Both. Study is good but not sure how much formal education would help. Everyone has thier own slant on things, some hate Keynesian economics, some hate old school Austrian economics. I personally think both have some validity but no single theory covers it all. My own leanings are towards Austrian though I think Keynes had some good stuff as far as putting quantitative measures on deficits and the corresponding devaluation of currencies and also was correct to "some" degre as far as liquifying a recession but not to the extent most modern schools teach and the way the current Fed interprets/tries to use it. I think you need to let the system flush the excess first, clean out the idiots that over speculated, let there be some real pain and then and only then reliquify to jump start things again. If another bubble tries to form like what happened after the dot.com blowup and somethng like a real estate bubble starts to form, then the brakes should be put back on and let things simmer down again. Only after the markets figure out that money won't be supplied for mal-investment should money supplu be ramped up again.
I think most of the important things that need to be learned can be learned through reading the standard books that all of us have read and then some mentoring via people on various message boards that have a good handle on things to get a gauge on what indicators can be watched to see the things that go on behind the scenes that move markets. Heinz Blasnik is a great one to watch. He has many aliases, Trotsky, Peter Tenebraum, heinz and a few more. He mostly hangs out on the goldbug site now. Knighty Tin here is good also. Stay away from the scammers that run pay sites, chat rooms etc. Most that are good do it for free since they make enough trading their own accounts and don't need to charge others to make up for thier substandard performance.
In mu opinion, there are certain things to pay attention to beyond the basics of the "normal market stuff"...
Watch mney supply and velocity. Markets move on liquidity. Follow the money.
Watch the yield curves. Stock markets are traded by amatuers, brand new college grads with little practical experience and most good traders do well by playing spreads and not straight forward trades. Bond pits are mostly seasoned veterans and are much more in tune with what is going on than stock traders. Stocks will ignore fundamentals longer than Bonds will. Bonds invlolve huge leverage so you are either good or dead quickly. Stocks are more forgiving and most brokers make money on commissions, not thier clients profits. They make money often when their own customers are losing their shirts. Pay attention to Bonds. They might be early but they are usually right for mid-term and long term trends.
Watch copper, it is often a leading indicator of the economy.
Pay attention to currencies. Again, follow the money.
As for straight forward trading. Here are two lists of rules from some good traders I collected over the years......
1. Never, under any circumstance add to a losing position.... ever! Nothing more need be said; to do otherwise will eventually and absolutely lead to ruin!
2. Trade like a mercenary guerrilla. We must fight on the winning side and be willing to change sides readily when one side has gained the upper hand.
3. Capital comes in two varieties: Mental and that which is in your pocket or account. Of the two types of capital, the mental is the more important and expensive of the two. Holding to losing positions costs measurable sums of actual capital, but it costs immeasurable sums of mental capital.
4. The objective is not to buy low and sell high, but to buy high and to sell higher. We can never know what price is "low." Nor can we know what price is "high." Always remember that sugar once fell from $1.25/lb to 2 cent/lb and seemed "cheap" many times along the way.
5. In bull markets we can only be long or neutral, and in bear markets we can only be short or neutral. That may seem self-evident; it is not, and it is a lesson learned too late by far too many.
6. "Markets can remain illogical longer than you or I can remain solvent," according to our good friend, Dr. A. Gary Shilling. Illogic often reigns and markets are enormously inefficient despite what the academics believe.
7. Sell markets that show the greatest weakness, and buy those that show the greatest strength. Metaphorically, when bearish, throw your rocks into the wettest paper sack, for they break most readily. In bull markets, we need to ride upon the strongest winds... they shall carry us higher than shall lesser ones.
8. Try to trade the first day of a gap, for gaps usually indicate violent new action. We have come to respect "gaps" in our nearly thirty years of watching markets; when they happen (especially in stocks) they are usually very important.
9. Trading runs in cycles: some good; most bad. Trade large and aggressively when trading well; trade small and modestly when trading poorly. In "good times," even errors are profitable; in "bad times" even the most well researched trades go awry. This is the nature of trading; accept it.
10. To trade successfully, think like a fundamentalist; trade like a technician. It is imperative that we understand the fundamentals driving a trade, but also that we understand the market's technicals. When we do, then, and only then, can we or should we, trade.
11. Respect "outside reversals" after extended bull or bear runs. Reversal days on the charts signal the final exhaustion of the bullish or bearish forces that drove the market previously. Respect them, and respect even more "weekly" and "monthly," reversals.
12. Keep your technical systems simple. Complicated systems breed confusion; simplicity breeds elegance.
13. Respect and embrace the very normal 50-62% retracements that take prices back to major trends. If a trade is missed, wait patiently for the market to retrace. Far more often than not, retracements happen... just as we are about to give up hope that they shall not.
14. An understanding of mass psychology is often more important than an understanding of economics. Markets are driven by human beings making human errors and also making super-human insights.
15. Establish initial positions on strength in bull markets and on weakness in bear markets. The first "addition" should also be added on strength as the market shows the trend to be working. Henceforth, subsequent additions are to be added on retracements.
16. Bear markets are more violent than are bull markets and so also are their retracements.
17. Be patient with winning trades; be enormously impatient with losing trades. Remember it is quite possible to make large sums trading/investing if we are "right" only 30% of the time, as long as our losses are small and our profits are large.
18. The market is the sum total of the wisdom ... and the ignorance...of all of those who deal in it; and we dare not argue with the market's wisdom. If we learn nothing more than this we've learned much indeed.
19. Do more of that which is working and less of that which is not: If a market is strong, buy more; if a market is weak, sell more. New highs are to be bought; new lows sold.
20. The hard trade is the right trade: If it is easy to sell, don't; and if it is easy to buy, don't. Do the trade that is hard to do and that which the crowd finds objectionable. Peter Steidelmeyer taught us this twenty five years ago and it holds truer now than then.
21. There is never one cockroach! This is the "winning" new rule submitted by our friend, Tom Powell.
22. All rules are meant to be broken: The trick is knowing when... and how infrequently this rule may be invoked!
88888888888888
Commonly Referred To Sayings of Warren Buffett
o The critical investment factor is determining the intrinsic value of a business and paying a fair or bargain price.
o Never invest in a business you cannot understand.
o Risk can be greatly reduced by concentrating on only a few holdings.
o Stop trying to predict the direction of the stock market, the economy, interest rates, or elections.
o Buy companies with strong histories of profitability and with a dominant business franchise.
o You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.
o Be fearful when others are greedy and greedy only when others are fearful.
o Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market.
o It is optimism that is the enemy of the rational buyer.
o As far as you are concerned, the stock market does not exist. Ignore it.
o The ability to say "no" is a tremendous advantage for an investor.
o Much success can be attributed to inactivity. Most investors cannot resist the temptation to constantly buy and sell.
o Lethargy, bordering on sloth should remain the cornerstone of an investment style.
o An investor should act as though he had a lifetime decision card with just twenty punches on it.
o Wild swings in share prices have more to do with the "lemming- like" behaviour of institutional investors than with the aggregate returns of the company they own.
o As a group, lemmings have a rotten image, but no individual lemming has ever received bad press.
o An investor needs to do very few things right as long as he or she avoids big mistakes.
o "Turn-arounds" seldom turn.
o Is management rational?
o Is management candid with the shareholders?
o Does management resist the institutional imperative?
o Do not take yearly results too seriously. Instead, focus on four or five-year averages.
o Focus on return on equity, not earnings per share.
o Calculate "owner earnings" to get a true reflection of value.
o Look for companies with high profit margins.
o Growth and value investing are joined at the hip.
o The advice "you never go broke taking a profit" is foolish.
o It is more important to say "no" to an opportunity, than to say "yes".
o Always invest for the long term.
o Does the business have favourable long term prospects?
o It is not necessary to do extraordinary things to get extraordinary results.
o Remember that the stock market is manic-depressive.
o Buy a business, don't rent stocks.
o Does the business have a consistent operating history?
o Wide diversification is only required when investors do not understand what they are doing.
o An investor should ordinarily hold a small piece of an outstanding business with the same tenacity that an owner would exhibit if he
owned all of that business.
(extracted from various books on Buffett including "Buffett: the Making
of an American Capitalist", "Buffettology", "The Warren Buffett Way"
and "Of Permanent Value", "Thoughts of Chairman Buffett : Thirty
Years of Unconventional Wisdom from the Sage of Omaha") |
