My Top 11 Posts of 2011. What Are Yours?

Hopefully this initiative catches on and other bloggers also post a summary of what they believe was their best work in 2011. It is not an easy task to choose your best, but here is my selection:

1. 20 Truths About the Stock Market

When you calculate the time you need to drive from point A to point B, you should always take traffic into account.  Traffic is like the stock market. You might pretend that it doesn’t matter, but it will impact you anyway. It doesn’t matter how smart you are, how ingenious your idea is or how cheap your stock is – if the market does not agree with you, you will not get paid. Period.

2. The Market Blinked First

The stock market is bipolar creature, driven by sentiment and irrational expectations. One day, it is an ingenious forward looking mechanism that anticipates and discounts future events beautifully. Another day, it is a stubborn schizophrenic that can’t see further than its nose. It is what it is. You either adopt or leave the scene.

3. Social Media and the Creation of Better Traders

Social media overcomes the geographic limits of time and space and the psychological and cultural limits of perceived status, and opens a whole new world of collaboration. Some people say that social media is noise for the real traders, who have to rely only on themselves to be successful, but as with all tools – something can be very dangerous in one’s hands and extremetly useful in another’s. You just have to learn how to use it.

4. How Expectations Turn into Reality

Investors often act on expectations of how certain events and processes will affect prices. Those events might not change the underlying fundamentals at all, but they can change expectations. When expectations change, prices change. When prices change, expectations change. Yes, some catalysts can start a process of self-reinforcing feedback loop. It works in both directions – up and down.

5. There is a Difference Between What People Say and What People Think

Market sentiment is reflective. It mirrors short-term price action and recent performance. For example, people who have had a number of consecutive successful long trades are likely to be much more optimistic about the markets in general than people who have been on the sidelines.

6. What To Do When the Market Is In A Correction Mode

Watch and wait for that fat pitch to come. It always does. If you are a swing trader, I guarantee you that the market will provide at least one great opportunity every week. How do you recognize it in advance? You don’t.

7. Why Everyone Should Learn How to Trade

Learning how to trade/invest is difficult, but so is everything else. Every discipline has its learning curve. Lawyers go to school for 8 years, before they are considered ready to prove themselves. I haven’t heard of someone, who considers himself a good doctor after reading a few posts on the Internet. If you try a surgical operation after reading a book or watching a Youtube video, I can tell you that most likely you will be unsuccessful.

8. Why Momentum Investing Is A Contrarian Approach

Very few are able to ride the majority of a trend. The common scenario is that there are different owners at the different stages of a trend and what is buy signal for one might be a sell signal for another.

9. Who Is A Better Investor – The “Yes” Man or The “No” Man

So how to find the balance between the Yes man in you, who wants to experience the beauty of the world around him and the No Man, who needs to focus in order to achieve something of significance. Well, you have to learn to distinguish your life as a trader from your life as a human being.

10.  Having a Plan About Your Plan

In the VC industry, experienced investors often claim that ideas themselves are worthless without proper execution. The same is true for the stock market. Having a well thought out equity selection approach is a necessary, but insufficient condition for achieving consistent profitability. Finding new trading ideas is not enough. There is no purpose of having four-five stocks in your watch list if you don’t have a clear plan how to profit from them.

11. Hope is Not a Strategy

It is very dangerous to own momentum stocks on the other side of the mountain. When the trends is over and a stock is trading below its declining 50dma, you are playing with fire when you go long.