THE CHARACTERISTICS SHARED BY GREAT TRADERS

Successful traders are not greedy and are not afraid; they have an in-depth know
ledge of themselves and their minds.
Greed and fear cause the manager to become undisciplined and lead him to disater
. Successful traders see thing that others do not see: they make connections tha
t are not apparent to others. They are not victims of money and success: they ha
ve a detached attitude towards money and money is only their scorecard. Emotions
end up playing a negative role in trading decisions, leading many traders to le
t losses run bigger than they should and to cash in profits too soon. Successful
traders d not change their lives when they gain and do not despair when they lo
se.
Pride can cause traders to make serious mistakes: they must be able to acknowled
ge their mistakes very rapidly. No trader can fall too much in love with his ide
as, especially if they are based on extremely complex analyses. Great traders ar
e able to admit when they are wrong and are able to reduce their riskds accordin
gly.
Atrader must be able to be patient: if he sees no investment opportunities, he m
ust not trade. He must take on a risk only when he clearly spots an opportunity.
The traits of a successful trader are as follows:
Money is not imortant;
trading is a game;
it is acceptable to lose with some trades;
it is important to put one's ideas to test.
In contrast, losers think that money is important and have a difficult time acce
pting losses.
THE GREATEST INVESTORS' QUOTES
Time is your friend; impulse is your enemy.
If you have trouble imaging a 20% loss in the stock market, you shouldn't be in
stocks.
When reward is at its pinnacle, risk is near at hand.
Ruel No.1 is never lose money. Rule No.2 is never forget rule number one.
Shares are not mere pieces of paper. The represent part ownership of a business.
So, when contemplating an investment, think like a prospective owner.
If, when making a stock investment, you're not considering holding it at least t
en years, don't waste more than ten minutes considering it.
A strategy of buying out-of-favor stocks with low P/E, price-to-book and price-t
o-cash flow ratios outperforms the market pretty consistently over long periods
of time.
I paraphrase Lord Rothschild: The time to buy is when there's blood on the street
s.
If you have good stocks and you really know them, you'll make money if you're pa
tient over three years or more.
A thorough understanding of a business, by using Phil's techniques enables one t
o make intelligent investment commitments.
Most of the time stocks are subject to irrational and excessive price fluctuatio
ns in both directions as the consequence of the ingrained tendency of most peopl
e to speculate or grable .. to give way to hope, fear, and greed.
Emotional whipsaws of fear and greed can convince any investor or management fir
m to do exactly the wrong thing during irrational periods in the market.
It's futile to predict the economy and interest rates.
Good management is very important - buy good businesses.
If you stay half-alert, you can pick the spectacular performers right from your
place of business or out of the neighborhood shopping mall, and long before Wall
Street discovers them.
Investing without research is like playing stud poker and never looking at the c
ards.
Absent a lot of surprises, stocks are relatively predictable over twenty years.
As to whether they're going to be higher or lower in two to three years, you mig
ht as well flip a coin to decide.
Value investing means really asking what are the best values, and not assuming t
hat because something looks expensive that it is, or assuming that because a sto
ck is down in price and trades at low multiples that it is a bargain Sometimes g
rowth is cheap and value expensive. . . . The question is not growth or value, b
ut where is the best value We construct portfolios by using factor diversificatio
n.' . . . We own a mix of companies whose fundamental valuation factors differ.
We have high P/E and low P/E, high price-to-book and low-price-to-book. Most inv
estors tend to be relatively undiversified with respect to these valuation facto
rs, with traditional value investors clustered in low valuations, and growth inv
estors in high valuations It was in the mid-1990s that we began to create portfo
lios that had greater factor diversification, which became our strength We own lo
w PE and we own high PE, but we own them for the same reason: we think they are
mispriced. We differ from many value investors in being willing to analyze stock
s that look expensive to see if they really are. Most, in fact, are, but some ar
e not. To the extent we get that right, we will benefit shareholders and clients
.
I often remind our analysts that 100% of the information you have about a compan
y represents the past, and 100% of a stock's valuation depends on the future.
The market does reflect the available information, as the professors tell us. Bu
t just as the funhouse mirrors don't always accurately reflect your weight, the
markets don't always accurately reflect that information. Usually they are too p
essimistic when it's bad, and too optimistic when it's good.
What we try to do is take advantage of errors others make, usually because they
are too short-term oriented, or they react to dramatic events, or they overestim
ate the impact of events, and so on.
Buy "good companies, in good industries, at low price-to-earnings prices.
Two of Neff's favorite investing tactics were to buy on bad news after a stock h
ad taken a substantial plunge and to take "indirect paths" to buying in to popul
ar industries. This involved, for example, buying manufacturers of drilling pipe
that sold to the "hot stock" (too pricey for Neff) oil service companies.
What seems too high and risky to the majority generally goes higher and what see
ms low and cheap generally goes lower.
However, by the late '60s, he had become wary of the market's unquestioning enth
usiasm for growth stocks he felt the time had come for investors to change their
orientation. He thought price multiples had become unreasonable and decided tha
t the long bull market was over.
It is better to be early than too late in recognizing the passing of one era, th
e waning of old investment favorites and the advent of a new era affording new o
pportunities for the investor.
Change is the investor's only certainty.
No one can see ahead three years, let alone five or ten. Competition, new invent
ions - all kinds of things - can change the situation in twelve months.
Most leading brokers cannot spare the time and money to research smaller stocks.
You are therefore more likely to find a bargain in this relatively under-exploi
ted area of the stock market.
Highlighting what Slater thought was the inherent greater potential for the grow
th of smaller companies, he said, "I once compared a very large company with an
elephant by making the comment that elephants don't gallop.
He believed that financial markets can best be described as chaotic. The prices
of securities and currencies depend on human beings, or the traders - both profe
ssional and non-professional - who buy and sell these assets. These persons ofte
n act out based on emotion, rather than logical considerations.
It's not whether you're right or wrong that's important, but how much money you
make when you're right and how much you lose when you're wrong.
Soros has said that he would have an instinctive physical reaction about when to
buy and sell, making is strategy a difficult model to emulate.
I rely a great deal on animal instincts.
George opened all of our thinking to macroeconomic theory, and he made globalist
s of us all by making us understand the importance of geopolitical events on the
U.S. economy.
Be intellectually competitive. The key to research is to assimilate as much data
aspossible in order to be to the first to sense a major change.
Make good decisions even with incomplete information. You will never have all th
e information you need. What matters is what you do with the information you hav
e.
Always trust your intuition, which resembles a hidden supercomputer in the mind.
It can help you do the right thing at the right time if you give it a chance.
I've found my results for investment clients were far better here than when I ha
d my office in 30 Rockefeller Plaza. When you're in Manhattan, it's much more di
fficult to go opposite the crowd.
Wanger said he constantly had to remind himself that you can have a good company
but a bad stock.
An attractive investment area must have favorable characteristics that should la
st five years or longer.
If you believe you or anyone else has a system that can predict the future of th
e stock market, the joke is on you.
Since the Industrial Revolution began, going downstream investing in businesses
that will benefit from new technology rather than investing in the technology co
mpanies themselves has often been the smarter strategy.
Stocks have been on the reise for five straight weeks on bets that the worst for
the economy and financial sector has already happened. But with consumer spendi
ng being such a big driver of the economy, a weak retail sales report caused fre
sh concern among investors.
The assumptions generated on efficient markets are that market prices reflect al
l existing information. However, Grosswman-Stiglitz's paradox states that:"If ma
rkets are perfectly informed, then there is nothing to be gained from gathering
more information; but if nobody gathers information, then markets will not be pe
rfectly informed."
There is a divergence between the participants' expectations with regard the the
events that characterize financial markets and the actual outcome of said event
s. Sometimes the difference is negligible, in other cases it becomes a relevant
element in the course of events.
George Soros maintains that market participants base their actions not on realit
y, but rather on what they believe is reality, and the two things are not the sa
me. Therefore, since the decisions of the market participants are not based on t
heir knowledge of reality, but on their vision of reality, results can differ fr
om expectations.
George soros established what he called the human uncertainty principle. The pri
nciple holds that people's understanding of the world in which they live cannot
correspond to the facts and be complete and consistent at the same time.
George soros interprets capital markets as a historical process: although a scie
ntific model can be submitted to repeatable experiments, it is not possible to c
onduct experiments on the theory of reflexivity because situations are not repea
table.
An equity market boom is a self-feeding process in which inflated stock prices i
mprove expectations, which in turn inflate stock prices. These expectations are
reinforced by positive changes in the fundamentals: for example, increasing reve
nues and profits. Expectations are inflated to the point of becoming unsustainab
le. The trend reversal point arrives when results disappoint, do not support exp
ectations anymore, and markets go bust. When stocks start going down, the trend
stars self-feeding in the opposite direction.
During the 15-year period, stocks with the largest quarterly increase in institu
tional ownership (about 20% of all stocks) consistently posted positive returns.
It is important to know how many institutions hold positions in a company's stoc
k and if the number of institutions purchasing the stock now and in recent quart
ers is increasing. If a stock has no sponsorship, the odds are good that some lo
oked at the stock's fundamentails and rejected it.
while institutional sponsorship is attractive, a lot of institutional ownership
can be a sign of danger. If something goes wrong with a company and all the inst
itutions holding it sell en masse, the stock's valuation can tank - regardless o
f fundamentals.
Think of a stock as a wimming pool. The water level is analogous to the stock pr
ice, and elephants represent institutional investors. If the elephants suddenly
start stepping into the pool (buy the stock), the water level (the price of the
stock) will rise very quickly. But if the elephants get spooked and leap out of
that pool (or sell the stock), then the water level (price of the stock) will fa
ll rapidly.
A stack with a lot of institutional support may be close to the peak of its valu
ation. When every mutual and pension fund in the land owns a chunk of a particul
ar stock, it may have nowhere to go but down.
An ideal hedge fund should be able to earn two thirds of the market return when
the latter is performing well and lose only one third of the market lose when th
e market is underperforming. It shows the power of the logic of capital protecti
on and that in the long term it is more important to preserve the capital during
bear markets than to participate completely in bull market.