Michael Batnick’s new book, Big Mistakes: The Best Investors and Their Worst Investments came out this week.
There are far too many investing books that dissect the past successes of history’s greatest investors. These books make it easy for investors to assume emulating these greats should be effortless. I know that’s what I thought when I read about Buffett and Graham when I first started investing.
Most investors would be far better off trying to avoid mistakes than replicate their favorite billionaire’s track record. This book chronicles every mistake imaginable in the markets and it does so in a refreshing way by showing even the most intelligent among us screw up.
Here are six things I learned from the book:
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Heavy buying in financials, autos, metals and pharma counters and positive global cues lifted the equity markets on Friday.
The S&P BSE Sensex added 196 points or 0.55 per cent to settle at 36,064, while the NSE’s Nifty50 index closed at 10,863.50, up 71 points or 0.66 per cent.
On a weekly basis, the 30-share index Sensex rose 0.53 per cent while Nifty gained 0.66 per cent.
Among individual stocks, shares of SBI Life Insurance climbed 5.47 per cent to Rs 612.25 on the BSE after CA Emerald Investments (“Emerald”) acquired 9 per cent stake in the company through open market on Friday. The stock made a sharp rebound after falling over 12 per cent in the early trade.
Shares of SML Isuzu were locked in upper circuit of 20 per cent at Rs 682 on the BSE after the company reported strong 33 per cent year-on-year (YoY) growth in total sales at 1,282 units in February.
On the contrary, Bharti Airtel ended over 3 per cent lower at Rs 307.75 apiece on BSE after the company said its board of directors approved a fund raising plan of up to Rs 32,000 crore through a mix of rights issue and bond.
Sectorally, all the indices ended in the green, with media stocks advancing the most, followed by PSU banks and metals. The Nifty PSU Bank index ended over 2.50 per cent higher at 2,832 levels with all the 12 constituents ending in the positive territory.
In the broader market, S&P BSE MidCap index gained 184 points or over 1 per cent to settle at 14,503 while S&P BSE SmallCap surged over 2 per cent to end at 13,982.
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Daniel Kahneman once said, “Hindsight makes surprises vanish.” The hindsight bias can lead investors to constantly fight the last war. Since the financial crisis the last war has made top calling in the markets a cottage industry. Looking back now the peak before the prior crash looks easy. It was not. Predicting when the music will stop is not easy. This piece I wrote for Bloomberg shows why.
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There’s a simple reason the future always feels uncertain but the past seems relatively orderly: No one has any idea what the future holds, while hindsight allows us to assume that the past was more predictable that it actually was.
Take the Great Financial Crisis. The majority of investors, economists, policy makers and regulators were completely blindsided by the worst economic and stock-market downturn since the Great Depression. Yet when these same people look back at that fateful 2007-2009 period, it seems many of them now believe that they knew it was coming and called it in advance.
It can be very lucrative to be right about major market events. Many who actually did see the crisis coming became household names in the finance industry and parlayed that success into book deals, keynote speeches, television appearances and “thought leader” status. Since so many people were cheerleading right up until the market crash, no one wants to get caught flat-footed again, leading to a steady increase in the number of people now calling for a market top.
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Steve Wendel, head of behavioural sciences at Morningstar, chatted with markets editor Jeremy Glaser to come up with some ideas on how to keep your cool when the market isn’t. The entire interaction
can be seen here. Below are the takeaways.
Understand that volatility, downward or upward, is just data.
Avoid looking at your portfolio on a daily basis, specially when there is tremendous volatility. There’s lots of research on how frequently checking your portfolio, especially during market downturns, can warp one’s behaviour and get you into trouble.
Remember that our minds play tricks on us.
If the market drops, that’s past. That’s gone. There’s nothing we can do about it. It’s really as we think forward to what will happen that our minds take that data and apply a story.
If you don’t know what that story is, it’s probably the bias of recency bias–thinking that what just happened is about to happen. But when we think about that rationally, we of course know that’s not the case.
One of the things that we can do is to round out that story: This just happened; this is what I believe is about to happen; what’s the rightful thing to do? For most professional, thoughtful investors, they know it means you look for bargains. Same exact data. Very different outcome.
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The benchmark indices settled flat on Friday amid a rise in automobile and metal stocks.
The S&P BSE Sensex ended at 35,871, down 27 points, while the broader Nifty50 index settled at 10,792, up 2 points.
Among sectoral indices, Nifty Auto index rose 1.5 per cent driven by gains in Motherson Sumi Systems and Tata Motors. The Nifty Metal index, too, rose 1.65 per cent led by Jindal Stainless (Hisar) and Welspun Corp.
In the broader market, the S&P BSE MidCap index gained 54 points, or 0.38 per cent to 14,170, while S&P BSE SmallCap index settled at 13,518, up 104 points, or 0.77 per cent.
Shares of Reliance Nippon Life Asset Management surged 20 per cent to Rs 224 in intra-day trade, rallying 44 per cent in past two trading sessions on the BSE, after Reliance Capital decided to put its stake in the company up for grabs. The stock settled at Rs 199, up 6.3 per cent on Friday.
Suzlon Energy jumped 31 per cent to end at Rs 5.80 on the BSE. In intra-day deals, the stock had touched a high of Rs 6.15, rallying 68.5 per cent in the past two trading sessions from a level of Rs 3.65 on Wednesday,
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Only price pays. In trading, emotions and egos are expensive collaborators. Our goal as traders is to capture price moves inside our time frame, while limiting our drawdowns in capital.
The longer I have traded, the more I have become an advocate of price action. Moving away from the perils of opinions and predictions has improved my mental well-being, and my bottom line. It also makes it easier to create and adapt to trading rules.
“WE LEARNED JUST TO GO WITH THE CHART. WHY WORK WHEN MR. MARKET CAN DO IT FOR YOU?” – PAUL TUDOR JONES
In developing a trading system of your own, you must begin with the big picture. First, look at the price action and then work your way down into your own time frame. You need to create a systematic and specific approach to entering and exiting trades, executing your signals with the right trailing stops, setting realistic price targets and position sizing, and limiting your risk exposure. Relying on fact, rather than being tossed around by your own subjective feelings, will insure your long term profitability.
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“If you wake up thinking about a position, it’s too big” Steve Clarke
“Make your position size more a function of not how much you can make, but really how much you can lose. So manage your position based on your downward loss perspective not your upward potential.” James Dinan
“We will make something a large position if we think there is an extremely low chance of losing money on a permanent basis. Even if we think it might be a 4X return, if the idea could be a zero, it’ll be a small position” Ken Shubin Stein
“I’ll limit position sizes when potential outcomes are too binary” Chris Mittleman
“We do not bet the ranch on any single investment; few positions have exceeded 5% of assets in recent years” Seth Klarman
“We size things based on how much we think we can make versus how much we think we can lose. We’ll probably be willing to lose 5-6% of our capital in any one investment” Bill Ackman
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Benchmark indices ended marginally lower on Friday led by a decline in HDFC, HDFC Bank, Sun Pharma and Axis Bank.
The S&P BSE Sensex ended at 35,809, down 67 points or 0.19 per cent, while the broader Nifty50 index settled at 10,724, down 22 points or 0.20 per cent.
Among the sectorial indices, the Nifty Pharma index ended 3.1 per cent lower led a fall in Glenmark and Lupin. The Nifty Metal index settled 2.07 per cent lower weighed by JSW Steel and Welspun Corp.
In the broader market, the S&P BSE MidCap index ended 167 points, or 1.18 per cent lower at 13,941, while S&P BSE SmallCap index fell 111 points, or 0.83 per cent to settle at 13,253.
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Before we begin our discussion about how to trade Elliott Wave let’s set the stage by looking at how the Elliott Wave theory was discovered and why Elliott wave strategy is so popular today. In the 1930 R.N. Elliott set out to try to learn more about the stock market after experiencing some losses in the 1929 stock market crash.
Elliott’s discoveries were quite impressive and after careful study of the markets, he began to notice that the market has some repeatable patterns and is trading in a series of five and three waves which is what we call today an Elliott wave strategy.
Our team at Trading Strategy Guides has also adopted the Elliott Wave strategy because it offers us good Elliott Wave entry points which ultimately leads to superior risk to reward ratio.
The Elliott wave strategy is similar to a trend following strategy like the MACD Trend Following Strategy- Simple to learn Trading Strategy or the very popular strategy: How to Profit from Trading Pullbacks.
Even though the Elliott Wave strategy is a trend following strategy, we can spot Elliott Wave entry points even on the lower time frames because the Elliott Wave theory can be applied to all time frames and to all markets so, in essence, is a universal trading strategy.
Now …
Let’s get a little bit deeper into how to trade Elliott Wave and how we can make profits trading.
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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.
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