Minervini on Patience
After a sharp decline, some stocks can have short-term bounces or rallies; however, in my experience few stocks bottom out when you expect them to do so. And, even if they do bottom, often they simply move sideways for an extended period, wasting valuable time. There are periods in the market when the reward to aggravation ratio is just not worth your valuable time and capital.
If you’re looking to find the next big market winners—the market leaders—then you want to keep your eyes peeled for the stocks that hold up the best (not the worst) during a market decline, and then buy them as they emerge from the market’s wreckage and move into new high ground. This will occur AFTER the stock’s price undergoes a consolidation period of several weeks or more.
Noise
75% of the price movement in most stocks takes place in 20% of the time. The rest is nothing but noise within a range. Relevant information that causes repricing doesn’t change quickly and frequently. This is why trends exist. Higher prices often attract more buyers and lower prices attract more sellers until the rules of the game change. Focus on the main drivers and forget the rest.
Ideas that spread
Not all great investing/trading ideas are profitable. Ideas that spread are. If no one else sees what you see and acts, you can’t make money. Hoping that eventually the rest of the market will understand and embrace your thesis is a loser’s strategy or a privilege for someone with very deep pockets. Markets often know more than you as they constantly try to discount all the available public and private information. You might be convinced that your analysis is right and the market is wrong, but it could remain wrong longer than you could remain solvent. The question again is do you have deep enough pockets to ride the storm out and aren’t there more plausible alternatives for your capital at the time. Smart people like to scale in and out of positions, knowing that no one can consistently pick tops and bottoms.
Take for example Jim Rogers. He is a typical contrarian investor, who likes to buy low and sell high. But he is not buying anything that is low priced and neglected. He buys cheap things only when he sees a fundamental change on the horizon – a catalyst that will help other market participants to re-evaluate their thesis and act on their new observations.
Yra Harris on Picking your sweet spot
Anytime something is too good to be true, I now recognize that it probably is and that it is there for a reason because somebody knows more than me. Where I used to rush in, I now step back a wait for a move to develop. I don’t feel I have to be at the start of every move anymore. Money is always flowing somewhere no matter what, so I just have to stay attuned to it.
Markets are changing all the time
You have to have the ability to change and see how the markets are changing and adapt to it. That’s a constant process. That’s why I think you see some people do well for four or five years and then just disappear.
History can be a useful benchmark but only if everything is put into the right context. Markets are dynamic and people’s reactions are different. It is much more subtle and nuanced than looking at what happened the last time.
Cristian Siva-Jothy
No setup works all the time and in all types of market environment. The success rate of any setup fluctuates in cycles – there are periods when it is high and periods when it is low. Most successful speculators have specialized in a small number of setups. The question is, do you change when the market dynamics change and do you adapt new setups or do you wait for the proper market environment to come back before you risk any money?
Jim Leitner on Confirmation Bias
Humans in general are biased and look for confirmatory evidence. When someone is bullish on oil, they tend to pick the pro-oil arguments in whatever they read. Very few people train themselves to look for dis-confirming evidence.
It is very difficult to practice the latter, but you should train yourself to ask why you believe your longs might go down, not why they should go up.
Discipline
If you don’t see anything, you don’t initiate a new position. You take risk only when you see an opportunity. Make it a habit to ask yourself for each trading or investing decision – do you have an edge or do you just hope to be right. Hope is not a strategy.
Scott Bessent on OPM
I will never forget Robert Wilson’s advice: If you have as much money as I’ve read you do in the paper, you are an asshole if you manage anybody’s money except your own. To go up 100%, you’ve got to be willing to go down 20%, and you can’t go down 20% with other people’s money
Peter Thiel on Timing
There is an old saying that timing is everything. One of the dilemmas with our post bubble hypothesis is that while the enormous distortions affecting the market must eventually unwind, they can get bigger before reversing course. Balancing long-term with short-term views on the pivot of timing indicators is very tricky. For example, we think there is a housing bubble in the United States today, but we thought that two years ago too. (note: this was said in 2005). Since then, home-builder stocks have gone up by a factor of four, so it would have been a disastrous trade if we had put it on then. Lacking a good timing indicator until recently, we refrained from trading the housing bubble. Sometimes good trades are the ones you don’t put on.
Intellectual Flexibility
There is a difference between what you think it should happen and what ultimately happens, especially in the short-term perspective where supply and demand are defined not by fundamentals, but by fear and greed.
However strongly you believe in something and however coherent the case is, you need to be:
(1) willing to accept that you might be wrong, and
(2) able to take the position off even though you might not be wrong in the medium-term sense.
Dr. Sushil Wadhwani
