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Trading Wisdom for Aspiring Hedge Fund Managers
- Thread starter darkhorse
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Quote from darkhorse:
It's an excerpt from chapter 5 of the book, which is hard to find but attainable. Yes, VN features it along with some other quotes, but he is neither the author nor the original source.
More timeless wisdom from VN's site /Bacon--- very true in markets.
<b>You Must Speculate -- You CAN'T GRIND!</b>
The player at the races can't grind or chisel because [that girl] is taken. The racetrack has all grind and chisel privileges! The mutuel take and the breakage add up to a percentage that continually grinds and chisels the betting money...The grind privileges are spoken for and taken, so the professional bettor must speculate. The mutuel grinding only goes one way - against the bettor. But any percentage can be overcome by enough winners at fat enough prices!
Fortune favors the speculator over the grinder because of the plain old arithmetical percentages. The speculator has a percentage chance to win. The grinder has no chance.
To beat the percentage of the mutuels, the player must ALWAYS have an overlay. He must always have an extra percentage in his favor, to counteract the "take" percentage. Forget about this idea of "grinding out a day's pay." If you want to make a day's pay at the races, get a job watering horses, or pitching manure into trucks. But never try to grind it out of the mutuels. (op cit, p. 83-89)
You Must Speculate -- You CAN'T GRIND!
Quote from marketsurfer:
Do you think this applies to scalpers?
surf
Well, I would not presume to tell another trader the best way to make money. The proof is in the pudding: If a scalper has found a way to make consistent profit, that is what matters.
With that said, I view the market as an ecosystem, with trading strategies comparable to animal survival strategies within a diverse environmental habitat.
Not all strategies compete with each other, just as animal survival strategies do not necessarily compete with each other - while some go head to head, others are competition neutral (relative to each other) or even symbiotic.
Going by the above metaphor, some market ecosystem niches are definitely more crowded than others. Super-short timeframes are an extremely crowded space - witness the slow death of human market makers at the hands of electronic market makers.
The highly successful day traders I know tend to combine 'hardware' and 'wetware' to monitor intra-market relationships. They watch their screens with the calm of zen buddhist monks, pulling the trigger four to six times per day. A winning trade might be held for two minutes, or it might be held for two hours, depending on what happens.
This is a different ecosystem niche than trying to battle algo-bots for ticks. I'm not saying it can't be done, but instinctively I do not favor trying to make a living in niches where institutional scale and industrial strength computing power constitute an edge.
1. Gamble only what you can afford to lose ( don't jeopardize your stack and your mental game)
2. Play only when you have the best odds. ( Know that the majority of the time, the odds are stacked against you. Know the odds in your game. Learn to exercise patience and bring the hammer down only when the odds favor you)
3. Take the money and run ( the longer you are at the table, the higher the odds are you will lose it all)
- Kerry Packer ( my comments in parentheses)
2. Play only when you have the best odds. ( Know that the majority of the time, the odds are stacked against you. Know the odds in your game. Learn to exercise patience and bring the hammer down only when the odds favor you)
3. Take the money and run ( the longer you are at the table, the higher the odds are you will lose it all)
- Kerry Packer ( my comments in parentheses)
Quote from badvestor:
3. Take the money and run ( the longer you are at the table, the higher the odds are you will lose it all)
I would disagree with this. Sometimes the very best thing you can do is sit back and let a great trade unfold in your favor for an extended period of time.
As for increased odds of losing it all - only if you are a bad trader. Foolish mistakes don't pop up out of nowhere.
Trading Wisdom 09: The Boom-Bust Sequence
"If a self-reinforcing process goes on long enough it must eventually become unsustainable because either the gap between thinking and reality becomes too wide, or the participant's bias becomes too pronounced. Hence, reflexive processes that become historically significant tend to follow an initially self-reinforcing, but eventually self-defeating, pattern. That is what I call the boom/bust sequence."
- George Soros
JS Comment:
Have you observed market patterns that start out as self-reinforcing, but then become self-defeating?
What are some tactical considerations for profiting from the boom, but avoiding the bust?
Or the reverse: Exploiting the bust, without prematurely fighting the boom?
See more on boom / bust mechanics from yours truly here.
Get Trading Wisdom via e-mail
"If a self-reinforcing process goes on long enough it must eventually become unsustainable because either the gap between thinking and reality becomes too wide, or the participant's bias becomes too pronounced. Hence, reflexive processes that become historically significant tend to follow an initially self-reinforcing, but eventually self-defeating, pattern. That is what I call the boom/bust sequence."
- George Soros
JS Comment:
Have you observed market patterns that start out as self-reinforcing, but then become self-defeating?
What are some tactical considerations for profiting from the boom, but avoiding the bust?
Or the reverse: Exploiting the bust, without prematurely fighting the boom?
See more on boom / bust mechanics from yours truly here.
Get Trading Wisdom via e-mail
Trading Wisdom 10: The Meaning of Contrarian
"Many of the trades that Alexander suggested followed one of two patterns. First, when all investors were doing the same thing, he would actively seek to do the opposite. The word stockbrokers use for this approach is contrarian. Everyone wants to be, but no one is, for the sad reason that most investors are scared of looking foolish. Investors do not fear losing money as much as they fear solitude, by which I mean taking risks that others avoid. When they are caught losing money alone, they have no excuse for their mistake, and most investors, like most people, need excuses. They are, strangely enough, happy to stand on the edge of a precipice as long as they are joined by a few thousand others."
- Michael Lewis, Liar's Poker
JS Comment:
Does contrarian thinking factor into your market analysis?
Do you try to determine the base case for popular sentiment, then examine scenarios for the opposite point of view - or is 'contrarian' just a buzzword for disagreeing in debate?
Why are typical encounters with contrarianism roughly as original as a teenager with a nose ring?
Why does the typical trader need excuses, or the comfort of company, or both?
Buy Liar's Poker on Amazon
Get Trading Wisdom via e-mail
"Many of the trades that Alexander suggested followed one of two patterns. First, when all investors were doing the same thing, he would actively seek to do the opposite. The word stockbrokers use for this approach is contrarian. Everyone wants to be, but no one is, for the sad reason that most investors are scared of looking foolish. Investors do not fear losing money as much as they fear solitude, by which I mean taking risks that others avoid. When they are caught losing money alone, they have no excuse for their mistake, and most investors, like most people, need excuses. They are, strangely enough, happy to stand on the edge of a precipice as long as they are joined by a few thousand others."
- Michael Lewis, Liar's Poker
JS Comment:
Does contrarian thinking factor into your market analysis?
Do you try to determine the base case for popular sentiment, then examine scenarios for the opposite point of view - or is 'contrarian' just a buzzword for disagreeing in debate?
Why are typical encounters with contrarianism roughly as original as a teenager with a nose ring?
Why does the typical trader need excuses, or the comfort of company, or both?
Buy Liar's Poker on Amazon
Get Trading Wisdom via e-mail
The Big Short was a good book to.. .... Going short during blow off tops.. when everyone has a hard on for a stock.. IE netflix cmg.. green mountain... not apple hahah get freight trained being a contrarian on that one..
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