The Traders Journal

Where Investment Lessons Reside

Michael Jordan is probably the greatest basketball player I have ever seen.  He wrote a book titled I Can’t Accept Not Trying:  Michael Jordan on the Pursuit of Excellence which lays out his rules for success.  This book is of interest to us as traders even though we pursue excellence in a totally different vocation.  The parallels between Michael Jordan’s success and our investing world are uncanny.  

A few years ago, my trading buddy and I gifted the same Christmas present to one another by sheer coincidence.  It was Michael Jordan’s book.  In the copy I gave my friend, I had methodically crossed out the word “basketball” and substituted it with the word “trading”.  My point was to show these parallels.  I’m sure Michael Jordan was not even aware that he was writing a sensational book on successful investing.  To excel in trading, as in sports like basketball, one must subscribe to the same universal truths.  Valuable investment lessons can be gleaned from exceptional individuals all around us.  Therein lies the secret.

The one recurring attribute I’ve seen in those students of mine who become consistently profitable investors is their wholehearted acceptance of the notion that the secret to successful investing does not reside in some indicator but within the ‘investor self’.  You know when you have truly embraced the investor self because you’ll become aware of investing lessons all around you.  You’ll look for them and you’ll find them.  Poker players always say that it’s critical to know your individual “tell”.  Poker is a game that is, like investing, based on limited information and probabilities.  A tell is the personal trait or demeanor that can disclose a player’s true feelings about his or her poker hand.  

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Four Timeless Investing Principles

I’ve spent many years of digging into my own trading journal, looking for lessons, rules, principles and insights to improve my investing.  I continue to do so, not just to find fodder for this blog but to provide supporting documentation to lend more weight to the teachings of other significant investment writers.  Such is the case this week.  

In a recent letter to clients, Vanguard CEO, F. William NcNabb III,  wrote about how much has changed in the investment arena since Vanguard was founded in 1975.  He explained that, despite all the changes, there remain four timeless principles that continue to offer investors the best chance for success.  Interestingly, I have written a number of blogs on precisely these points.  As McNabb notes, the roots of these four principles go back many decades and are startling in their simplicity.

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Investment Editor Retires: Leaves Us with Four Lessons That Matter

Almost without exception, institutional money managers use Exchange Traded Funds (ETFs). My own trading routines call for reviewing the top 100 ETFs daily. This is a process that I encourage you to include in your own routines. Here’s how and why.

I maintain a personal ChartList of the top 100 ETFs and scan it virtually every day. My ETF ChartList was carefully assembled by using the ETF.com website and Morningstar’s ETF Investor newsletter edited by Samuel Lee.

Let me elaborate a bit here. My ETF ChartList is comprised of the top 100 ETFs based on my own equation. I weighted about 200 ETFs based on daily trading volume, expense ratios, tax cost ratios, total assets, relative performance over the past three years and the asset class they represent.
My winnowing procedure then produces a basket of candidates to which I frankly apply a significant subjective factor based on my experience. The result is a nicely balanced ChartList of the top 100 ETFs representing all the essential asset classes.

The reason this ChartList is so powerful is that it clearly shows me which asset classes the institutional investors are presently most interested in, as well as how they are actually putting their money to work.

When I see the institutional money flowing into perhaps a number of Large Growth Domestic Stock ETFs, I take a special interest. This provides the catalyst for revisiting a wider assortment of ETFs and stocks in this asset class. I don’t just immediately jump into one of the ETFs in my top 100 ChartList, although usually they remain first tier candidates.

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The Vincent van Gogh Trading Toolkit - Refurbished

This popular blog was first published over three years ago.  I thought that a timely update was called for.  You’ll see that the Equity Chartstyle has been significantly revised and I have aded a Mutual Fund Chartstyle as well.  

I spent a couple of hours this past Saturday at the van Gogh exhibit in Philadelphia, and I walked away with a number of confirming insights about successful trading. Vincent van Gogh produced over 2,100 artworks in his brief life of 37 years. From what I saw, his highly recognizable style varied significantly depending upon his mental equilibrium. My observation is that during well-documented bouts of mental illness, he produced more complex paintings. Without exception, my favorite canvases were those painted by van Gogh when he was at peace with himself and completely in control. The results from those periods of his life were simple, bold and beautiful paintings. To me, this confirmed my own experiences as a trader. When I am in equilibrium, I manage to ‘keep it simple’ and invariably, I then produce beautiful results.

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Ten Timeless Tenets of Trading: A 2,500 Year Perspective Part II

Art, history and life can parallel investing.  This blog is my continuation from last week’s Part I where I encouraged readers to be open to a sort of borderless-type of thinking.  To be willing to challenge oneself to look backwards as an aid to moving forwards in the investment arena.  To acknowledge that the past offers us a cumulative depository of wisdom and that art is one vehicle to experience conversations across generations with the masters themselves.  Here is the link to last week’s blog:

http://stockcharts.com/articles/journal/2015/05/ten-timeless-tenets-of-trading--a-2500-year-perspective.html

Experience is Cumulative:  I have written in previous blogs how Warren Buffett, at 85 years old, is still running Berkshire Hathaway with a market cap of $340 billion.  This year, over 40,000 shareholders attended the annual meeting in Omaha to hear the Oracle speak about his company.  Impressive, yes.  But when you actually walk through the St. Peter’s Basilica at the Vatican and absorb some of its physical complexity, you experience something beyond impressive.

With some parallels to Buffett, Michelangelo was 71 when he was commissioned as architect of St. Peter’s Basilica.  His dome there, completed after his death, is considered by many to be the greatest creation of the Renaissance – a structure which influenced church design for centuries thereafter.  Less known, however, is the fact that at 88, Michelangelo began work on yet another architectural commission, the immense basilica of Santa Maria degli Angeli located in Rome’s Piazza della Repubblica.  It’s no wonder that he was often called Il Divino – “the divine one”.  The man was ageless.

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Ten Timeless Tenets of Trading: A 2,500 Year Perspective

For those of you who pooh-pooh the lessons of history, listen up!  I myself am guilty of being overly focused on today’s web – obsessed with the latest hot stocks, investment technologies and trading methodologies.  But at times, it’s important to challenge oneself to look backwards as an aid to moving forward more effectively.  I did this just recently, and I came away quite astonished.  Ten days in Rome convinced me that I was naively ignoring powerful historical insights that could help me become the ‘Michelangelo of the Markets” or at the very least improve my investing skills. 

Rome captured my imagination like no place before.  I experienced it as the cumulative depository of wisdom from hundreds of generations of some of the world’s greatest scions of commerce and philanthropy, transcendent spiritual leaders and supreme visual artists.

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The Most Profitable Takeaways from 'The Traders Journal'

After many years of writing The Traders Journal, I thought it was time to revisit how investors can best maximize the takeaways from these weekly blogs.

First and foremost, the reader should understand that my perspective is somewhat irreverent since it is based on the past 25 years of trading my own account full-time unburdened by the distraction of clients.  Some have described my blogs as similar to Harry Potter’s “defense against the dark arts” since one of my objectives is to show individual investors how to make money without drinking the Wall Street Kool-Aid. 

Secondly, although each blog can stand on its own, they’ve all been carefully crafted to capture the massiveness of the stock market and decipher it all down to the ten essential stages which I call ‘Tensile Trading’.  Each blog is specifically archived into one of these ten stages.   When you visit the blog’s Table of Contents, you’ll notice the ten headings that comprise my Tensile Trading roadmap.  Together, they organize and boil down the market’s complexity to provide you with a 10-stage complete step-by-step approach to achieving stock market mastery.  

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Investing: The Probability Tool

Investing and thinking in probabilities should go hand in hand.  Probabilities can be expressed both quantitatively (as a percentage from zero to one hundred percent) or qualitatively.  I use both, but recently I have found myself gravitating more to qualitative assessments and descriptions.

Determining the precise probability of any particular trade working out is always subjective.  In evaluating a trade’s potential, I find that it’s somewhat unreasonable to pin it down with a specific probability label of say, 75%, for example.  Such an exact number implies a mathematically accurate calculation, and as all experienced traders will tell you, that is hardly the case. 

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This is What Made a Top Hedge Manager So Successful

I just read The Buy Side, Turney Duff’s book about his years as the biggest and most successful healthcare hedge fund manager on Wall Street.  Let me say up front that I am not reviewing or endorsing the book or its content in any manner.  In fact, I’m certain that I’ll take heat from my trading buddies for even acknowledging this particular Wall Street insider’s sordid story.  Nevertheless, this book reinforced one very significant nugget of truth for me, and I’d like to focus on that alone.  

A simplistic encapsulation of this heavy weight confessional by an obviously talented wordsmith is that he is capable of telling an extremely personal story in a naked, undisguised manner far beyond what a normal self-deprecating person could ever do.  His introspection is courageously painful, and the authenticity, honesty and exactness of what he is willing to recognize in himself is, I believe, precisely the personal attribute that made him such an extraordinary trader.  

In this arena – and frankly, only in this arena – do I personally identify with Turney.  It punctuates the point I’ve tried to make in this blog for years.  The unique ability to be brutally honest about yourself and about the markets you trade is difficult and rare, but it empowers you as an investor as few things can.  My thesis is supported by the mere fact that Turney lives such a dysfunctional and decadent lifestyle after the market closes, yet during market hours he sees things clearly and profits from that clarity.  The importance of brutal honesty as it relates to the investor self has been the overriding message in many of my blogs.  This core belief emanates from my own experience and growth as a trader, and it is one of the sermons I preach in teaching my seminars.  Failing to achieve brutal honesty about your own investor self is the single largest impediment to producing consistent profitability in the stock markets.

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New Potent Organizational Framework Plus 200 Timely Tradeable Insights ChartPack Update Version 7.0

“You don’t have to be a genius to be successful.  You just need a framework.”
 —Michael Dell, Entrepreneur and Investor

For those of you who regularly download the free quarterly ChartPack updates, I don’t need to explain the value of its framework and contents.  But there are still many StockCharts.com users who are unclear about how the ChartPack can improve their investing.  To those folks, I’d like to suggest a simple five-step investigation.  I guarantee you that, at the very least, your efforts will be rewarded with some clarity as to how you might organize and populate your own ChartLists.  The five exploration steps are as follows:

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