About that Silly “There Are No Good Trading Books” Argument

Traders who are considered successful are often asked the question – “What Trading books do you recommend?”. I am often stunned to hear some of them saying that there are no good trading books.

The reasoning that there are no useful trading books is ridiculous. It comes from people who don’t have the patience, the time, or the skills to create a good book – it takes hundreds of hours of dedicated deep work. The difference between writing and reading a book is the difference between growing and eating an apple.

“If it is that good why are you sharing it” is the silliest argument. Writing a book about any subject makes you think long and deeply about it. It encourages and requires you to experiment, read, compare, study, write. At the end of the process, you learn a lot more about yourself and about the subject.

The statement that “no trader will share a working method” doesn’t hold water. It is one thing to read about a subject and completely different to be able to practice it properly. Watching a Bruce Lee movie doesn’t make you a martial arts expert. Knowing what it takes to get in a great shape (proper diet and exercise), doesn’t mean that it is easy to achieve it.

If you are too lazy to learn from other people’s perspectives, nothing is going to change your mind.

Ten Lessons from Michael Batnick’s Book ‘Big Mistakes’

I ran a search on Google for the expression “mistakes are”. The results:

In his first book, Michael Batnick outlines the big investing and trading mistakes of some of the most successful investors and brightest minds that are known to humankind. Most mistakes revolve around the same themes:
– being overleveraged and building too big positions in assets that were illiquid or suddenly became illiquid;
– venturing outside of expert zone when having to manage a much bigger amount of capital;
– overconfidence and hubris;
– normal mistakes that cannot really be prevented; they are part of the investing process;
– fear of missing out.

I enjoyed reading Michael’s book . It is not a how-to book. It is an interesting dive into market history and psychology. Here are some of the more interesting insights I found:

1. Leverage made Livermore his fortune, leverage destroyed him. He knew everything one can possibly know about market psychology and price action but it seems he never learned how to control risk – it was a constant all or nothing betting for him. No wonder he went broke 4 times.

2. Ben Graham understood that no approach works all the time. There are time and place for everything. Markets evolve and some concepts stop working. A margin of safety doesn’t matter during periods of forced liquidation, especially when you are leveraged to the hill.

3. “A high IQ guarantees you nothing! This is one of the hardest things for newer investors to come to grips with, that markets don’t compensate you just for being smart.” and “Intelligence in investing is not absolute; it’s relative. In other words, it doesn’t just matter how smart you are, it matters how smart your competition is.”

4. “Putting too much money into something you don’t fully understand is a good way to lose a lot of money. But what’s more damaging than losing money is the psychological scar tissue that remains after the money vanishes.”

5. “Once something belongs to us, objective thinking flies out the window.”

6. “Professional win points. Amateurs lose points”, therefore professionals should play to win and amateurs should play not to lose (try to make fewer mistakes).

7. “Bad things tend to happen when we compare our portfolios with others, especially if they possess a lesser IQ and extracted a higher return.”

8. On the dangers on concentrated bets: “A single stock leveled one of the most successful funds of all time, you should think twice before putting yourself in the same type of situation.”

9. “The most disciplined investors are intimately aware of how they’ll behave in different market environments, so they hold a portfolio that is suited to their personality. They don’t kill themselves trying to build a perfect portfolio because they know that it doesn’t exist.”

10. “The average intra‐year decline for US stocks is 14%, so a little wind in the bushes is to be expected.2 But saber‐toothed tigers, or backbreaking bear markets, are few and far between. Corrections occur all the time, but rarely do they turn into something worse, so selling every time stocks fall a little and waiting for the dust to settle is a great way to buy high and sell low.”

Source: Batnick, Michael. Big Mistakes: The Best Investors and Their Worst Investments (Bloomberg). Wiley. Kindle Edition.

The Biotech Sector Is Setting Up For A Breakout

All charts are powered by MarketSmith.

Bull markets often correct through sector rotation. When leading sectors take a breather and consolidate, others step up to the plate and break out. While tech and retail shined in the past few weeks, their momentum is starting to show signs of exhaustion. I would not be surprised if we see a short-term rotation as the hot money in the market chases after other sectors. Biotech and financials are prime candidates.

The small-cap biotech ETF, XBI is setting up near its all-time highs.

The large-cap biotech ETF, IBB is building a beautiful base above its 200 and 50-day moving average. Look at this tight range contraction in the past few days. A breakout and a confident close above 110 might spur further momentum. A 4-5% move in IBB usually means 20-30% moves in some individual biotech names.

In the meantime, interest rates are perking up again, which is usually good news for financials. Here’s the regional banks ETF KRE approaching new 52-week highs.

Disclaimer: everything on this website is for informational and educational purposes only. The ideas presented are not recommendations to buy or sell stocks. The material presented here might not take into account your specific investment objectives. I may or I may not own some of the securities mentioned. Consult your investment advisor before acting on any of the information provided here.