Friday, February 25, 2011

What makes a great trader? Managing risk

Found these excellent comments on trading from Fullcarry and had to favorite and share these tweets:


Amazing how quickly these pearls of wisdom can dissipate in the real-time information ocean of Twitter if you don't happen to spot them at the right time.  

Incidentally, this is why I try to favorite (Twitter's bookmark function) tweets and check up on my favorite Twitter lists. You never know what you'll find, or what you might have missed if you didn't happen to catch it in your stream. Wish Twitter would improve its archived search features so users could easily uncover more great information like this, but that's a topic for another day. 

Back to Fullcarry's notes: what's amazing about this particular insight on trading is that it goes against the grain of conventional thinking on successful trading and investing.

So many outsiders, and many trading books and programs aimed at a mass audience, operate on the assumption that you need to aim for a high percentage of winning trades ("high probability outcomes") or that you must be right most of the time to make it as a trader.

As Fullcarry tells it, just the opposite may be true. You don't have to be right on all your calls (or even half of them) to be a profitable trader. You do have to know how to manage your trades and your risk.

After I had saved these tweets last week, I happened to notice a great post by Darvas Trader that ties right in with Fullcarry's message on managing trades and risk. It's called, "The Dirty Little Secret of Successful Trading" and it makes a similar point about relying on winning percentage vs. managing risk.

Quoting Darvas Trader:

"
Risk management is the single biggest determining factor in the long-term success of a trader."

Great study material for traders and investors who are learning to apply some form of risk management to their trading or investing method of choice.

Of course, you could always go the big-shot fund manager route and tank your investors' returns (by refusing to take losses and managing risk) after a big winning streak, but maybe the disciplined approach is more useful for those of us who manage our own money, away from the media spotlight.


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Thursday, February 24, 2011

Simplify: a Lesson from the Bad News Bears



Watch coach Leak's instructions to pitcher, Carmen Ronzonni. Sometimes we make things harder than they need to be. Simplify.

Tuesday, February 22, 2011

Russia Forum 2011 w/ Nassim Taleb, Marc Faber

Russia Forum 2011, which recently took place in Moscow, featured a global investing outlook panel discussion which included famed investors and commentators, Nassim Taleb, Marc Faber, and Hugh Hendry.



Also on hand at the forum were economist, Nouriel Roubini, strategist, Russell Napier, and a panoply of international investors and business leaders. You'll find Roubini and Napier adding their thoughts in the outlook panel video above.

There was also a rather interesting panel, featuring Faber and Taleb, entitled, "Is Russia the Best or Worst in BRIC?".


As you'll surmise from the title, it's a panel debate on the strengths and weaknesses of each of the large BRIC (Brazil, Russia, India, and China) nations, with added focus on host country, Russia. So is there a strong case for investment in Russia at this time?

This conversation is worthwhile not only for the contributions from the aforementioned panel stars, but also due to the comments from other panelists and some key questions from the audience.

Pay special attention to Mario Garnero's comments on the effects of Brazil's past inflation on its middle class (this is important for those of us in QE, deficit-land US), as well as the questions on Russia's future from the native conference attendees.

If you'd like to take a look at last year's lively panel discussion and judge the panelists' comments against what took place in 2010, check out our related post links below.

Related articles and posts:

1. The Russia Forum 2011 - Russia Forum.

2. Panel discussion from Russia Forum 2010 - Finance Trends.

Thursday, February 17, 2011

Steve Cohen on trading, global macro

If you caught our last post on Steve Cohen's ISI chat with Paul Tudor Jones (coverage courtesy of Dealbook), it's highly likely that you clicked through to read the details of Steven's interview.

Here's one item from that discussion that really grabbed my attention, Steve Cohen talking global macro:

"...Mr. Cohen, who said probably 25 percent of his investments were made outside the United States, has been emphasizing to his traders that global macro themes are more important than ever in investing.


For this reason he went to Davos, Switzerland, last month for the World Economic Forum and said that he found “the development of the next phase of the consumer economy in China is very intriguing.” He recognized that there “could be more situations like Egypt” and “you have something going on here that could be a tinderbox.”".

This piece of info really jumped out at me for a few reasons.

Firstly, as far as I know, Cohen has not been identified as a global macro trader in the past. SAC Capital seemed to grow from Cohen's roots in proprietary stock trading, with SAC's traders eventually taking on a larger role in fundamental analysis as time went on.

The fact that such a prominent, fundamental and technical-driven US stock trader is now stressing the importance of global macro themes and their influence on markets is quite noteworthy.

His recent comments to PTJ on the firm's growing exposure to international investments were also touched on in an earlier, 2008 interview with AR:

"...
How much does SAC invest outside the U.S.?

[SC] Probably 15 to 20 percent of our activity is outside the U.S. There’s a lot of opportunity for growth in both Europe and Asia. The game is changing. Stock markets are starting to develop all over the world, and that creates opportunity....
"

This brings to mind two separate interviews, with
Passport Capital's John Burbank and California investor Michael Burry, that we shared last fall in our global macro post series. Both stressed the importance of international investing and the profound influence that global macro themes now have over US markets.

The observations made by Burry and Burbank were soon echoed by well-known hedge fund manager, David Einhorn, who noted the shift that had occurred in his investing style due to the impact of big picture, macro trends.

These interviews are a rare glimpse into the thinking of some of our most astute investors, and are all must hear/must read material. Hoping you will be informed by, and profit from, them.

Related articles and posts:

1. Must hear interview with John Burbank - Finance Trends.

2. Michael Burry: an up & coming macro star? - Finance Trends.

3. Macro themes dominate investing world - Finance Trends.

Tuesday, February 15, 2011

SAC's Steve Cohen opens up to Paul Tudor Jones

SAC Capital chief, Steve Cohen opens up to fellow hedge fund legend Paul Tudor Jones in an ISI conference chat that was closed to the media, but reported on by Dealbook.

Here's the 411 from Dealbook:

"The founder of SAC Capital Advisers, the $12 billion hedge fund in Stamford, Conn., sat for a rare wide-ranging interview with Paul Tudor Jones, another hedge fund manager, where he discussed his favorite stocks and a whole lot more. The interview was part of a two-day conference at the Waldorf Astoria hotel in Midtown Manhattan sponsored by ISI, the Wall Street research firm...


Other than complaining about his bad back, Mr. Cohen is said to have appeared at ease during the hourlong conversation before a packed crowd. Mr. Jones, who joked that he was playing the role of Charlie Rose, pressed Mr. Cohen on a variety of topics but did not — no surprise — ask questions about the government’s insider trading charges against two of his former traders.

Mr. Cohen talked about how he got started as a trader, reading the stock tables in the daily newspaper as a child and hanging around the local brokerage firm near his house in Great Neck, N.Y. There “was something in my blood, something that I loved” about trading that has stayed with him... ".

This discussion must have been something to witness in the room. I'm just glad Dealbook has provided notes on this little chat between two modern-day trading legends. Check this one out, gang.

Related articles and posts:

1. Bloomberg profiles SAC's Steve Cohen - Finance Trends.

2. Paul Tudor Jones on trading macro - Finance Trends.

Monday, February 14, 2011

Alphatrends on headline noise and managing risk



In case you missed it, Brian Shannon's weekly market wrap from February 11 was a very worthwhile lesson in markets indeed.

Check out Brian's video and pay special attention to the comments on the market's reaction to geopolitical events, headline noise, and managing your risk in trading. A must see segment for all traders and investors.

Related articles and posts:

1. Howard Lindzon interviews James Altucher - StockTwits TV.

Friday, February 11, 2011

Features of the Week

It's been a while since we compiled a Friday Features linkfest, but we've got some great posts and news items to share with you today. Set a spell and enjoy our "Features of the Week".

1. Wikileaks confirms what we already know: Saudi oil reserves are overstated. (Al Jazeera).

2. Egypt unrest: how Mubarak's end came. (BBC News).

3. Mubarak resigns, but will he hold on to his estimated $70 billion stash? (FP blog).

4. The Perils of Intervention and a humbler American foreign policy. (C4Liberty).

5. An interview with Pimco CEO Mohamed El-Erian. (Der Spiegel).

6. Inflation is so much worse than we're told: Chris Martenson. (Financial Sense).

7. Q&A: Michael Lewis on the politicians that sank Ireland. (Vanity Fair).

8. Shades of 2006? Exchange fever takes hold as LSE-TMX merger followed quickly by NYSE- Deutsche Borse deal. (FT.com)

9. G.C. Selden trading psychology: hunches and gut feelings. (Tischendorf Letter).

10. Howard Lindzon interviews red-hot blogger, James Altucher. (StockTwits TV).


You can follow all our updates and tomfoolery in real-time via Twitter and StockTwits, or subscribe to the Finance Trends RSS blog feed and stay up to date with all our posts.

Have a great weekend.

Wednesday, February 09, 2011

New weekly high on S&P 500 $SPX

P/E multiple expansion, cheap money via QE, bullish psychology & social mood...whatever it is that's driving the market, US stocks continue to climb higher.

Today the SPX is down a bit midday, but as you can see from the weekly chart posted above, we're seeing a fresh weekly high in the S&P 500 as the index moves above its August 2008 resistance at the 1313 level.

Your take on the continued bullish action?

Friday, February 04, 2011

Is QE fueling commodity, food price inflation?

Is the Federal Reserve's quantitative easing policy fueling inflation in asset prices, including the price of commodities and foodstuffs?

That seems to be the big question in recent days, as civil unrest in Egypt and in other parts of the Middle East and Asia demonstrate how long-simmering tensions can quickly boil over when grain prices rise and the spectre of food shortages looms over a population.

The recent situation recalls the commodity and grain price surges of 2007-2008, when food stocks were diminishing and shortages and worries over food riots were a global phenomenon (and news item). Then, as now, grain ethanol and "excess speculation" were offered up as contributing causes to rising food prices.

So what about the role of quantitative easing and increased money creation by the Fed and other central banks? Might that sort of liquidity operation be fueling a rise in asset prices across the globe?

Or are prices rising due to demand from increased populations and rising wealth in emerging nations as Fed Chairman Ben Bernanke would have it?

Last night, while reading through some interesting reactions to this topic on Twitter, I decided to do a little quick research and see what sort of answers I could find. As rising food prices and global inflation have been a big theme with economists and macro analysts in recent months, it didn't take long to find some worthwhile articles and posts addressing this topic.

One particularly interesting article from October 2010 anticipated a great deal of what we currently see unfolding in the world. Here's an excerpt from, "Bernanke sets the world on fire":

"...In 2007-2008, Bernanke's loose monetary policy fueled unprecedented commodity price inflation. But Bernanke put the blame on China and on oil producers.


So far in 2010, the price of crude oil has jumped by 27%, of corn by 63%, of wheat by 84% , of sugar by 55% , and of soybeans by 24%. Without the Fed's unprecedented loose monetary and near-zero interest rates, it would have been highly unlikely for commodity prices to increase at these alarming rates...


...The frightening food price inflation has raised the specter of another food crisis and food riots... Since liquidity for commodity price inflation is abundant and cheap, food price inflation could run up, stall world economic growth and spread social unrest. "


Certainly many other factors, including the use of food for ethanol, growing populations, increasing standards of living (changing diets), weather events, and gradual loss of prime arable land to urbanization are playing a large role in ongoing food price rises.

Still, is it possible that the role of cheap money flowing into asset markets (including commodities) is an under-acknowledged spark fueling higher prices?

Related articles and posts:

1. Bernanke says policies boost stocks, not food prices - Barron's.

2. Countering the myth that "World is running out of food" - Big Picture Ag.

3. FAO food price index and reports - United Nations, FAO.

Wednesday, February 02, 2011

Jim Simons of RenTec speaks at MIT

 
Jim Simons of Renaissance Technologies gives a talk at MIT about his background in mathematics, how he got his start in business, and the "secret sauce" of running a hedge fund with a quantitative bent.

As Paul Kedrosky notes on his blog, it's not often that you get to hear from Simons, so have a look at this video and hear what he has to say about his work, the importance of getting young people involved in math and science, and following your entrepreneurial drive.