The Traders Journal

Youthful Investors versus Grizzly Veterans: Beer versus Wine

At a recent seminar, I was asked by a sharp young investor how much trading rules had changed since I began trading way back in 1905.  He didn’t actually say 1905, but the tone and cadence of the question gave him away.  By pure chance, I had just picked up William Eng’s 1990 book, Trading Rules, off my bookshelf and had flipped through the pages again as I ate my lunch.  The young man asking me the question was not unlike a young athlete because after all, depending upon the sport, one statistically hits one’s prime in one’s 20s or 30s.  I answered with a knowing wink that serious investors are much more akin to an exceptional bottle of wine – such as a Domaine de la Romance, Conti Grand Cru – something that just keeps improving with age.   He stared back at me with a puzzled look as only a young beer-drinker can with no appreciation for what he was missing.

Most all dedicated investors get better with age.  It doesn’t take biceps to trade better.  It doesn’t even take extraordinary amounts of gray cells.  But it does take experience and intuition which is cumulative.  For every purportedly sensational youthful portfolio manager you present, I can offer up two grizzly veterans my age who’ll kick their derrieres. 

But I digress.  Back to Eng’s trading rules.  As he says, “an expert market mind is only acquired through careful analysis of many successes and failures.”  The other part of the equation deals with the reality that the market’s primary fuel is human emotions which have not changed in centuries.  Without getting into commentary on each of Eng’s fifty rules, I thought I’d simply list a dozen that illustrate, for my young questioner, that trading is timeless, experience matters and serious dedicated investors do significantly improve with age.  It’s simply a victory of fine wine over beer.

Continue reading "Youthful Investors versus Grizzly Veterans: Beer versus Wine" »

Over 150 Fresh Tradeable Insights: The Tensile Trading ChartPack Update 6.0

For both existing ChartPack users as well as investors who have not yet downloaded the ChartPack – or perhaps don’t fully understand the many benefits of how to maximize its use – I’m pleased that a free video and user manual is now available for your review.  Grab a cup of coffee, put your feet up, and check it out!

Free Video & User Manual:
Recorded at ChartCon 2014, my 60-minute presentation steps through the powerful organizational structure and each of the 90-plus ChartLists that comprise the ChartPack.  All StockCharts.com users will benefit from the many organizational ideas.

http://store.stockcharts.com/collections/stockcharts-com-chartpacks/products/tensile-trading-chartpack-by-gatis-roze

As a full-time trader, I have been using this ChartPack personally for over a decade.   About five years ago, I began sharing my ChartPack with my Bellevue College class investors.  In November, 2013, I started offering the ChartPack and quarterly updates to my StockCharts.com friends, users who now number into four figures.  

Continue reading "Over 150 Fresh Tradeable Insights: The Tensile Trading ChartPack Update 6.0" »

My Methodology Allocation Beats Asset Allocation

From what I’ve seen of most investors’ asset allocations, it’s a maze.  My personal asset allocation is better described as a labyrinth.  Unlike a maze that attempts to make you mentally confused and physically lost, a labyrinth provides a path towards inner calm and mental clarity.  My labyrinth allocation is in fact more accurately described as a methodology allocation and is built upon three foundations:  diversification, correlation and methodology.  Let me explain. 

Diversification means different things to different types of investors.  In my portfolio, this plays out as a lifetime mantra of distributing assets across a very wide array of buckets – classic diversification.  Some buckets are relatively uncorrelated, while others are negatively correlated (all the time acknowledging that in times of crisis, correlations tend to rise amongst all assets).  Basically, I’ve avoided the strategy of, for example, buying a dozen rental properties in one neighborhood.  These are all correlated assets and diversification is non-existent.  My point is simple.  Avoid putting all your eggs in one basket is not just a cliché but a truism as well.  But then also make certain your eggs are somewhat uncorrelated.  

My third foundation is methodology.  Here is where I differ from the sea of asset allocators because I factor in my own personality, skills and trading style.  As a trader, I buy individual stocks based on strength, relative outperformance and momentum.  I cover this base or asset bucket myself.  I don’t look to ETFs or mutual funds to do this for me.  Conversely, as a trader, I also know myself and acknowledge that I am not emotionally capable of buying deep discounted equities or distressed securities.  Those are what asset allocators label as ‘value stocks’.   

Continue reading "My Methodology Allocation Beats Asset Allocation" »

My One and Only New Year's Resolution

Every January, investors throughout the world pledge to improve themselves and their financial management efforts.  Only a select few truly succeed in these eager commitments.  Let this be your nudge to join the ranks of those select few.

In past years, I’ve often fallen into the trap of making long lists of New Year’s Resolutions.  I’ve taken on towering tasks to weed out negative beliefs or unhealthy emotions, to become more personally accountable and action-oriented, or to seek answers from within rather than trying to place responsibility elsewhere.  While some of these resolutions have fallen short, many others have fortunately stuck to varying degrees and have grown into permanent staples of my routines.  The most prominent example is my personal Trading Journal, which began as a goal to document my behaviors, emotions and thoughts throughout each trade.  Most significantly, my journal has come to shape my definition of success by changing the way I classify winning and losing trades.  

Continue reading "My One and Only New Year's Resolution" »

Only the 58 Navigators Matter

Of the approximately 6,000 stars visible to the naked eye, only 58 are considered navigator stars.  Since antiquity, these essential stars have guided mankind to many new horizons.  This wisdom came to me on a brokerage house Holiday card.

If you have ever stood atop a mountain at night or lay on your back in a country field as the stars came out, you will not dispute the overwhelming vastness of the heavens.  The stock market can be nearly as vast and overwhelming.  Much like the heavens, it’s most important to focus on the bold stars and forget about the faint stars.  It’s impossible – indeed harmful – to spread your gaze across all 6,000 stars.  Just because you see light in the heavens or the markets doesn’t mean it will get you where you want to go.

Continue reading "Only the 58 Navigators Matter" »

Academics Prove that Trading the Markets Contributes to Your Longevity

Yes, the fountain of youth really does exist, and academic research is increasingly proving it to be found amidst your investment portfolio.  A growing body of scholarly research shows that, in many ways, life can get better as we get older and being an active investor can contribute in significant ways.

As I write this, I’m 62 years young, and without a doubt, I’m a far more profitable trader today than I was 10 years ago.  I expect to be even more skilled in another 10 years as my expertise deepens.  It’s as if the “intuition gap” that separates me from the market continues to narrow.  I’ve worked all my life to make that gap smaller and smaller.  I chose to believe that is why they refer to them as the ‘golden years’.  Without getting too metaphorical, it’s like the distance between me and the market has become a relatively narrow space such that I can nearly reach across the chasm and touch the other side.

Before you dismiss this stay-young-by-investing thesis, consider the investment track records of some mature money managers such as Warren Buffett, John Templeton, George Soros, Shelby Davis and Philip Carret who all practiced their craft for at a minimum of 38 years.  Some are still going strong beyond 55 years.  

Continue reading "Academics Prove that Trading the Markets Contributes to Your Longevity" »

Why Successful Investors Embrace the Laws of Grouping

Fish swim in schools.  Birds fly in flocks.  Humans follow grouping principles too.  Gestalt psychologists describe these as the Laws of Grouping and the stock market most definitely acknowledges these laws at its core.

My own trading methodology leans heavily on these principles to such an extent that I actually named my version the “sisters strategy”.  In the most elemental form, it endorses and embraces the fact that equities tend to move together on four legs:

     Group 1:  We’ve all heard the cliché  “a rising tide lifts all boats.”  When markets trend up, the majority of equities participate in the uptrend.

     Group 2:  The market is divided into nine large sectors. Up-trending markets are lead by a number of these strong sectors.

     Group 3:  The strongest sector is composed of a basket of similar industry groups that are fueling its rise.

     Group 4:  Finally, a cluster of similar and robust individual equities, which are all part of the same strongly trending industry group, in the leading sector are driving the total market in a significant fashion.

Continue reading "Why Successful Investors Embrace the Laws of Grouping" »

You Only Get 2,000 Profitable Trades Per Lifetime: Use Them Wisely!

The National Football League can prove statistically that top running backs, such as Marshawn Lynch of the Seatte Seahawks, have a football lifespan of approximately 2,000 ball carries in their careers before their productivity falls off a cliff.  Major League Baseball has similar statistics for the number of throws their pitchers toss.  There is even a website, www.pitchsmart.org, which offers a unified set of optimal guidelines on pitching usage for different age groups to aid in injury prevention.

My two points are these.  Once running backs approach that 2,000 number, team managements know their value is greatly diminished, and players’ contracts reflect this fact.  In addition, football coaches know that these carries must be strategically allocated, just as baseball coaches carefully track the number of throws their top pitchers deliver.  They, too, are managing a depreciating finite asset.

Continue reading "You Only Get 2,000 Profitable Trades Per Lifetime: Use Them Wisely!" »

Stock Market Mastery: Blending Fundamental & Technical Analysis Part I

The Harvard Business Review (November, 2014) just published its list of the Best Performing CEOs.  This list should interest investors since these top 50 CEOs have been undeniably effective in delivering total shareholder returns which averaged 1,350% while on the job.  That translates into a 26.2% annual return!

One classic example of why investors should hitch their wagons to these “best” CEOs, such as Warren Buffett at Berkshire Hathaway (BRK/A), is that those investors who did so have been rewarded with a 950% return over the past 20 years.  

From my experience in Silicon Valley, these individuals are obviously talented and driven with a very high bandwidth, are just as often somewhat quirky.  Their shareholder letters can make for interesting reading as they reveal their key business principles and management styles.  

Common to most of this group (and unlike many short-term focused CEOs) is that they focus on the long term and possess a powerful strategic vision as to implementation.  Another common denominator is that their companies connect effectively with customers, employees and the communities where they operate.  Interestingly, about a quarter of them are MBAs and a quarter are engineers by training.  That is all fundamentally good and academically interesting, but as an investor, I believe performance is paramount.

Continue reading "Stock Market Mastery: Blending Fundamental & Technical Analysis Part I" »

Five Advantages Individual Investors Have Over Institutional Investors

The walls of advantage once held by institutional traders over individual investors have come crashing down.  Emerging from the dust, there now marches an entire army of real advantages that individual investors hold over their formerly superior big brothers.  

In the worlds of fundamental information, charting tools and trading costs, these institutional armies no longer have the high ground.  The field is indeed much more level. 

Despite all the talk about program trading, derivatives and flash crashes, I urge you not to become demoralized or dispirited.  Don’t tiptoe to the sidelines.  My objective here is to increase your overall personal satisfaction with your individual investing efforts while bolstering your confidence and stimulating a call to action.  There are dozens of actual advantages that we, as individual investors, have over institutional investors.  I want to share five that come to mind.

Continue reading "Five Advantages Individual Investors Have Over Institutional Investors" »