Learning from Failure; In stocks, In surfing, In everything

Chinese Fortune Cookie Corner: "Welcome Failure: Failure is the Breakfast of Champions"---a true story (2007) Yesterday I had to take my youngest to Janesville for a driver education road lesson. Before the lesson, we had a little time together for her to shop and then to share a bit of Chinese at the Food Court. I have a habit of opening the fortune cookie first--- before the meal. The Fortune Cookie read: " Welcome Failure: Failure is the Breakfast of Champions." I have mentioned in an earlier post, that over thirty years ago, right after a fortune cookie that read, "Not Now, but Soon," I had received a layoff from an employer. Ever since, I have paid strict attention to those fortune cookies. That being said, I wish they were more precise. The vagueness in unnerving. Relax. The driving lesson went fine. I think the Chinese were directing the fortune cookie towards those who did not know that the world of school and life are different. Nobody gets 99.992% success all the time and still ranks at the median of the class. Most folks are blessed with enough failures so they have a balanced view of their strengths and weaknesses. Or at least the whims of the world. After reflection, I feel pretty confident that I have had enough failures thank you. I do not need any more. What about failure in stock trading? Well, the pace has picked up. It used to be that one would review annually which investments had worked out, and which had not, and whether to take losses or gains, and "rebalance" the portfolio to the future. Or maybe a surfer, after looking out and seeing a wave that surely must be the largest wave he has ever seen, and catching it, finds out that it is a dud. The surfer does not then go onto the shore, review what he did wrong...vow to to better etc...and spend lots of time....no the true man of the waves, or yes woman of the waves, just quickly picks a new wave.... The newage surfer, picking an investment, has to note whether the volume and price action has gone against the position, and yes whether in fact the investment is working according to the theory---and then cut the loss quickly if the data was incorrectly viewed.....and that process of recognizing failure, and very,very quickly...did I say "very" is the most important part of the equation. Thus...the true nerves of steel, the James Bond winning style, is a style of recognizing failure quickly...ya its not as sexy as a casino scene, but it is what works.

Where have all the Investors Gone?

If you read the Wall Street Journal or any of the business magazines or newspapers, one would think that every American is an investor? In truth, we have become a nation of mostly fixed investors scarred by the recent Crashes...and most of the trading is done by computer quants for large hedge firms or banking institutions and their propreitary divisions, and yes those are the very ones that inevitably do not supervise their employees very well...and thus...there are trading losses...like the recent one for 8 billion dollars by the "London Whale." These trading machines and their minions are adored by the current business model, and thus they have short names like movie stars, maybe Cher, Rocky IV, Bond etc....They are the "quants", the programmers, sitting in the room with all the screens, and if not writing some new code for automatic buys, they are playing poker or some other game. It is a new world.

"Buying the Tear Gas; Selling the Peace"

TUESDAY, JUNE 28, 2011 Buying the Tear Gas; Selling the Peace: Well today the news is all filled with the riots in the streets of Greece. It seems that Wall Street this morning is very optimistic that a deal can be reached by the Greek legislature so that minimum wage earners have their wages cut---its called the new austerity. It seems that the IMF and Wall Steet is real excited about this prospect for Greece....and who knows maybe for the United States too....just wait a few months or years.... In reviewing the news last week, it seemed that every day the financial markets were switching emotions faster than a love sick teenager---one might surmise that this was all rational behavior. From my perspective it was just one planted story by the bulls who owned calls or the bears who owned puts, and all just in time for option expiration. In short, most of what we have been reading is just bought and paid for by the commercial gamblers on Wall Street----and while I revel in the new freedom of online publishing, with blogs etc, I mourn the chaos that has produced mostly the tower of babel in real time. Thats how I see it. And you?

"Jersey is my backup"

If you go on a docent tour of Wall Street, you might hear one of the docents say that in a time of emergency, one must be calm because after all...."Jersey is the backup."" After the recent Hurricane Sandy, ya think this might be reviewed? Ya think that maybe Omaha, NE would be considered an alterntive? How about Keokuk, Iowa.....The magic of New York is that despite everything, they still have the ability to stare at their navel in wonder.

A Bit about "Feelings" and "Hedging"--what they have in common

Whenever you hear a pundit on Bloomberg news or such talk about how he or she "feels" about the market....run. Supposedly in a rational universe, where stocks are valued in an efficient manner, how one "feels" is not relevant. Usually when the pundit is opening the stock market about 8:30am central time he feels good about the stocks that he has a position in. Period. That for the record is "self interest" and what follows from his mouth is "self promotion"---yes ditto for those stocks that he has in his charitable trust. How does that relate to "Hedging" or buying calls or puts in the futures market, or buying "bear etf's" to hedge a stock position, or even buying gold. When to buy? When is the time? Now let's talke about "feelings". When you are at a bar and have had two wonderful Guiness, or even two Manhattans, not bar whiskey of course, but the best, you feel...wonderful...What you should be thinking of is who is going to drive home---instead you are thinking of other things....getting your mind to focus on hedging the risk means you have to worry about the ride home. The feeling is the trigger to hedge. The feeling after those two drinks is what the feeling is like...do not forget it. Further....hedging is like insurance...if you get someone to drive you home...which is a hedge...you do not have to worry about a DUI. When you have the bear hedge, you may lose in the insurance, but you will win if the market tanks....so keep the eyes on the donut...the investment...and plan on winning with the hedge only if disaster strikes....When and if you begin trading and gambling with the hedge....you are headed for high blood pressure or worse...make a note of it.

What Will Today Bring? A Trader's Meditation

At the beginning of every day, there is the reflection or meditation---What will today bring? The difference between a monkey and a human is forseeability....and visualizing is what the seasoned investment pro does...it takes imagination...after the imagination, one gets to compare the reality...but the imagination is what the trader and investment pro brings to the equation. On Saturday or Sunday, looking at the events of the coming week is key. These are detailed in Barrons Magazine in the calendar section, one looks at the events and plots what one thinks the week will look like. Is Bernanke going to speak? What job reports or retail sales are scheduled? You need to know. At the end of the week, you can compare what you thought the week would look like and what the reality was. This is important and surprising. Last week for example, ending August 3, 2012, it was speculated by the pundits to be a "Pump and Dump week", or it was a week where during the Mon to Thursday, the EU and the ECB would be making the promises, and then at the end of the week, the jobs report would probably disappoint, and oh yes...the ECB would probably result in nada..nothing...but smoke and mirrors, with the Italians just saying they wanted moral support. In the end, the last part was so, but the rest was a suprise. The market wanted to go higher, and disregarded everything to do so. The jaded news junkies had to just wonder and observe. So....what will next week bring. Visualize it.

Twenty Minutes is an eternity on Wall Street; The story of one Knight

It has long been known among regulars on Wall Street that live real time trading is very different than "delayed" information. In fact, thirty years ago it cost a small fortune to get real live data...but I date myself. One of the most exciting times to trade with live data is the first half hour of trading, when orders from around the world have bunched up over the hours when the exchange is closed, and all begin trading. In fact, it is during this early fifteen minutes that there is the "exception" to the normal circuit breakers that prevent wild swings on the exchanges. Leave it to the program traders to design an algorithm to exploit this weakness---and you have what occured last week with Knight Investments debacle, when an error in their program issued a weeks worth of buy orders all at once. In the end, the firm was 200 + million short and looking for a rescue from someone. Ya think we might have gone too far when the model announcers on the Wall Street channels are talking of "straddle" trades or currency plays that they dimly understand the ramifications of, and indeed should be prevented from even suggesting to innocent investors. Options always were for seasoned investors and serious traders, and were never meant, in my view, for anyone who needed something stronger than a light beer.