TheRiskBlog

Maybe you’ve already heard the advice given to investors, who want to buy stocks:
“Look for a company you believe in”.
Investors should understand the products and the company they invest in. They shall also be sure that it is successful in its sector. If the investor discovers a company like that, he should buy its stock and let it work for him.

Roger Lowenstein talks about the rise and fall of “long term capital management” in „When genius failed“. It’s about a hedge-fund that made huge profits over the years until it went down crashing big time in 1998.

Just imagine: a visionary trader at Salomon Brothers and future vice-president of the company, who knows how to forge teams and add a group of university math professors and financial experts to it (including two later noble price winners).

Very often while coaching, a customer asks me what to do with insider information. I personally think that a lot of people go the wrong path when trading off of insider information.
Here is what i do:

Lately I saw a commercial for one of those multi-screen-computers in a trading magazine. It was about one of those systems you can use with up to 8 or 12 screens if you feel the need.

That would give you enough screen real estate to display most charts and pages on a separate screen.

But are those systems really as useful as they seem to be? Could I be a better trader with 8 instead of 4 monitors? (Sometimes I only use a Notebook for trading)

Finally we are done with 20 min delayed charts. Especially in the beginning it is quite frustrating to check out your new system using delayed quotes. What if your system is trading intraday and needs up to the minute information? Most of the times while developing a trading system there is a lot of work to be done, things need to be tested and they need to be confirmed using live market data.

Every trader wants to know whether his trading ideas are working or not. Up to now you could only do it with delayed information or End of day (Eod) data. There were just no live streaming data available at no cost.

Like the title says, Jesse Livermore explains in the only book ever published under his name his philosophy about stock trading.
Published in 1940 you could say, that all information this guy could give us is way to old to be useful in the www-communication-era.
And maybe partly this is right. The way to purchase a stock has changed through upcoming online trading, and the flow of information is much faster and there is much more information available than back in the 1920´s.
But I strongly believe, that the psychology regarding the stock market and Traders didn’t change and won’t do so. And Jesse Livermore was pretty good to handle psychological traps that occur during trading.

Being a Trend-follower and high player at the stock market, Livermore is said to be one of the best traders ever. He doesn’t only explain under what circumstances he enters the stock market, but also, what I really liked about this book, he talks a lot about how to deal with risk and about the ability to change your opinion and getting out of losing positions.
He makes clear that you can never be sure what will happen the next day or the next minute in the stock market.
But he teaches, that through watching, thinking and having much patience (!) you “place many factors in your favour”. And that’s something you can work with.

More than half of the book contains material added by Robert Smitten, who wrote a Jesse Livermore Biography, like quotes about “emotional control” or “risk management” and a short explanation of Livermore’s trading system. Although I don’t use systems from books like these, it’s never wrong to learn about different trading styles for the process of evaluating your own style and philosophy.

This book won’t be useful for a beginner to actually learn how to trade stocks, but it gives you very good advice how to manage yourself, to handle risk and very often reminds you “that the good speculators always wait and have patience, waiting for the market to confirm your judgement”.

It’s a useful book to take off the shelf from time to time after you ve read it completely, and let Jesse Livermore give you some advice.
To close with his words: “Don’t ever lose your cash boys. Keep it close to your balls!”

The following link can only be used by buyers living in germany.

I read an interesting post by David Merkel this morning over at  TheAlephBlog

I have been to the USA recently on a business trip, i visited New York and then the Tampa Bay Area in Florida. By not living in the USA permanantly i got the same view David describes in his article. The last time i visited the USA was in 2006 and compared to back then shops these days are empty, car seller lots are crowded (with cars that is, not with people) and Home Depot seems to sell nothing at all if you look at the numbers of customers shopping there at any given time in moment.

But on another note, returning to germany i do not get the same picture. Yes we are waiting on the situation developing at GM, so that we get a decision on what happens to one ouf our own bigger carmakers - the GM daughter Opel - but other than that our shopping malls are still crowded, people are still buying at the local homeowners shop and we still buy ipods and iphones (well, i guess looking at AAPL´s numbers everybody does it around the world,  no matter how hard hit by the crisis).
People talk about the crisis and of course we follow the news very closely but it looks like most business is still in normal mode.
Talking to my own car dealer salespersonal bigger companies are feeling the pressure, they cut down on free cars while your own car is in the repair center and their stock has come down to prepare for the future, but amazingly people are still buying new cars in our country. And the rebates are not necessarily great. At least for the moment.

So i think, for germany the crisis has not fully developed, which is a bad thing because as long as people still think, everything is fine, it only gets worse. We will probably see more stock prices going down in germany and we still have to wait until we finally hit the bottom.

As far as trading and investing in this environment is concerned, stops need to stay tight and we can expect more volatility in the markets. So i still have open positions but instead of having 12 open positions in an account i might have 6-8 open right now, and i do tend to get stopped out more often these days.