A Refresher on the Fundamentals of Speculation (Audiobook)

S&P 500 Sector Performance

via novelinvestor.com


Source: novelinvestor.com

Macro Fundamentals: Interpreting Friday's Jobs Numbers

Do you know why the June Unemployment Rate increased a tenth of a percent from 3.6% to 3.7%?

Because the Labor Force Participation Rate also increased: i.e., more and more people are entering the Labor Force. People who've quit looking for jobs in the past are now actively seeking employment again. 

Only those actively seeking employment get counted in the official unemployment rate; the more people there are seeking employment, the more people there are being counted as unemployed. (Job seekers that drop out of the labor market (stop searching) are excluded from the official number.)

So, the actual rate of unemployed people didn't increase; there's just a greater number of job seekers included in the sample.

To the casual observer, an uptick in the Unemployment Rate appears to be a negative development, but that is not the case.

Market effect
Traders view the number of unemployed people as a general signal of overall economic health, as consumer spending is highly correlated with labor-market conditions, and is also a major consideration for monetary policy at The Fed.
 
Investors tend to interpret the Unemployment Rate in relation to the LF Participation Rate as follows:

Unemployment Rate ↑ + Labor Force Participation Rate ↑ = +

Unemployment Rate ↑ + LFP Rate ↓ = -

Unemployment Rate ↓ + LFP Rate ↓ = +/-

Unemployment Rate ↓ + LFP Rate ↑ = ++

By forming a general but comprehensive view of fundamental economic data and getting a sense of the potential market implications a trader adds a valuable tool to his tool-belt

Pro Bono Warning for the Uninitiated - Tilray (TLRY)

Crash Model Results (after the big bounce)

SPY = S&P 500 Index Fund (investable)

Four Rules of Speculation from the Oldest Book on Speculation

"The first rule in speculation is: Never advise anyone to buy or sell shares. Where guessing correctly is a form of witchcraft, counsel cannot be put on airs.

"The second rule: Accept both your profits and regrets. It is best to seize what comes to hand when it comes, and not expect that your good fortune and the favorable circumstances will last.

"The third rule: Profit in the share market is goblin treasure: at one moment, it is carbuncles, the next it is coal; one moment diamonds, and the next pebbles. Sometimes, they are the tears that Aurora leaves on the sweet morning's grass, at other times, they are just tears.

"The fourth rule: He who wishes to become rich from this game must have both money and patience."

Algos Have Taken the Rhythm Out of the Market | Stanley F. Druckenmiller

Nikkei (NKD) Care Bear Call ↓

Nikkei down 1,956 points (-8.14%) since 4-Oct-2018:

On the Importance of Sticking to Your System

Below is an excerpt of a story from the classic book Reminiscences of a Stock Operator by Edwin Lefevre. It's an excellent lesson on the importance of sticking to your own system until it requires modification. System trading can lead to extreme boredom, idle hands, and eventually unnecessary tinkering. The stock market is one of the few places where the ends justify means; that is, as long as your system is profitable, it doesn't matter what goes into it, nor does it require a readjustment. The only thing that matters is the outcome. As long as the outcome is satisfactory, plug your ears and stick to the system. 

 Enjoy:

I remember I met an old gentleman in Palm Beach whose name I did not catch or did not at once identify. I knew he had been in the Street for years, way back in Civil War times, and somebody told me that he was a very wise old codger who had gone through so many booms and panics that he was always saying there was nothing new under the sun and least of all in the stock market.

The old fellow asked me a lot of questions. When I got through telling him about my usual practice in trading he nodded and said, “Yes! Yes! You’re right. The way you’re built, the way your mind runs, makes your system a good system for you. It comes easy for you to practice what you preach, because the money you bet is the least of  your cares. I recollect Pat Hearne. Ever hear of him? Well, he was a very well-known sporting man and he had an account with us. Clever chap and nervy. He made money in stocks, and that made people ask him for advice. He would never give any. If they asked him point-blank for his opinion about the wisdom of their commitments he used a favourite race-track maxim of his: ‘You can’t tell till you bet.’ He traded in our office. He would buy one hundred shares of some active stock and when, or if, it went up 1 per cent he would buy another hundred. On another point’s advance, another hundred shares; and so on. He used to say he wasn’t playing the game to make money for others and therefore he would put in a stop-loss order one point below the price of his last purchase. When the price kept going up he simply moved up his stop with it. On a 1 per cent reaction he was stopped out. He declared he did not see any sense in losing more than one point, whether it came out of his original margin or out of his paper profits.

“You know, a professional gambler is not looking for long shots, but for sure money. Of course long shots are fine when they come in. In the stock market Pat wasn’t after tips or playing to catch twenty-points-a-week advances, but sure money in sufficient quantity to provide him with a good living. Of all the thousands of outsiders that I have run across in Wall Street, Pat Hearne was the only one who saw in stock speculation merely a game of chance like faro or roulette, but, nevertheless, had the sense to stick to a relatively sound betting method.

“After Hearne’s death one of our customers who had always traded with Pat and used his system made over one hundred thousand dollars in Lackawanna. Then he switched over to some other stock and because he had made a big stake he thought he need not stick to Pat’s way. When a reaction came,  instead of cutting short his losses he let them run—as though they were profits. Of course every cent went. When he finally quit he owed us several thousand dollars.

“He hung around for two or three years. He kept the fever long after the cash had gone; but we did not object as long as he behaved himself. I remember that he used to admit freely that he had been ten thousand kinds of an ass not to stick to Pat Hearne’s style of play. Well, one day he came to me greatly excited and asked me to let him sell some stock short in our office. He was a nice enough chap who had been a good customer in his day and I told him I personally would guarantee his account for one hundred shares.

“He sold short one hundred shares of Lake Shore. That was the time Bill Travers hammered the market, in 875.My friend Roberts put out that Lake Shore at exactly the right time and kept selling it on the way down as he had been wont to do in the old successful days before he forsook Pat Hearne’s system and instead listened to hope’s whispers.

“Well, sir, in four days of successful pyramiding, Roberts’ account showed him a profit of fifteen thousand dollars. Observing that he had not put in a stop-loss order I spoke to him about it and he told me that the break hadn’t fairly begun and he wasn’t going to be shaken out by any one-point reaction. This was in August. Before the middle of September he borrowed ten dollars from me for a baby carriage—his fourth. He did not stick to his own proved system. That’s the trouble with most of them,” and the old fellow shook his head at me.

Interview with Warren Buffett (1988)

Buffett squeezed a lifetime worth of investing wisdom into the last 60 seconds of this interview from 1988:

Q: Warren, your approach seems so simple, why doesn't everybody else do it?

Warren: Well i think partly because it is so simple. the academics for example focus on all kinds of variables - and the data is there, so they focus on whether you buy stocks on Tuesday and sell them on Friday you're better off, or if you buy them in election years and sell them in other years you're better off, or if you buy small companies - there are all these variables - because the data are there; and they learn how to manipulate data. And as a friend of mine says, 'to a man with a hammer everything looks like a nail.' And once you have these skills you just are dying to utilize them in some way, but they aren't important...If I were being asked to participate in a business opportunity would it make any difference to me if I bought it on a Tuesday or a Saturday or an election year or something? It's not what a businessman thinks about in buying businesses, so why think about it when buying stocks? Because stocks are just pieces of businesses.

QOTD

Words of wisdom from Munger:

“Develop into a lifelong self-learner through voracious reading; cultivate curiosity and strive to become a little wiser every day.” — (Charlie Munger, Berkshire Hathaway)

"If you think your IQ is 160 but it's 150, you're a disaster. It's much better to have a 130 IQ and think it's 120."

"We recognized early on that very smart people do very dumb things, and we wanted to know why and who, so we could avoid them."

"Obviously if you want to get good at something which is competitive, you have to think about it and practice a lot. You have to keep learning because [the] world keeps changing and competitors keep learning. You have to go to bed wiser than you got up. As you try to master what you are trying to do — people who do that almost never fail utterly. Very few have ever failed with that approach. You may rise slowly, but you are sure to rise."

"You'll do better if you have passion for something in which you have aptitude. If Warren had gone into ballet, no one would have heard of him."

"What do you want to avoid? Such an easy answer: sloth and unreliability. If you're unreliable, it doesn't matter what your virtues are. You're going to crater immediately. Doing what you have faithfully engaged to do should be an automatic part of your conduct. You want to avoid sloth and unreliability."

Portfolio Baskets A1 (Long) & A2 (Short)

January/February 2016:

1. Portfolio Basket A1 (Long): FB, SLV (SI_F), SOYB (ZL_F), TLT (hedge)

2. Portfolio Basket A2 (Short): AMZN, F

AMZN (Amazon) - Short-Term Price Target: 541, Current Price: 560

$AMZN - short term target: 541.00

— Rubin (@traderrubin) Feb. 2 at 12:22 PM

F (Ford) - Short-Term Target: 10.40, Current Price: 12.01

$F Near-term target: 10.40Current price: 12.01

— Rubin (@traderrubin) Feb. 1 at 12:20 PM

TSLA - Morgan Stanley Finally Comes Around, Slashes Price Target 26%

Tesla (TSLA) Stock Sputters, Morgan Stanley Slashes Price Target 26% $TSLA http://stks.co/u9bY

— TheStreet (@TheStreet) Feb. 1 at 09:56 AM

Week 5, Book 5 - The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns

Update: TSLA Falls to $188.88 Intraday ($1.88 From Price Target)

Update: $TSLA hit $188.88 intraday today ($1.88 from price target initiated yesterday, 01-25-2016) $QQQ $AAPL $TWTR

— Rubin (@traderrubin) Jan. 26 at 04:23 PM

TSLA - Price Target Lowered to $187.00

$TSLA - short term price target: $187.00. $QQQ $AAPL $TWTR

— Rubin (@traderrubin) Jan. 25 at 03:52 PM

TSLA Short Alert 01-14-2015

$TSLA - http://stks.co/d38XH

— Rubin (@traderrubin) Jan. 14 at 04:20 PM

Week 4, Book 4 - The Essays of Warren Buffett: Lessons for Corporate America by Warren Buffett