The Traders Journal

Unique Insights From Dinner With An $8 Billion Investor

I had the pleasure of having dinner with a mutual fund portfolio manager who manages over $8 Billion and who has the impressive record of outperforming the S&P 500 over the past 10 years.  In other words, a Wall Street insider and real pro.  My apologies upfront for not revealing his name and giving you specifics about him.  But frankly, I’m better able to offer my readers more candid insights by allowing him to remain anonymous.

I found some of his pithy comments especially interesting.  He said that “in this business, we tend to overcomplicate things.”  As I think back over the years, that is certainly the tendency of my students, just as it was of myself as a novice investor.  He went on to explain that despite what academics want you to believe, the market is simply not efficient.  An equity does have fundamental intrinsic value, but the market is consistently overestimating or underestimating what that true value is.  This is precisely why he has been able to outperform the market. 

Continue reading "Unique Insights From Dinner With An $8 Billion Investor" »

Why Stress is Like Kryptonite for Investors

Years ago when I was a novice investor, I’d exhaust myself trying to figure out why things were happening in the markets.  I would struggle to comprehend it all, and when there were market forces I couldn’t understand or explain, it would simply eat away at me.  I was burning emotional energy and feeling frustrated at every turn.  How could I trade equities when I did not fully grasp all the reasons for my stocks’ rallies and reactions? 

Eventually, I came to realize that I needed to stop marinating in stress by trying to achieve perfect knowledge.  The “eureka” moment came to me when I finally recognized that I didn’t need to fix my analysis – I just needed to fix myself.  And herein lies the misconception most investors hold about stock market knowledge.  

As an investor, my objective is not the pursuit of intellectual wealth –my objective is that of financial wealth.  Get that straight!  Over time, it gradually dawned on me that none of the talking heads or big-name money managers could claim with absolute certainty that they actually know what makes a stock turn bullish or bearish.  Their knowledge may seem impressive, but they certainly don’t have crystal balls to predict future price actions.

Continue reading "Why Stress is Like Kryptonite for Investors" »

Why the NFL, MLB and NHL Should Hire Me (Or Another CMT - Technical Analyst)

I liken old school General Managers of professional sports teams to fundamental investors.  The GMs that have not yet embraced the trend of data mining and statistical analysis – under the umbrella that’s now being labeled as “Sports Analytics” – are being left behind, sliding down the leader board or being fired outright.  

This is not unlike old school fundamental investors who try to hang on to old ways in this internet age of visual analysis.  To these investors, I extend a warm invitation to join our inner circle of Technical Analysis.  

But back to the pro sports managers.  I find it mildly amusing that this trend towards intensive number crunching and the dissecting of pro sports games in new ways is finally catching the attention of the major sports leagues.  Even MIT is endorsing this new discipline by sponsoring events such as the MIT Sloan Sports Analytics Conference.  We visual investors (technical analysts, chartists or whatever label you care to give us) have been doing this with reams of stock market data for 80 years or more.  I humbly submit to you that the Pittsburg Penguins of the NHL might be better served hiring not just a statistical PhD but a seasoned Chartered Market Technician (CMT) who would be better able to present mountains of statistics in useable, enlightening, visually-friendly charts from which conclusions can flow more easily.  

Continue reading "Why the NFL, MLB and NHL Should Hire Me (Or Another CMT - Technical Analyst)" »

Asset Allocation: The Most Important Truth About Correlations

Far too many investors assume (wrongly) that if two equities – such as the S&P 500 (SPY) and the Vanguard Total Market ETF (VTI) – have a .99 correlation (as they do), then they are interchangeable investments.  They expect their performance to be very similar as well.  Wrong!

If you’d like a short primer on “correlation coefficients”, please read my blog.

Truthfully, what’s required is a one-two combination.  Correlations amongst equities must be considered in parallel with respective performance in the construction of any prudent Asset Allocation profile.   Note the performance chart below that shows how these two highly correlated equities (.99 correlation) achieve very different performance results.  VTI actually outperforms SPY by over 100%.

Continue reading "Asset Allocation: The Most Important Truth About Correlations" »

Compare Your Traders Journal to Mine

I’ll show you mine, if you show me yours!  What were you thinking?  We are talking journals here.  During periods of extreme market volatility – such as we presently have – no action can be the right action to achieve your long term goals.  Understand that periodic corrections are to be expected and can actually work on your behalf if you continue making contributions to take advantage of dollar cost averaging.

Okay, that’s the serious stuff.  We all need some levity this week, so here’s my suggestion.  My trading journal looks like a kid’s scrapbook with multiple colored Hi-lighter pens.  What does yours look like?  With the present market such as it is, I thought we could all have some fun as we go through the alphabet and simultaneously through our respective journals to see what pops out of the pages under each letter alternating between green and red highlighters.  

I’ve chosen key words from my journal that are in green (i.e. bullish).  These words are printed in CAPS below.  Those words that were highlighted in red (i.e. bearish) are in small-sized letters.  So, here’s what pops out from my trading journal.

Continue reading "Compare Your Traders Journal to Mine" »

Here Are the Past Eight Market Corrections (I've Been Through Six of Them)

Straight from the pages of my own trading journal. These are my charts from all the market corrections since 1981.  Here’s why I want to share these with you.

The beauty of technical analysis is that it represents human emotions expressed by the buying and selling behavior of investors – emotions which are predictably repeated in times of crisis and have not changed over time.  In the midst of the present correction, I find that looking back at these charts stops me from doing anything rash or stupid.

Dan Ariely, a Professor of Behavioral Economics at Duke University, said this at the Yale Club in 2013.  “In the present, we get tempted and misbehave time after time.”  He explained how investors are apt to be swayed by short-term temptation without consideration or appreciation for long-term benefits or disadvantages.  To fight that temptation, we must make use of self-control, which in turn will limit the influence that temptation has upon us.  

I don’t want to list too many of my own conclusions concerning these charts as that would provide a disincentive for you to study all the market tops and bottoms to draw your own conclusions.  Those are the personal insights with the most adhesive long-term quality.  A lecture from me will be forgotten far quicker than those lessons you learn by digging into the charts yourself and finding lasting observations.  

Continue reading "Here Are the Past Eight Market Corrections (I've Been Through Six of Them)" »

The Triple Crown of Investing: Motivation, Confidence, Action

As many of you know who’ve taken my Tensile Trading seminar or watched the DVD, the tenth stage of stock market mastery pulls together all previous nine stages. As the title of this blog suggests, Stage 10 incorporates all three essential ingredients:  motivation, confidence and action.  Successful investors must leverage each of these:
     1.    They need the motivation to seek out meaningful investment tools and real market knowledge.
     2.    They must have the confidence to dig deeper into complex investing methodologies and explore their own investor self.
     3.    They must embrace a personal action plan to convert their knowledge into bankable experience.  
Let’s explore each of these in turn.

Continue reading "The Triple Crown of Investing: Motivation, Confidence, Action" »

Can You Believe 90% of Fortune 500 Equities Have Vaporized?

Be careful where you sit.  I shared a table at Starbucks last week with two investors who became very animated and energized when I disclosed that I was a full-time stock investor.  What a coincidence, they said, so were they.  They retired in 2004 and bought large positions in the hot names of the day back then, stocks like Cisco and Yahoo.  They proudly told me that they were buy-and-hold investors.

I asked them how that had worked out for them over the past eleven years.

Continue reading "Can You Believe 90% of Fortune 500 Equities Have Vaporized?" »

How to Profit from Momentum Investing: Guest Blogger, Harvey Baraban


Harvey Baraban is a Wall Street insider.  As the  former CEO of Baraban Securities, he managed 1,500 brokers and trained over 30,000 men and women for certification as full-service stockbrokers.  In the 1970s, he partnered with billionaire investor Gerald Tsai who was famous for starting the first publicly-sold Fidelity Growth Fund.   Considered to be the father of momentum investing, Tsai also had an extraordinary record running the Manhattan Fund for years based on his momentum investing principles.  I recently asked Harvey Baraban to write about the key insights he learned from Tsai.  Here is what he wrote:

I was fortunate to have had Gerald Tsai as both a partner and a mentor.  He taught me the ropes of how to be a successful trader using momentum as my key technique.  With momentum investing being very much in the news today as the style of choice, I thought it would be appropriate to review the meaning of momentum because the phrase “in momentum” is quite different than a “momentum stock”.  

A “stock in momentum” is a stock that is rising and capturing new buyers, simply based on the fact that the stock is rising and showing only small pullbacks of less than 7% during its rise.  The continuous rise in the stock is based more on technicals than on fundamentals.  As you know, in the world of money management, portfolio managers have to compete with their peers as to performance.  A rising stock owned by leading fund managers forces other managers to buy the stock in order to match or exceed the leading managers’ performance.  These insiders know that in order to maintain the momentum label, these stocks rarely trade below their 50-day moving average.  If or when they do, they become suspect.  It is usually fundamental news that takes a stock out of momentum.  The news could be a disappointing EPS report, a major analyst downgrade or a company’s negative guidance as to its future business or management changes.

Continue reading "How to Profit from Momentum Investing: Guest Blogger, Harvey Baraban" »

Nine Reasons for You to Join Our Club: ChartPack Update 7.25

Once a quarter, I update my Tensile Trading ChartPack.  With such a large number of users now it was easy to poll some of these investors to ask how and why they use the ChartPack.  Their reasons were enlightening, so I’m summarizing a few of their comments in this week’s blog.

Simplifies the Markets:  The ChartPack captures the massiveness of the whole market and organizes it into a manageable number of ChartLists.

A Professional’s Own Organizational Tool Kit:  It’s like the only tool kit personally used by a veteran money manager everyday for decades that’s available to the public.  The 100% transparency allows for it to be used in part or as a whole – however investors wish.

Maximizes Your Efficiency:  Its structure facilitates the relative strength approach of market / sector / industry / stock focus, allowing investors to find the highest probability trades that the market has to offer in the shortest amount of time.

Heavy Lifting Done for You:  This organizational tool kit represents over 1,000 man-hours of effort.  It contains over 90 ChartLists strategically prepopulated with the most appropriate indexes, ETFs and equities and then preformatted with the best indicators.

Continue reading "Nine Reasons for You to Join Our Club: ChartPack Update 7.25" »

Trading the News: Lessons From My Personal Trading Journal

The motto in the news business seems to be “If it bleeds, it leads.”  Investors must appreciate that our news is packaged by the news media in a manner to motivate the audience to tune in.  It is thus sold for the benefit of sponsors, not for the benefit of the public.  The headline “Dog Bites Man” is not news, but one reading “Man Bites Dog” surely is.

I have my own filtered definition of news.  I consider hard news to be earnings announcements which occur on a predictable calendar basis and are reported as data points.  The gossip before earnings are announced and the commentary afterwards are the soft news reports which I completely ignore.  Reported earnings, in my book, are relevant data points and I do pay attention.  My personal description of news is that certain unexpected events, such as merger rumors, labor strikes, management changes and accounting irregularities, do tend to move the market wildly up or down.  I do not, however, base my trading on these events.  This is the arena of the programmed trading firms with expensive super-fast computers and event-based algorithms that continually scan live feeds and watch for news that could affect a publicly traded equity.

This is the day trader’s sandbox.   Not mine.  I’m a position trader.  In much the same way that I like to let IPOs play out for at least six months before I begin accumulating a position, I like to let the markets digest the news before I jump in executing trades.  If the basic trend of the stock chart does indeed change, I will act appropriately, but I’ll let the market digest the actual newsworthiness of the report over a couple of days.  For me to try and guess correctly which way the price will move based on fresh news is a gambling game that I’m not willing to play.

Continue reading "Trading the News: Lessons From My Personal Trading Journal" »

Table of Contents