If you are a trend follower then you must have heard of Ed Seykota. Ed Seykota was first featured in the book “Market Wizards” and has one of the best track record of all time. In one of the accounts he managed, he had a return of 250,000% over a 16 year period. Comparable to the likes of Warren Buffet, George Soros and William J. O’Neil.
Ed Seykota has an Electrical Engineering degree from MIT and is a systematic trader. His trading is largely confined to the few minutes it takes to run his computer program which generates signals for the next day. I’m sure most traders would like a system that does that.
With such an amazing trader around, it makes sense to pay attention whenever he talks. So here are the 39 best things said from the man him self, Ed Seykota.
Quotes by Ed Seykota
Technical analysis
1. In order of importance to me are: (1) the long-term trend, (2) the current chart pattern, and (3) picking a good spot to buy or sell. Those are the three primary components of my trading. Way down in very distant fourth place are my fundamental ideas and, quite likely, on balance, they have cost me money.
2. If I were buying, my point would be above the market. I try to identify a point at which I expect the market momentum to be strong in the direction of the trade, so as to reduce my probable risk.
“What is a strategy? A mental tapestry of changing intentions for harmonizing and focusing our efforts as a basis for realizing some aim or purpose in an unfolding and often unforeseen world of many bewildering events and many contending interests.” — John Boyd
What techniques do people use in the most extreme situations to make decisions? What can we learn from them to help us make more rational and quick decisions?
If these techniques work in the most drastic scenarios, they have a good chance of working for us. This is why military mental models can have such wide, useful applications outside their original context.
Military mental models are constantly tested in the laboratory of conflict. If they weren’t agile, versatile, and effective, they would quickly be replaced by others. Military leaders and strategists invest a great deal of time in developing and teaching decision-making processes.
One strategy that I’ve found repeatedly effective is the OODA loop.
Developed by strategist and U.S. Air Force Colonel John Boyd, the OODA loop is a practical concept designed to be the foundation of rational thinking in confusing or chaotic situations. OODA stands for Observe, Orient, Decide, and Act.
Boyd developed the strategy for fighter pilots. However, like all good mental models, it can be extended into other fields. We used it at the intelligence agency I used to work at. I know lawyers, police officers, doctors, businesspeople, politicians, athletes, and coaches who use it.
The heady Indian bull market was fueled by the liquidity rush post demonetization. But that was not the only reason propelling indices in India to new highs. Thanks to lower global interest rates, money was channelized into India in the hunt for better returns. A stable government at the center, lower crude prices and low inflation were other factors that contributed to the overall positive sentiment.
But many of us wanted more than what blue chips had to offer. We wanted to “beat the market”. Or, for that matter even the track records of legendary investors like Warren Buffet or Peter Lynch. Naturally, this led us to scenarios which offered potentially superior returns. And in the perpetual hunt for 10-baggers, we ended up investing in nano-, micro- and small-cap companies with questionable business models, corporate governance and promoter intentions.
We looked at:
Many stocks that fell in the above categorizations turned out to be 10-20 baggers over the last 3-4 years. But once the music stopped, we witnessed a vertical decline in stock prices that has stunned even seasoned investors.
One of our favorite investors to follow here at The Acquirer’s Multiple is Seth Klarman’s protege David Abrams. Abrams typically shuns the public limelight so it’s difficult to find interviews where he shares his investing strategy. The WSJ did a great story on him back in 2014 titled – Hedge-Fund World’s One-Man Wealth Machine saying:
Mr. Abrams got his start in 1988 at Baupost Group LLC, also based in Boston. Run by Seth Klarman, Baupost is one of the world’s largest hedge-fund firms, with $27 billion under management. The two remain friends, and Mr. Klarman’s personal foundation has put money into Abrams Capital’s funds. Mr. Klarman described his protégé as “smart as a whip.”
“He loves a good puzzle and a good treasure hunt,” Mr. Klarman said.
The hedge-fund manager, David Abrams, has personally become a billionaire, and earned billions more for his wealthy investors, over the past five years running what is effectively a one-man shop, according to company and investor documents reviewed by The Wall Street Journal and people who have worked with him. His firm, Abrams Capital Management LP, manages nearly $8 billion across three funds and is discussing raising money for a fourth fund that could help push its assets past $10 billion.
It’s so hard to buy pullbacks!
That’s what a fledgling trader told me there other day after I asked him why she doesn’t trade trends.
I can understand her dilemma. I mean, how many times have you bought on the pullback only to see the stock pullback further. You then get stopped out before the stock eventually does exactly what you thought it would.
Talk about frustrating!
Well, that’s why we don’t guess by trying to time the pullback. Instead, we let the pullback play out before entering.
How do we do that?
By waiting for the remount of a key range, like the 9 (ema) and 50 day moving averages.
This gives us confirmation that the pullback is over and puts a repeatable process in place that gives us easy steps to buy the pullback without fear.
Here’s a great article published at Forbes recently regarding one of our favorite value investors, Joel Greenblatt. The article is written by Jack Schwager, author of the Market Wizards series, in which he recounts his interview with Joel Greenblatt for one of his books. Schwager recalls some of the insightful parts of the interview included Greenblatt’s successful investing strategy and his three golden rules of value investing.
Here is an excerpt from the Forbes article:
Is “value investing” correct? originally appeared on Quora: the place to gain and share knowledge, empowering people to learn from others and better understand the world.
Let me ask you…
Why do you want to be a trader?
You want financial freedom.
You don’t want to answer to anybody.
You want to be your own boss.
You want to make money.
You want a passive source of income.
Now you’re probably wondering:
“Is it possible to achieve all these from trading?”
Good question.
Then you’ll want to read every single word in this post because you’ll discover the myths, the possibilities, and most importantly… the truth about trading.
You may be surprised at what I’m about to share with you.
So if you’re ready… then let’s begin.
One of our favourite value investors here at The Acquirer’s Multiple is Jim O’Shaughnessy.
O’Shaughnessy recently wrote an awesome series of tweets detailing twenty five investment lessons that he’s learned over thirty years of value investing. They’re a must read for all investors.
With Jim’s permission here are his twenty five timeless investing lessons:
Most textbooks portray humans as self-interested people making rational economic decisions, but people often are far from rational in making investment decisions.
Behavioral economics provides insight into why humans make sub-optimal decisions, studying the impact of psychological, cognitive and emotional factors on economic and investment decisions. Two winners of the Nobel Prize in economics, Richard Thaler and Daniel Kahneman, have been recognized for their pioneering work in behavioral economics.
In awarding the Nobel to Thaler in 2017, the Royal Swedish Academy of Sciences stated, “His contributions have built a bridge between the economic and psychological analyses of individual decision-making.” Thaler’s work was instrumental in pension reform, illustrating how subtle changes in framing can lead to dramatically different consumer choices. Thaler’s research contributed to policy changes including automatic enrollment of employees in 401(k) plans and the use of target date funds as the default option for new 401(k) enrollees instead of money market funds.
One of our favorite investing books here at The Acquirer’s Multiple is The Most Important Thing by Howard Marks.
There’s one passage in particular in which Marks discusses how keeping one’s ego in check is the greatest formula for long-term wealth creation. Here’s an excerpt from the book:
The sixth key influence is ego. It can be enormously challenging to remain objective and calculating in the face of facts like these: