MythBuster Adam Savage's Colossal Failures

Secrets of the Sleeping Brain

Inverted H&S Breakout

traders must be celebrating right now as the DOW has broken out of an inverted head and shoulders pattern- a powerful bottoming and trend reversal pattern. many could take this as a sign that the worst is over and a bull run will start once more. without any positive developments in the real economy, any bull run could be short lived. this must not therefore be taken as a sign of years and year of good fortunes to be made.

as the much repeated mantra goes "be fear full when other are greedy, greedy when others are fearful. " as of now it think most are at best hopeful, to which i think is a worthless stance. anyway, heres the breakout chart. target is "poised" to be over the 11,000 level if this rally continues to surpass the highest point of the left shoulder set of peaks.

bull market or not, keep your valuations in check and invest with confidence not hope or speculation.

Buffetts 3 rules

WEB's 3 rules for the average person.

1. If it seems too good to be true, it probably is.
   
   
2. Always look at how much the other guy is making when he is trying to sell you something.
   
   
3. Stay away from leverage. Nobody ever goes broke that doesn't owe money.

There's no mention of intrinsic values, durable competitive advantages, or even buy-and-hold. Well, if you are investing in stocks, youre way past being average.
"Generally speaking, investing in yourself is the best thing you can do. Anything that improves your own talents. Nobody can take it away from you. They can run up huge deficits, the dollar can become worth far less, you can have all kinds of things happen. But if you've got talent yourself, and you maximize your talent, you've got a terrific asset." - WEB

Beating Goliath

People see David's victory over Goliath in the biblical account as a fluke, maybe its not. Maybe every underdogs' upset win over the favorite is not always due to luck. David came at Goliath with a sling shot and a staff, lets not forget that he was a shepherd. These were the tools that he knew. So instead of fighting as Goliath might expect, with a sword and a shield. He brought in shepherd's rules into the game and won. From this we learned that when underdogs choose not to play by Goliath's rules, they win.

Any david can beat a goliath when the underdogs acknowledge their weakness , chose an unconventional strategy and by substituting effort for ability—and
substituting effort for ability turns out to be a winning formula for underdogs in all walks of life, including little blond-haired girls from Redwood city who almost won the National Junior Basketball championship by playing the full court press the whole game. They refused to play the game the way the rest of the world played it and won- most of the time. The final game was somewhat controversial.

In the world of investing, we - individually are davids. Mr. market is goliath. He is composed of all the brokers,financial advisors, fund managers, investments bankers out there. The difference between you and goliath is that you want to make money from the market. Goliath wants to make money-from you. Whether you gain or lose, goliath will take his commissions and management fee. Even if you dont invest with goliath, he finds a way. He sends you broker reports to buy or sell, regardless you make money or not. Buy in an uptrend, sell in a downtrend, protect your gains- these are the rules goliath has made for the investing individual.

He will never tell you to buy bargains and hold it for 5 years. Instead he will spot bargains, and tell you sell it after a measly 20% gain. Or he will tell you to hold off buying until prices have slightly recovered. Either way, he makes more money off you over the longer term.

So why do most of us invest following the rules made by goliath? Probably because we have been groomed to value "experts" opinion, and/or that we believe we dont have the skill to be a superior investor.

From David we learned that we can beat Goliath by replacing skill with massive effort. We must find the willingness to try harder than anyone else. Read, learn, explore, satisfy your curiosities and expand your own circle of competence and beat the market at its own game over the long term.

for an even more interesting read about beating Goliath read here and article by Malcolm Gladwell

On Perfomance

Why should you care if you underperform the market year-to-date, if you have beaten it on average performance for the last 5 years right? Besides, the year isnt over and your holdings still isnt over valued.Ofcourse one cant completely disregard managing the short term for above average long term performance, after all, no one ends the year with a profit after four quarters of losses. The point is not to be myopic and react to everything you see hear and made to believe.

Performance should be measured over aspan of time, rather than any given time. I believe in this statement not jusst for measuring stocks and businesses  but for living one's life as well.

If i was a listed company, i would have probably been a pretty boring start-up. Given very little or no coverage by analysts. Neither star pupil nor dunce nor class clown. i was pretty much average and progress was slow but steady up until college. Some of my childhood friends would probably hot growth stocks, comparable to internet companies back in the bubble. The analysts and management ( teachers and parents) most probably believed that they would continue to progress at a rapid pace as they got older. They were excellent in math or very good in science, some were very good public speakers. Quite a few of them gifted athletes as well. But the reality is, almost everything ,including people regress to the mean or fall below it.

Checking back on most of the people i grew up with including the "growth stocks", most have failed to live up to the hype of their early years. The 4th grade math wiz who never finished college. The 3rd grade teacher's pet who got pregnant after highschool. The musical virtuouso whos drugged up half the time. The unemployed pba bound highschool jock or the fluent english speaker who is now a call center agent. The present will not excite their analysts and management from the past. 

The average kid who passed through grade and highschool without much fanfare and hitches probably also ended up with average college lives. But being uncorrupted by overconfidence and swagger  caused by meaningless adoration and praise earlier in life they most likely develop more discipline and focus than their peers. They are more likely to graduate on time and find a job faster.

But the point is not to say that jocks or smart kids never suceed in life or that average people are bound to be boring forever. Ofcourse not every one  fails expectations, there are those who ended with good careers in large companies. Whether average and boring or and analyst favorite "growth stock" kid, anyone can succeed if they put in the right effort into it. The point is not to measure performance at any given time, but over a span of time.

Who cares if you had and IQ of 145 when you were 16. Or learned to read on a 4th grade level when you were 5? Right now, after 24 years of  being lost in a sea of mediocrity,a guy with an IQ of 100 has a better life and earns a better living than you. All because of slow and boring but substantial progress in knowledge and growth as a person over a span of time. Thats how investing should be as well. 

Quotes

We believe that according the name "investors" to institutions that trade actively is like calling someone who repeatedly engages in one-night stands a "romantic".

To sell or not to sell

During the course of any bear market, value investors gain confidence and grab the opportunity of buying "cheap" under valued stocks knowing full well that they will be holding on to these atleast for the next five years. Thats the usual value investor time line. Give businesses time to move and for gains to compound.

We see that as early as now, investors and traders alike are already being rewarded for their courage and patience in buying stocks low. Gains of 100% ytd are not uncommon today, what is common though is the reaction people are having. Confused on whether to sell , hold or add more, people are struck with over analysis paralysis. Even value investors. It bothersome, if not crazy how some people buy for the reason of undervaluation justify selling now because of overbought indicators. Trading and investing tools should never mix. Its stupid.

Steep sharp moves in one direction are usually followed by almost equally sharp moves in the opposite direction. This is natural, it is nature's way of equalizing things. Knowing so, we should not be surprised on the upside movement of stocks this year. Another reason for the extra ordinary gains we've had is our small investment universe.  Having very few listed stocks compared to international markets, institutional investors have very few options to put their funds in once market prospects look rosy. Thus they put their money on what the market has to offer. So whether you inteligently pick stocks or not, chances are your stock's price will go up once the money rushes back into the market.

So when do we sell? Preferably, never. If the company is that good. But for purposes of locking in gains, check your valuations. Are prices overpriced already?, If not, then you must have the confidence to add more and wait it out. Another way of looking at it is asking " are you still willing to buy the stock at its current price? " If not, get the hell out and look for another prospect.

Although prices have gained alot already, some prices are still trading at 50% book value discounts, break up value or asset value. Depending at what you based your purchase on, i dont believe a sound value investor would be selling right now. 

Getting money to compound and work for you is one of the hardest things to achieve, it should never be interupted unescessarily.

Below is a video of Bruce Greenwald, the guru of Wallstreet gurus. He is a professor at Columbia University, the best valueinvesting school in the world.

Quote

I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.

-Buffet

Nobelist Daniel Kahneman On Behavioral Economics

Daniel Kahneman - Daniel Kahneman is Eugene Higgins Professor of Psychology and Professor of Public Affairs Emeritus at Princeton University. He was educated at The Hebrew University in Jerusalem and obtained his PhD in Berkeley. He taught at The Hebrew University, at the University of British Columbia and at Berkeley, and joined the Princeton faculty in 1994, retiring in 2007. He is best known for his contributions, with his late colleague Amos Tversky, to the psychology of judgment and decision making, which inspired the development of behavioral economics in general, and of behavioral finance in particular. This work earned Kahneman the Nobel Prize in Economics in 2002 and many other honors