Lee Kramer's "DAYTRADING: The Highs and the Woes"
I love gamblers. My best friend, Barney Bufflekarp was a big time Boston bookmaker. Another friend makes a comfortable living as a gambler; he bets only baseball games.
Gamblers are interesting, colorful characters. If ever I got stranded on a deserted island in the South Pacific and could choose Pamela Sue Anderson or a gambler for companionship, I'd take the gambler every time. Unless of course Pamela Sue was a gambler.
Gamblers always have a story to tell; a horse that got nosed at the wire that cost 'em a bundle, or a last second buzzer beating three-pointer that blew a three team parlay.
They're always on the prowl for inside information that'll give 'em an "edge" as they seek the Big Score; an NFL quarterback with a bum shoulder, or a bagged horse race. And they need an edge, because most gamblers lose.
They've got their own lingo; "Gimme the Celtics for a dime"($1,000), "Gimme a two team tease." Both teams have to win.
Gamblers and daytraders have a lot in common.
Acording to Bufflekarp, only 5-7% of all his customers, and he had a lot of customers, were consistent winners year in and year out.
I asked Bufflekarp about this and he said, "Most gamblers are terrible when it comes to determining true-odds, assessing probabilities and proper money management."
"Do they bet on too many games?" I asked, thinking about wild daytraders who often run amok.
"Sure. Guy called me one Sunday morning during football season. Wanted to know what I thought was the best bet of the day. Understand, I try to help these guys. I keep my book pretty well balanced. I'm just looking for the "vig", the commission I make on each losing bet. So I told this guy his best bet was to take his wife out to lunch, enjoy the afternoon.
He didn't want to hear this of course. It was NFL Sunday with 14 games on the boards. This guy, like most of my customers,bet five or six games, sometimes more. I knew there was no lunch with his wife in his immediate future, so I told him to find one game he liked. And bet just one game. "That's your best bet" I told him.
"Did he follow your advice?" I asked.
"Yes, until the end of the first quarter of the game he was betting. His team was down by 7. He called and wanted revised lines on all the other games which I gave him. He bet six more games."
"How'd he do?" I asked the Bufflekarp.
"Lost four of the six. His first bet, a home-team underdog, covered the spread."
"Mmm."
Now it seems that everyone wants to be a day-trader. They're quitting their jobs or getting laid off and figuring that they can make an easy living as a day-trader. I know, because I get mail wanting to know how to day-trade and how much they can expect to make.
So I've come up with a test designed to help you decide if day-trading is for you. No time limit and neatness doesn't count.
1. Maria reports that a major wire-house just upgraded
AMAZON from a market outperform to an aggressive buy. Should you....
a. Call your broker and buy 1000 AMZN
b. Talk it over with your wife.
c. Call your brother-in-law Morty who's a long term AMZN investor.
d. Jump out the window.
Answer: Jump out the window. It'll hurt less.
2. The "vig", the commission you pay a traditional Wall St. broker to buy a stock is;
a. $10
b. $25
c. $40
d.$100
Answer: Rates vary, but most traditional brokerage firms will charge you about $100 to buy, the same to sell. That's $200 or two points. If you daytrade at these rates, jump out the window. You' can't give away two points and trade profitably. Many on-line firms charge between $10-$15 per trade.
3. You watch a coin come up "heads" 25 consecutive times. What is the probability the coin will come up heads on the 26th toss?
a. 50%
b. 48%
c. 52%
d. 100%
Answer: Any coin that comes up heads 25 times in a row is a
loaded coin. The odds against 25 consecutive heads is
astronomical, 1/2 x 1/2 x 1/2....25 times. If you take this bet,
you're the mark, the pigeon, the sucker.
4. Your broker calls and wants you to buy 2,000 shares of CFLO. He says its down from 180 to 7 and has nowhere to go but up.
a. You buy 2,000 CFLO
b. You buy 5,000 CFLO
c. You call Morty who's a long-term, but still confident, CFLO
investor.
d. Jump out the window.
Answer: If you chose a, b, or c you'll soon jump out the window.
5. Money invested at a 6% yield will double in how many years?
a. 5
b. 8
c. 10
d. 12
Answer: At 6% you'll double in 12 years. An easy way to figure this is
to use what's called the Rule of 72. Divide the yield into 72.
the result will give you the number of years. 72 divided by 6%
is 12, years.
6. The odds against hitting a 4-digit lottery number are;
a. 1,000 to 1.
b. 5,000 to 1.
c. 10,000 to 1.
d. 9,999 to 1.
Answer: The true odds are 9,999 to 1 (10 x 10 x 10 x 10 -1)
7. Brokerage firm analysts are your best source of finding stocks to
buy.
a. Yes
b No.
Answer: No. Better you should consult a Ouija board.
8. You buy a stock at 40. It slips to 37. Your best strategy is to;
a. "Average down" and buy some more.
b. Hang on, hoping it'll come back so you can sell
at 40 and break even.
c. Call Morty. He'll know what you should do.
Answer: Sell it. It's a trade gone wrong. Take the loss.
9. Morty told you never to short a stock. "Can't go lower than zero" he said with an expert's mein. "But it can go higher than Jack's Beanstalk. Far too dangerous. Never short. It could wipe you out."
a. Agree
b. Disagree
Answer: Successful traders play both sides of the street; long and short.
10. When the market opens at 9:30, what should you do?
a. Admire Maria's new hair-do.
b. Hit the mute button.
c. Take notes on all the expert opinions.
Answer: A and B. If not, toss the TV out the window. Then follow.
So how'd you do? If you got 5 right, your game is bingo, mah-jong or go-fish. If you got 8 right, you've got a decent chance to trade without jumping out the window too often. If you got all 10 right, call me...and let me know what you're buying or shorting.
Lee Kramer |
