want to be secure, that is, protected from the flux of life, I am wanting to be separate from life. Yet it is this very sense of separateness which makes me feel insecure. To be secure means to isolate and fortify the “I,” but it is just the feeling of being an isolated “I” which makes me feel lonely and afraid. In other words, the more security I can get, the more I shall want. To put it still more plainly: the desire for security and the feeling of insecurity are the same thing.
Want security in your investments? That’s what you crave? That’s your number one goal?
Hint: You will never get there.
Accept that the desire for security and the feeling of insecurity are the same thing, and you are on your way to making some money. Start here.
Source: Watts, Alan W. (2011-11-16). The Wisdom of Insecurity (Vintage) (pp. 77-78).
Ever stop for a second to observe who makes the sausage? A headline written today by Reuters Ryan Vlastelica:
“NEW YORK (Reuters) – As a last-minute deal to resolve spending negotiations in Washington appeared less likely, U.S. stock investors braced for what had previously seemed remote: a shutdown of the U.S. government that could spark a major equity decline.”
That background of course allowed him to make a prediction of a major stock market decline.
Party on Garth.
Note: If you happen to be a much larger player in the media that immediately thinks I am unfairly picking on a young reporter — I could care less. The financial media matrix is gross from top to bottom. Plus, I pick on the top too.
“…the brains of Wall Street gurus and brains of Main Street investors are in a symbiotic relationship, a “dance of death.” Wall Street gurus know the investor’s brain is gullible, easy to manipulate, will ignore facts, historical data, rational judgment, anything to to stay optimistic, even when a crash is imminent, obvious, even in progress. It’s in our DNA, our brains, it’s our nature. Yes, American investors are born optimists. So are Wall Street gurus. Years ago we did a little research study. Turns out that 93% of time Wall Street is bullish. And today, from what we see in the field of behavioral economics, it’s also true that the brains of America’s 95 million investors are also 93% optimistic. Get it? Americans are inherently optimistic, blind optimists. We dismiss facts, block reality, deny history, crashes, meltdowns. Wall Street gurus do it. Main Street’s 95 million investors buy the spin. We secretly want to be deceived. Even in real bad times, deep inside we trust in a better future, want the good news, optimism, happy talk, bull markets. We desperately want to forget the harsh reality of the past. So we deny stuff. Wall Street knows this too. So they profile you. Yes, they know you’re a sucker for happy talk. Warning: This symbiotic relationship is doomed to repeat, forever. And the bubbles will get bigger, we’ll have another, bigger meltdown, even another Great Depression. So expect Wall Street (and their Washington buddies) to just keep feeding sound bites to the media to manipulate the brains of Main Street’s investors. It’s in their DNA. It’s in your brains to trust.
The only proven strategy to profit from that is trend following.
A few of Wall Street’s favorite catch phrases need to be defined:
CTA: CTA stands for commodity trading advisor. It is a government term used to classify regulated fund managers who primarily trade futures markets. Almost all successful CTAs trade as trend following traders. CTAs are the other quants the media never seems to cover accurately.
Managed Futures: This is a term that describes regulated fund managers who use futures to trade for clients. It is an awful term because it fixates on the instrument (futures), not the strategy. Here’s the dirty little secret: Almost all successful managed futures trading firms use a trend following strategy. The term is often used interchangeably with CTA. Noted radio host and author Dave Ramsey recently had this to say about managed futures: “The term managed futures is virtually an oxymoron…with managed futures you’re basically betting on the future price of a commodity. What’s the price of gold, or oil, or wheat going to be somewhere down the road? You’re guessing as to what the future will bring, and managing a group of those guesses. What a joke!” If you share Dave Ramsey’s view and understanding, I recommend a full frontal lobotomy as your best wealth-building plan.
High Frequency Trading: High frequency trading is the latest term to describe arbitrage— at whatever time frame. It is about getting an advantage through speed and access. Most people are not going to enter the world of high frequency trading (or be Goldman Sachs). It’s a nonissue for your trading success.
Global Macro or Systematic Global Macro: Global macro is another term used to describe trend following traders, but indirectly. They do not say managed futures, and they do not say hedge fund, so it is global macro. It might make wealthy investors in Liechtenstein and Saudi Arabia feel more secure. The strategy is still trend following.
Hedge Fund: Think unregulated mutual fund that can trade in all markets up and down. Most hedge funds have terrible strategy: They are long only on leveraged stocks. That’s it. Not as sexy as the press makes it. Of course, it all depends, and some hedge funds do make a killing. Usually, they are of the systematic trend following variety.
Long Only: Long only means you make one bet. You bet that the market will always go up.
Buy and Hold: Buy and hold strategy (hope) is the same as long only.
Index Investing: You buy the S&P 500 Index and whatever it does is the return you get.
Value Investing: Attempts to use fundamentals to uncover undervalued stocks. The belief is you are buying cheap or low (terms that can mean anything to anyone). When that doesn’t work out, you call the government and ask for a bailout.
Quant: You use formulas and rules, not daily discretion or fundamentals to make trading decisions. That said, unless quant is defined with precision you can never know what it means exactly. Trend following is a form of quant trading.
Repeatable Alpha: Alpha is return generated from trading skill. If you buy and hold the S&P 500 Index, and if it makes a positive return, that’s not alpha. That return is beta for there was no skill involved. Repeatable alpha is simply the nice academic way of saying profit from skill. Trend following’s argument as the only repeatable alpha is tough to counter.
Beta: The return you get for accepting the average. There is no skill involved. Think about a monkey aimlessly throwing darts against the wall— it’s that level of skill. Long: You buy a stock or futures contract.
Excerpted from Trend Commandments.
From The Little Book of Trading:
Kevin Bruce is living proof that there is no need to be in New York, London, or Chicago–flaunting a sharp business suit and trading in a sky rise. Bruce is a small-town guy from Georgia with no ancestral connection to Wall Street, who has not only made it on Wall Street but conquered it. Heed his path.
Bruce spends his time far away tucked in quiet spots in Richmond, Virginia. He works out six times a week at his local YMCA, and still drives his 1996 Ford pickup. With a net worth of nearly $100 million, he prefers to live life just as he always did before making that fortune. He is low profile. Most people have no idea of his wealth. He says, “I guess that means I’ve done a pretty good job of just being me.”
While Bruce was crafty in his early trading, almost tripling his initial seed money, he was really crafty in the way he built up his $5,000 nest egg. When he was about 15, he started the practice of packing a lunch and taking it to school. The cafeteria food wasn’t great, but he could buy a lunch for just 35 cents. Bruce would meet other kids in the bathroom daily and auction off his home-style lunch. He would then eat the cafeteria lunch–and would usually net about $2. Nice trade!
Inspirational? Yes, absolutely.