Christian Siva-Jothy on Discipline

Generally, I can’t see more than a year ahead because things change so rapidly it’s very difficult to have a 5-to 10-year view. I have a rolling one-year view of the world and I impose discipline on myself by keeping a trading diary. Every morning, I go through the same process: If I have any positions on, I ask why do I have the positions? What has changed?

I wish I could say I follow my own rules 100%. It seems one is constantly relearning the same trading lessons. The market is always there to keep you in check and is a totally objective judge of your performance. The P/L at the end of the day is yours with no one else to blame.

One of the most difficult things about trading is not to trade. That’s probably one of the most common mistakes that people starting out in this business make. Overtrading is as bad as running a losing positions for too long.

Irrationality

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In terms of valuation, no matter how cheap you think something is, it can always get cheaper. No matter how much you think something is overvalued, it can become more overvalued.

You also have to be very careful of strategies that rely on historicals. When people say things like, “This has never traded above X” or “This has never happened before” or “It’s never moved more than three standard deviations,” it often does just that.

Marko Dimitrijevich, Everest Capital

Markets have consistently  experienced “100-year” events every five years.

I see the younger generation hampered by the need to understand and rationalize why something should go up or down. Usually, by the time that becomes self-evident, the move is already over.

There is no trading – classroom or otherwise – that can prepare for trading the last third of a move, whether is the end of a bull market or the end of a bear market. There is typically no logic to it; irrationality reigns supreme, and no class can teach what to do during that brief volatile time. The only way to learn how to trade during that last third of a move is to do it, more precisely, live it.

Paul Tudor Johnes

Overvalued, undervalued, expensive, and cheap are the most overused and abused terms in the stock market. For the most part, growth stocks couldn’t care less about valuation, and the people who buy the fastest-growing companies do not focus on valuation either.

Stocks that are trending up will always be considered “expensive”. In both good markets and bad, there is only a limited supply of good companies.

Howard Lindzon

All bubbles tend to reach extremes not expected by most people.

Market can remain irrational longer than you can remain solvent.

You can go broke by being right. Have an entry and exit strategy.

Skilled investment

“During its 31.5 year history, Quantum provided its shareholders with an annual return in excess of 30%. An investment of $100,000 in the fund at its inception would be worth approximately $420 million today”

George Soros

April 28, 2000

“The social objective of skilled investment should be to defeat the dark forces of time and ignorance which envelop our future.”

John Maynard Keynes

Having a clear mind

“I was absolutely unemotional about numbers. Losses did not have an effect on me because I viewed them as purely probability-driven, which meant sometimes you came up with a loss. Bad days, bad weeks, bad months never impacted the way I approached the markets the next day.”

Jim Leitner

“Once we realize that imperfect understanding is the human condition, there is no shame in being wrong, only in failing to correct our mistakes.”

George Soros

Fast moves

audiI am starting a new sequel of posts that will look at stocks that gained/lost more than 20% in a week. Was there something common among them, just before they started their move.

As of today’s close there are 61 stocks that gained more than 20% during the last 5 trading day. 37 of them were up more than 100% before they started their 20%+ move. It is true that we are experiencing an abnormal year, during which SPY is up 61% from its March’s lows, but the relative strength is a phenomenon that for the most part has always worked (stocks that outperformed during the last 6 months/1 year tend to outperform during the next 6 month/1year).

As of today’s close there are 3530 stocks that are priced above $1 and trade more than 100k share per day. 537 of them (or 15.2%) more than doubled during the last 6 months. As I mentioned already, out of the 61 stocks up 20%+ during the last week, 37 ( or 60.6%) have been already doubled before their last week’s move. One day is not statistically representative to declare that I have found a way to improve the odds of finding a fast moving stock. I have been following “the 20%+ in a week list” for a while and I can tell you that the stocks that had a 6 months gain of more than 100%+ before the fast  move, were consistently north of 50% of the list.

In other posts I will point out other common characteristics among the fast movers.

Some trading ideas from my momentum screen for the next several days:

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