Overlong response to dakhun

[pyesetz]

Thanks for reading!  And how typically Furry to express one’s interest as a series of complaints!

➢I don't think anyone over there [in Egypt] even listened to [Obama].

That was the impression they were trying to create.  But at every step they did what the USA wanted, such as when the Muslim Brotherhood pronounced that they would stay on the sidelines.  Egyptians know very well that they are dependent on American aid.  Whatever Obama did, it wasn’t meddlesome enough to ruin things, which makes him better at this than most recent presidents.

➢you could have bought the Sector SPDRs

That would require that I have some faith in those sectors.  I like swing trading because it doesn't require any faith in companies or sectors, just in the stock-trading system as a whole.

➢when you think the next bear market *might* be starting soon...

That would be “trend trading” which is beyond my pay grade.  I don't claim to have any idea when the next bear market *might* start, only that the current market *has* now returned to raging-bull status.  Because of QE2, I expect that this will continue until June, but Schwab thinks it will run for three years.

➢Your decision to exclude Energy and US Financials

No, I have been excluding *Healthcare* and Financials.  SE and CVX are both energy stocks, as are KOL and OKE.  Schwab recently downgraded the Healthcare industry to “underperform”, the same category where they had already placed Financials.

➢the number 1 and number 3 performing US sectors YTD

My problem with Healthcare and US Financials is regulatory capture.  This is the same thing that would cause me to avoid Telecommunications stocks when/if I open a Canadian trading account.  These industries are permitted to lie their heads off in their financial reports, which means there is no way to know how close they are to some cliff or other.  When doing swing trading, you don’t want any sudden moves—the stock should just keep going the way it’s been going.

➢What you are doing is trying to outperform an index, selecting from a universe of stocks that collectively are under-performing that index.

Over the long term, SPY is unbeatable.  What I’m trying to do is invest over a series of very short terms, picking stocks that are temporarily beating the average.  Many people make gobs of money at this, but it takes several years of experience to get good at it and I’ve had only two months.

➢I don't think what you are doing can correctly be called "Swing Trading" because if that is what you were doing then you would buy when stocks were at the low end of a range and then sell when they get to the high end of a range...  I think what you are doing could be better described as "Momentum Trading".

I used to agree with you, but that is not how the trading argot has worked out:

• Day trading = Minutes or hours
• Momentum trading = Hours or days
• Swing trading = Days or weeks
• Trend trading = Weeks or months
• Investing = Months or years

When I talk to Schwab about my account, they tell me that my customer category is “swing trader” because of the typical hold times for my stocks.

➢you only tend to sell when the stocks are already falling and hit your stops

This needs further adjustment.  I’m thinking that maybe I should sell when stocks hit their upper Bollinger bands, since at that point they generally won’t go up any further for several days so I might as well lock in my profit.  I shouldn’t have bought CVX because (as I noticed hours afterward) it had just bumped into its Bollinger band and had nowhere to go but down.

➢one thing that makes it difficult to do momentum trading right now is that it is earnings season

True.

➢momentum trading by its speculative nature only works best in the absence of definitive news.

Actually, from what I’ve heard, “momentum traders” respond *solely* to news.  They buy a stock when the news hits, then sell when the news becomes old.  But “swing traders” are told to avoid stocks that are about to release financial information.  I haven’t been paying a lot of attention to this, but it would have saved me from FLIR if I had a general rule to sell any stock that’s about to release its earnings report.  If I had a rule to sell any stock that’s about to release guidance, that would have caused me to avoid the huge gain in ATML.

➢Normally, I don't like giving investment advice, because then I find myself having to mentally follow the ups and downs of the instruments or strategies I recommended, as well as having to follow the ups and downs of my own portfolio. I don't like doing that at all.

I agree.  When I give investment advice, it’s just a subset of whatever I’m doing for myself.  If nothing I’m doing is suitable for that person, I have no advice for them.  It was really nice of sabotlours to recommend an ETF that he had no fursonal experience with, but which clearly did fit in my portfolio.

➢But in this case, I think you really need some more ideas.

What gives you this impression?  I have found a set of rationalizations that permits me to stay fully invested despite the ever-present risks.  My portfolio value is rising, at an annualized rate that exceeds 10%.  My Frankensteinian monster is ALIVE!!!  What’s wrong with it, other than the fact that it is different from your monster?

➢You also need an investment thesis, something that defines what is going on in the economy or what is going on in the company who's stock you want to buy

This is exactly what I am trying to avoid.  I got into stock investing again because of my conversations with Dr. J about the nature of Reality, which led naturally to the question: “if you’re so smart, why ain’t you rich?”  I don’t believe in any thesis about the medium- or long-term future of the economy or of specific companies.

➢you need some sort of trading strategy to exploit that worldview should it turn out to be correct (as well as what to do should that not turn out to be the case)

My trading strategy is that the sheeple will keep buying stocks that have recently gone up, thus overshooting their correct prices.  My system buys stocks that seem to have herd mentality behind them.  I sell when the fad fades.

➢You seem to be accumulating a whole bunch of personal "rules" ad hoc, and that is a system that is sure to collapse under its own weight eventually.

You are making a statement of belief about the nature of rule-systems, which is not specific to the stock market.  I believe that one must first have a set of ad-hoc rules, for which one then produces an overarching theory as to why those rules work together.  If you insist on starting with the theory, it will tend to collapse upon contact with reality because it’s not based on anything already known to work.  My favourite example is FORTRAN.  The first version was completely ad-hoc.  FORTRAN II was an attempt to impose a theory of parser design.  FORTRAN III was a (failed) attmpt to elaborate the theory of high-level languages.  FORTRAN IV had a lovely theoretical foundation and was very successful, but it could never have been designed except in response to the failures of its predecessors!

➢What I see is a lot of buying and selling, but for reasons that I would not find sufficient for me to confidently buy or sell any of those stocks at any of those times.

I buy when I have money available, which means (unless I get lucky) that I am not buying at the “best” time for that stock.  I am not looking for “confidence” but merely for “adequate justification”.

➢For example, when you bought TD, you said something about buying it for the dividends, a long-term argument... but if you did get those dividends they would never be enough to get the 10% annual gains that you said you needed. Then you sold the stock on a tiny dip.

I also said I changed my mind.  I bought TD as a long-term hold, then decided that I didn’t need any long-term holds.  I was hoping that TD would raise their dividend in response to the Basel 2010 conference, but they bought Chrysler Financial instead.  This was probably in the best interests of their long-term shareholders, but it wasn’t what I wanted.

➢Now the stock appears to be literally at an all-time high. I would not have bought the stock in the first place if I had your goals, but then having bought it, I would not have sold it on random noise.

Yup, TD is indeed the good long-term hold I originally thought it was.  But I’m too impatient for that sort of thing.  I’m still trying to learn the ropes, so I have to keep buying different kinds of stocks to see how they taste, so I don’t have a lot of slots in my portfolio for boring long-term holds.  I’m making an exception for Dundee REIT because they seem to have very good taste in real estate and no difficulties in raising all the money they want from new stockholders.  Saskatoon Place looks lovely in Google Streetview, but really I have no idea if Dundee was correct when they bought it.  And I’m still waiting to see the actual list of the 8 buildings in Kitchener they just bought last Monday, which increased the value of their portfolio by 40%!

➢Also, I'd be more cautious about using sell stops, because of what happened during The Flash Crash. It could happen again, and indeed I think the odds are better than 50/50 that something like that will happen the next time there is a real market correction.

With all due respect, I don’t think there is any evidence available that you could use to come to this conclusion.  What was the probability that Y2K was going to be a horrible disaster?  Lots of people made guesses, most of them way too high because really they had no solid facts to go on.  The regulators are very unhappy about the Flash Crash and its effect on retail investors like me.  An even-money bet that it will happen again soon is an assertion that the regulators are a bunch of incompetant ninnies—which is just what the Y2K people were saying about the computer programmers when they laid in their supplies for the apocalypse that was sure to come, or was at least an even-money bet.  But their lack of faith in our profession turned out to be unjustified.

➢With the amount of time you obviously spend on this, there is no reason you'd need sell stops to notice if one of your stocks was down.

One might think so, but the problem my stops are aimed at is psychological indecision: when bad news arrives, is it bad *enough* to sell or should I wait?  Well, I tend to keep waiting, which was exactly the wrong move for TNA and was generally a bad move in most other cases that I studied.  So now I have auto-stops to ensure that I sell when I said that I should.  FLIR is the first time that I didn’t get a price within pennies of my stop.  Several times I have gotten a penny or two *more* than my stop because the market maker raised their bids before my trade got to the head of the queue.

Comments

The other side of the trade

[dakhun.livejournal.com]

If anyone is going to name-drop me in their journal, it had better be for a positive reason, and not because they disagreed with every single damned sentence in something I said, and wanted to publicly flame me and systematically pick apart what I said like the little troll they are. So fuck you too. I think that's the most appropriate thing anyone could say to you at this point.

I'd quote and reply to a specific part of your post, but you deleted the part I was going to reply to. (big surprise that you didn't even get it right the first time) You essentially asked how well MY investments are doing.

Well, Mr. Curr, maybe you should have asked how well my investments were doing first of all, BEFORE pissing me off? Maybe then, you could put my ideas in better perspective. Answer: Better than you. Much. Easily. But don't expect me to put specifics of private money matters in a public post, on someone else's journal.

Second of all, how the fuck am I supposed to reply to something that is too big to put in a comment... in a comment? Maybe you were expecting 4 or 5 long-winded comments replying to different parts of your post, and then detailed responses to the inevitable replies? You think I have time for this? tl;dr!

As for the rest, it is clear that I'm not going to be able convince you of the bleeding obvious that in spending so much time on underperforming the index, you might be doing something wrong, and could use a different strategy, or ANY strategy (assuming you even had one to begin with). So go ahead and do what you want, believe what you want. I don't care anymore. You are so wrong on so many levels about so many things, and I simply don't have enough rocks to beat enough sense into you to compensate for your deliberate ignorance and stupidity. (that's figurative rocks, of course)

Many traders have to underperform the index so that the rest of us can outperform the index. You're the other side of the trade. Congratulations on finding your own special way of contributing to the financial system!