Finance Trends Letter

Legendary speculator Bernard Baruch discusses trading on inside information, stock tips, and the problems of information overload back in 1957 (excerpt from Bernard Baruch - My Own Story ). Bernard Baruch on inside information : "The longer I operated in Wall Street, the more distrustful I became of tips and "inside" information of every kind. Given time, I believed that "inside" information can break the Bank of England or the United States Treasury". Baruch adds that most "inside information" is designed to mislead the gullible and that corporate insiders are just as likely to be led astray by their "infallible" informational advantage and belief in the company. His comments closely resemble Jesse Livermore's sentiments on stock tips and insider information.  Trading on tips : Echoing Joseph Kennedy's anecdote about the stock-tipping shoe shine boy of 1929 , Baruch relates his own tale of taxi drivers, shoe shine ...

Michael Lewis talks his (then new) book, The Big Short on C-Span back in 2010: "If I explain this to people, they're going to be outraged.". Watch it here. Having recently seen the film version of The Big Short in the theater, I've been going back to some of the interviews and source materials from Lewis' book. For those who don't remember (or are too young to recall), Lewis' book examines the real estate bubble and subprime mortgage debacle, which kick-started the 2007-2008 financial crisis and pushed our economy to the brink of collapse.  The book zeroes in on some of the investors and hedge funds that profited greatly from buying credit default swaps (CDS) on subprime bonds, and the banks who took the other side of that bet and crashed. A few years and a few trillion dollars in bailout money later, we're into a major motion picture starring Christian Bale and Steve Carell as said hedge fund managers, but that's a story for next time. T...

Next on my to-read list is Jim Paul and Brendan Moynihan's book, What I Learned Losing a Million Dollars . It is the story of one trader's (Jim Paul) disastrous losing streak and how he (barely) survived it, learning a few key lessons on ego and risk in the process. As you'll note from the book's rather unusual title, What I Learned Losing a Million Dollars is not your typical "trading system-in-a-book", promising a golden pathway to riches. It deals squarely with losses and how overconfidence and success can lead us to complacency and ruin. So what lessons can we take from another trader's experience losing large sums of money?  Tim Ferris recently interviewed the book's co-author, Brendan Moynihan . Here are some highlights from their discussion: • While introducing Brendan Moynihan, Tim mentions that he was won over by Nassim Taleb's recommendation of the book, which he praised for its "non-charlatanic" real-life wisdom. Moynih...

I was just rereading Nicolas Darvas' How I Made $2,000,000 in the Stock Market and came across this interesting summary of his trading method and risk management approach in the author's intro. I'd like to share it with you. Quoth Darvas:  "I built a fortune with serenity by avoiding premature selling yet making an exodus from most of my stocks with the use of a single tool: the trailing stop-loss.  I have discovered no loss-free Nirvana. But I have been able to limit my losses to less than 10 percent wherever possible. My stop loss method had two effects. It got me out of the wrong stock and into the right one." Full passage in the image below: Sounds a bit like William O'Neil's philosophy on taking losses, doesn't it? Well, as O'Neil points out, his trading style and risk management philosophy was influenced by (among others) Nicolas Darvas and famed speculator and author, Gerald Loeb. Loeb advised speculators to cut all losses a...

There's a stack of books on a corner of my desk and it's piled 10 high. They are all, in some way, related to trading or professional money management and investing.  These are books you may have heard me mention on Twitter . Some I've read and re-read. Some are newly acquired and I may have only had a chance to flip through or read to the halfway mark. We'll focus more on those I've read, but I want to give you the heads up on some of the newer (to me) titles as well. I think they all contain some useful insights that will help you to become a more focused and informed trader (or investor). Quick disclosure note: all the books I write about on this site are either purchased by me or have been given to me, either as review copies (free) from authors and publishers or as gifts from friends.  Now on to the reading list, which I hope will help you fill out your list of must-read trading books. 1. Inside the House of Money by Steven Drobny is a book I've me...

In our follow up to last week's post, Marty Schwartz ("Pit Bull") speaks at Amherst College , today we bring you something old and new.  From Jack Schwager's original Market Wizards (1989) comes an interview with Marty Schwartz , "Champion Trader". We'll provide you with some quotes and insights from Schwartz's interview, but I also encourage you to get a copy of the book and read it cover to cover, if you haven't already.  On to the good stuff. Here is an excerpt from Jack Schwager's intro to the discussion:  "I interviewed Marty Schwartz at his office after trading hours. I found him to be very opinionated and intense about the subject of trading. This intensity occasionally spills over into anger when a raw nerve is hit (such as program trading). In fact, Schwartz readily admits that he finds anger a useful trait in trading. None of this "going with the market flow" philosophy for Schwartz. In his view, the marketpla...

Photo via marshfieldrodandgunclub.com Welcome, n ew readers . Be sure to check out the full " Lessons from Hedge Fund Market Wi zards " post series (interview s with Colm O'Shea, Ray Dalio, Jack Schwager and more) in our end notes. Thank you, and enjoy th e series . "Remarkable performance consistency".  These are the words Hedge Fund Market Wizards author, Jack Schwager uses at the outset to describe the track record of Steve Clark's Omni Global Fund . In his opening notes on Clark's event-driven hedge fund, Schwager points out that Omni Global has been profitable every year since its inception in 2001. This, of course, includes the panic year of 2008, during which Clark handily outperformed the Hedge Fund Research index of funds sharing this strategy.  The combination of strong gains and moderate equity drawdowns and losing periods gave Omni Global an "extremely high Gain to Pain ratio", a return/risk measure favored by Hedge F...