Books 01 (May 08 - Oct 08)

[Apong]

MM,

The Geylang version is "chu lai liao" , the intelligent investor version is just "lai liao" -- actually refers to opportunities (either "buy cheap" or "sell dear")...

Actually I came here to read quite often, but did not post often. Reasons:
1. most of you trade in US market, which I haven't touched. So, can only read read a bit.
2. the "cookie" that captures my log in password seems to have very short life-time -- every now and then must log in again. My WS log in seems to last forever.

Anyway, was quite impressed with the forum in terms of
1. the DJI & other major indices being displayed "real time"
2. the formating tools (bold, color, smiles) that we can use in the posts
3. (of course) the quality of the posts / forummers / moderators here

I think very soon can charge membership fee...

[kennynah]

apong :

haha... I think very soon can charge membership fee... i oso

geylang version is "chu lai liao".....oh really? which Lor says this?

come more often ok...actually also getting quite a bit of singapore counter related news/discussion...more and more have joined us and begun posting their thoughts too..

see u soon....

[helios]

flipping thro' e ends of e Stock Market Wizard book, i'll need to read it again after e completion of The New Market Wizard.

(many thanks to Jest again, lending me his well-preserved books).

here's e wizard lessons:

1. there's no single true path;

2. e universal trait - absolute discipline;

3. you've to trade your personality - u have to know who u r - concentrating on mastering one
style that suits your personality, which is a lifetime process;

4. failure & perseverance? metamorphosis?

5. great traders r marked by their flexibility (to change their approach) evolution?

6. it's requires time to become a successful trader (and experience can be acquired only in real time);

7. keep a record of your market observations (daily diary), hence e setup of this forum to record forumer's recurrent patterns, thinking-out-loud threads;

8. develop a trading philosophy - an integration of market concepts & trading methods based on market experience;

9. what is your specific Edge? price patterns? informational flow? catalyst-based model? hedging techniques? communication based research?

10. high level of confidence over chicken-and-egg question;

11. hard work;

12. obessiveness; pls couple pt. 11 & 12. together in respect to e markets;

13. e wizards tend to be innovators, not followers; they r creative in implementing market strategies against conventional models;

14. to be a Winner, u've to be willing to take a loss - e people who r successful in this biz are e people who r willing to lose money.

15. risk control, stop-loss points, reducing positions, selecting low-risk positions, limiting e initial position size, diversification, short-selling, hedged strategies;

16. you can't be afraid of Risk - a willingness to accept risk is essential;

17. limiting e downside by focusing on undervalued stocks;

18. value along is not enough, there has to be other compelling reasons for e trade because a stock cld be low-priced and stay that way for years;

19. e importance of catalysts - ask youself, what make e stock go UP? (by definition, every trade requires a catalyst);

20. most traders focus on When to get IN & forget abt When to get OUT;

21. if market behaviour doesn't conform to expectations, GET OUT;

22. e question of when to liquidate depends not only on e stock but also on whether a better investment can be identified;

23. e virtue of patience - whatever criteria u used to select a stock & det. an entry level, u need to have e patience to wait for those conditions to be met at bargain levels;

24. e importance of setting goals;

25. this time is never different. Many will cry out: "This time is different." Just remember: "It never is";

26. fundamentals r not bullish or bearish in a vacuum; they r bullish or bearish only relative to price;

i like this part: a great company could be a terrible investment if its price rise has already more than discounted e bullish fundamentals. conversely, a company that has been experiencing problems and is e subject of negative news could be a great investment if its price decline has more than discounted e bearish information.

(a good company could be a bad stock & vice versa) ... will rem this when i read e corporate news & stories.

27. successful investing and trading has nothing to do w forecasting - e actual fact is nobody knows;

28. never assume a market fact based on what u read or what other say; verify everything yourself;

29. never, ever listen to other opinions (not to surrender e decision-making responsibility to someone else);

30. beware of ego, one bad phone call can put you out of business;

31. e need for self-awareness, and make appropriate adjustments;

32. don't get emotionally involved;

33. view personal problems as a major cautionary flag to your trading;

34. analyse your past trades for possible insights to improve future performance;

35. don't worry abt looking stupid;

36. e danger of leverage;

37. e importance of position size;

38. complexity is not a necessary ingredient for Success - it's e skill in application that counts;

39. view trading as a vocation, not a hobby;

40. trading, like any other business endeavour, requires a sound business plan;

- what markets will be traded?
- what is e cap?
- how will orders be entered?
- what type of drawdown will cause trading cessation and reevaluation
- what r e profit goals?
- what procedure will be used for analyzing trades?
- how will trading procedures change if personal problems arise?
- how will e working environment be set up?
- what rewards will e trader take for successful trading?
- what will e trader do to continue to improve market skills?

41. define high-probability trades;

42. find low-risk opportunities;

43. be sure u've a good reason for any trade you make - if u can't summarise e reasons why u own a stock in 4 sentences, u probably shouldn't own it.

44. use common sense in investing - visiting sites, outlets;

45. buy stocks that r difficult to buy;

46. don't let a prior lowed-price liquidation keep you from purchasing a stock that you'd have bought otherwise;

47. holding on to a losing stock can be a mistake, even if it bounces back, if e money could have been utilised more effectively elsewhere;

48. you don't have to make all-or-nothing trading decisions;

49. pay attention to how a stock responds to news;

50. insider buying is an impt confirming condition;

51. i like this, MM always said it too ... HOPE is a 4-letter word;

52. e argument against diversification - more beneficial? or more detrimental? each trader needs to consider e appropriate level of diversification as an individual decision;

53. caution again data mining;

54. synergy and marginal indicators when combined;

55. past superior performance is relevant only if same conditions are expected to prevail, e.g. must see if e high-cap stocks have becoming even more overpriced relative to e rest of e market;

56. popularity can destroy a sound approach (portfolio insurance selling has domino effect);

57. like a coin, e market has 2 sides, both long & short - but e coin us unfair as e odds r not equal;

e long-term uptrend in stock prices results in a strong negative bias in short selling trades as e odds r stacked against you.

58. e Why of short selling = to view these trades within e context of e total portfolio rather than stand-alone transactions; they r inversely correlated to e rest of e portfolio when e long holdings r losing;

short-selling offers e opportunity to increase returns w/o increasing risk in e portfolio, even if e short positions themselves only breakeven.

59. the one indispensable rule for short-selling, any individual short position is subjected to losses far beyond e original capital commitment, it only takes 1 bad mistake to wipe out an account on e short side. rem, short positions r treated as short-term trades, often tied to a specific catalust, such as earnings report. Win or lose, e trade is liquidated within weeks or even days;

60. identifying short-selling candidates (or stocks to avoid for long-only traders), find red flags such as high receivables, change in accountants, high turnover in CFO, a company blaming short sellers for their stocks' decline, a company completely changing their core biz to ake advantage of a prevailing hot trend; v high P/E ratio, uptrend that is stalled/ reserved;

61. use options to express specific price expectations;

62. sell out-of-the-money puts in stocks you want to buy .... sale of options;

63. wall street research reports will tend to be biased;

64. the university of Success, must find your own blueprint!

[helios]

yo yo,

a friend passed me this brand new book, apparently ocbc securities was giving e book - foc.

i'll read it in 2/52 time aft e new wizards & ref. it to our forum guru threads.

The Winning Investment Habits of Warren Buffet & George Soros
- by Mark Tier, an australian writer cum businessman

[la papillion]

Saw the book before in book stores and library. Browsed through it, but didn't think it is worth reading. Do summarise for us when you finished san

[helios]

K K ... my new idol said so

i think, it's a 100% commercialised book; e coverpage tells everythg (w uv glossing mark).

ok, my main point, is to cross-ref back to e threads here.

[millionairemind]

San Mei,

Your summary of the Mkt Wizard book is great.... tks..

Cheers,
mm

[helios]

yeah, our MM wizard!

hopefully, e inspirationz is there ... (haaa, i believe u can write a great book too)

spoof!

[la papillion]

A few weeks ago, I was browsing books in the library as usual when two books caught my eyes – Liar’s Poker by Michael Lewis and Confessions of a Wall street analyst by Dan Reingold. I thought it was good fortune that had me borrow both books at the same time, because reading these books one after another brought me to a level of insight that reading them individually would not bring.



Liar’s Poker is the more famous of the two. It talks about the story of a trader and bondsman who went through hell and came back ahead, dealing and wheeling in the pits of Salomon Brothers. I learnt more about the history of Salomon Brothers in this autobiography than I would have had I read it straight from a point by point, chronologically arranged sequence of events. It’s the story that stays after the facts faded from memory and the author weaves the story so tight and so engaging that it’s literally a page turner for me. Imagine this – a page turner for this genre of books!

It struck me that back in 1980s, these traders and bond salesman are paid to take enormous amount of risk, all backed by their clients’ money. The firm actually encouraged them to take such risk. A few hundred millions is small change for these people. It’s incredible to think that this insane amount of money just floats around waiting for Big Swinging d**ks to play around.

The other book, Confessions of Wall street analyst, is a little more dry. It had to be, it’s about the life of a idealist analyst who wants to go into wall street to espouse his independent views, but left the street a cynic wary of the independence of American’s financial system. The book is full of examples where investment bankers, analyst and issuers had major conflicts of interest, back in those days when SEC haven’t clamped down on them. It was in the heydays of the telecoms M&A era and subsequent internet dot.com bubble. I had first hand account of how Worldcom blew up, catching analyst and even insiders wondering why nobody found out the glaring aggressive accounting in their books.



I read about ‘swapping’ – where company A bought products from company B and vice versa, resulting in both companies booking a huge increase in revenue and not necessarily an increase in earnings. They did this to justify their huge PE ratios attributed to them and the target revenue and growth set up management. It was an incredible insight into the pitfalls of seeking growth at all expense and the eventual and inevitable exposure of such growth. The scary part is – even insiders do not know about it. Insiders like CEO or CFO, so absorbed in their own story of growth through acquisition and glowing from their soaring share prices, actually believed it will last forever.

I already had the idea that analyst are not entirely independent because they are paid by the company that usually also had a brokerage and investment banking wing, which is a huge source of potential conflicts of interest. But reading these two books bought it to a huge new level of belief!

Perhaps the last few words in the Confessions of a Wall street analyst will cement the ideas in my head forever:

“Of all the lessons I’ve learned in my time on the Street, the most difficult one to swallow is that I no longer believe in the transparency of the American financial system. When I came to the Street, I saw it as a place where there were plenty of sharks, but also a place where American capitalism reigned supreme, a place where everyone had a chance to do if they were smart, hardworking, and a little bit lucky. It was a game I enjoyed playing – at least until I realized how corrupted the game had become.”

[sesdaqfan]

Welcome to the real world, LP. This has been and will be in the financial world. But let me tell you that its even worst in this part of the world.