Trading the stock market is not the blood sport that many in the press portray it to be. That sentiment is just part and parcel of Wall Street’s sophisticated disinformation machine which preaches a familiar old sermon to individual investors. The market pitch goes something like this: “the market is too complex and you individual investors do not have the tools (or the smarts) to effectively manage your own money…so give us your money to manage for you” (so we can collect enormous fees). I think not, Mr. Market – I beg to differ.
The same investment analysis seldom yields consistent conclusions over a period of time. As much as investors would like to believe they are predictably consistent in their analysis, I’d be willing to wager that this is seldom the case.
This is especially true if you are stalking similar equities, ETFs or mutual funds in the same industry or asset class. I find when I review my asset allocation baskets and focus on the “top” options (which I inventory on asset specific perf charts), my preferences for “best of breed” may vary from month to month.
I was recently discussing trading and investing with Carlos Obando, former portfolio manager and graduate of a famous east-coast Business School – yes, Harvard. And as regular readers know, my MBA is from Stanford. Both schools are famous for their respective teaching methods, but as investment professionals, Carlos and I agreed that there are a lot of things business schools just don’t teach you about investing in the financial markets and portfolio management. There are things you have to learn the hard way. Here are eight things we both agreed upon quickly.
The legendary Warren Buffet once said, “You only have to do a few things right in your life so long as you don’t do too many things wrong.” Co-authoring an investment book alongside my son, Grayson Roze, stands out as one of the most profoundly “right” things I’ve done in my professional life. After two years in the making, it is with tremendous pride and boundless excitement that I write this blog today to announce the official release of Tensile Trading: The 10 Essential Stages of Stock Market Mastery, published by Wiley under its Wiley Trading Series.
From the very beginning, this work has been a unique father-son team production, sharing the secrets of the insider-structured investment methodology that both Grayson and myself use to trade the financial markets. This book’s candid details were forged from a father’s desire to pass on to his son the skills and knowledge gleaned from over 25 years of experience as a full-time trader-investor, one who has proven that an individual investor can outperform the industry professionals and still enjoy the ride. Unburdened by the distraction of clients, our unfiltered, brutally honest guidance is structured as a comprehensive 10-stage roadmap that we ourselves put to use each and every day. Over the course of more than 16 years of teaching, the material in this book has been presented to thousands of investors. Refined and enhanced continuously, the result is a book that provides the building blocks for a profitable, high-probability, long-term investment system.
Visual Analysis on Steroids
I am a big believer that investing should be fun and need not eat up all my time. One element I’ve found that makes it more so is creating colorful and visually alluring charts. To this end, present ChartPack users will therefore notice that over 100 charts have been improved with more distinctive presentation and attractive colorization. You’ll want to spend more time looking and listening to what these charts have to tell you.
As is the case in all of these chartlists, the overall paramount objective when we first offered the ChartPack back in 2013 and continues to be true today with each update is to present ever more visually powerful charts that save you precious analysis time while maximizing your market insights.
With this update, we actually hired a professional investor to review the entire ChartPack for a fresh perspective but still keeping these specific goals in mind. His suggestions were insightful and are reflected in this update.
I’ve been told I’m a little unusual in that I rate my trades on a scale of 1 – 5 stars depending on my reaction time (RT). My reaction time rating is merely a measure of the quickness an investor responds to some sort of market stimulus. I rate it both on the buy side and on the sell side of my trades. No, I don’t get wired up like the Dutch physiologist, F. C. Donders, started doing back in 1865 when he began measuring human reaction, but I do have my system. Stop and think about it. Your RT plays a large part in your everyday life. Fast reaction times can produce big payoffs and slow RTs can result in serious negative consequences in a whole host of daily situations.
What does it take to succeed as an investor? That’s a broad question but nonetheless a supremely important one. Let’s stop, think about this for a minute and see if we can boil it down to a few core elements. First off, it takes genuine curiosity. It requires a thirst for knowledge, a willingness to continually seek out education and expand your intellectual capital. This is the learning part of the equation. I’m confident that you have this checkbox covered because you’re displaying that curiosity right now just by reading this blog. You’ve come here to satisfy that thirst for knowledge, hoping to learn something new or uncover something insightful. So what’s next?
This past February, John Elway, General Manager of the Denver Broncos, achieved the pinnacle of success when his team won the 2016 Super Bowl. When I was a graduate student in business school, I had the privilege and good fortune of watching Elway play football as the quarterback for Stanford and seeing him around campus in a multitude of different situations. I was struck by the fact that, even as an undergraduate student athlete, he stood out as exceptional. Whether in the weight room or in the library at midnight, he was cultivating prerequisites that would significantly increase the probability of his success both on the football field and in the future as a successful businessman. He was all about commitment, discipline, hard work and focus. The results speak for themselves. As I heard him say years later, “The secret of success is that there is no secret.”
To paraphrase Bill Murray from the movie “Aloha,” the future is not something that just happens. It’s a brutal force with a great sense of humor that will nickel and dime your investments until it’s totally steamrolled your portfolio if you aren’t watching.
I will concede that it’s a personal rant of sorts, as I have been on the receiving end of excessive charges and fees. As a market observer, I constantly bear witness to many creative examples of the “steamrolling” force so eloquently cited by Murray.
Highly educated people are, for the most part, trained to ask the question “Why?” Engineers, accountants, doctors, lawyers and the like invariably want to know all they can about why certain things happen. The assumption is, of course, that knowing why will help you do the right thing in your career domain and therefore get nicely rewarded for it.
While this strategy may work well in one’s particular profession, the stock market domain is completely different. In the financial arena, one is not necessarily going to be rewarded just because they understand the underlying reasons why something happened. To the contrary, pursing rational answers within a seemingly whacky market may generate an academically satisfying list of explanations but without financial rewards. An investor’s pursuit of “why” may waste precious time and energy when the focus instead should really be on identifying the “what” and then following up with the appropriate action.
Whether it’s life or investing, if you ignore the reality of correlations – be they positive or negative – you are literally engaged in paradigm shifting. This is the equivalent of trying to put the milk back into the cow.
We all witness examples of positive correlations in our daily lives. The more it rains, the more umbrella sales go up. The more miles you run on the treadmill, the more calories you burn. When one variable increases, the other variable increases as well.
Those are the easy examples. You could have guessed them intuitively. It’s the more complex correlations that are less intuitive – ones such as the positive correlation between the Russia Fund (RSX) and Light Crude Oil (#WTIC).
A week doesn’t go by without some investor asking me “which one single indicator do you recommend above all others?” When I answer this question, the indicator I speak of is never the one they expect. The most important indicator – the one that will determine the majority of your successes or failures – is you, the Investor Self. As my fellow trader Ed says, “Sine qua non” (without which there is nothing).
So how do we define this indicator? How do we learn to understand the Investor Self – to know what its strengths and weaknesses truly are? The answer lies within the one thing that is an investor’s best friend – his or her trading journal. Profitable behavior is based on good organizational routines, flexible thinking, consistent discipline and self-control. A trading journal is like an expensive custom racing bicycle that allows you to get there faster than the next rider.