Monthly Archives: April 2014
Great educational (and free) TraderInterviews.com video webinar with Joe Fahmy on trading in healthy markets.
Joe is one of my favorite trading follows on and we’ve also highlighted some of and here in the past.
So with that introduction, you should know that I’m posting this video because I’ve learned a lot about the stock market and trading from Joe in recent months. You’ll probably walk away from this webinar with some knowledge that you can use in your trading as well.
Fahmy offers a quick summary of his general trading philosophy at the start of the webinar, then quickly launches into a discussion of his relative strength concept. You’ll hear Joe explain why he looks for growth stocks that are emerging as leaders when the overall indexes are bottoming or consolidating. He also offers a few keys to successful trading and ends with a solid Q+A session with the webinar group.
Check it out, and be sure to follow Joe’s blog and tweets at the links above.
Related articles and posts:
1. – Finance Trends.
2. – The Next Big Move.
Could have sworn I posted this StockTwits TV months ago, but maybe I just retweeted it. In any case, enjoy this laid-back and excellent discussion with the highly visible (and vocal) Mavs owner and entrepreneur.
Entourage guest spots, investing, free agent talks with Lebron, the birth of Broadcast.com and the rise of user-generated web video… it’s all here in this interview.
Plus, more from Mark and Howard in this segment.
Oh, and congrats to Mark and the Dallas Mavericks on their first NBA championship. The .
Related articles and posts:
Goldman Sachs (GS) is up 64% over the past year, but it hasn’t kept pace with General Motors (GM) since its post-bailout IPO.
From the November 19, 2010 weekly close to July 31, 2013, GM’s (dubbed “Government Motors” in its initial rescue stage) stock performance has edged out that other government-allied firm, the .
Over that 2 1/2 year timeframe, GM has returned about 6% to GS’ -1.5% (approximate figures from marking the right scale of the relative performance chart below).
GS managed to outperform Morgan Stanley (MS), the other remaining investment bank behemoth, since the current bull market began in March 2009. Over that 4 year period, GS has returned close to 80% compared to 40% for MS. MS did return a cool 100% in the past year, after a prolonged downtrend since late 2009.
More TBTF fun: portfolio lists 1-year returns (and weightings) for its component banks (index is up 53% over 1 year). Every bank listed is solidly in the green, with individual returns ranging from 15% – 100%. Screenshot below.
Nassim Taleb discusses the concept of at Princeton.
If you want to understand the long-term consequences of market interventions and other attempts to delay or remove stressors from real-world systems, watch this video.
Taleb also makes clear that we are at an unprecedented point in history, in which those in power benefit on the upside while having no real risk (no “skin in the game”) on the downside. In other words, our supposed “leaders” hold their positions and accrue benefits from them without having to display courage or face the consequences of their actions and decisions.
You can hear more from Taleb on this topic in an excellent from earlier this year.
His new book, is available on Amazon.
In our second installment of “Lessons from Hedge Fund Market Wizards“, we’ll offer up some trading and macroeconomic insights pulled from of Bridgewater Associates.
You’ve probably heard of Ray Dalio if you have even a cursory knowledge of the hedge fund industry (or the Forbes billionaires list), so let’s get right to it. These notes will fill in the rest of the story.
1). Dalio is the founder and former CEO (now “mentor”) of Bridgewater Associates, a fund that has returned more money ($50 billion) for investors than any hedge fund in history.
2). Bridgewater still manages to achieve excellent returns on a huge base of capital and has done so over a long period of time. It is among the few hedge funds with a 20-year track record.
3). Dalio believes that mistakes are a good thing, as they provide an opportunity for learning. If he could figure out what he (or someone else) was doing wrong, he could use that as a lesson and learn to be more effective.
4). His life’s philosophy and management concepts are set down in a 111 page document called, , which drives the firm’s culture and daily operations. Identifying and learning from mistakes is a key theme. It also advocates “radical transparency” within the firm; meetings are taped and employees are encouraged to criticize each other openly.
5). “The type of thinking that is necessary to succeed in the markets is entirely different from the type of thinking required to succeed in school”. Ray notes that school education emphasizes instructions, rote learning, and regurgitation. It also teaches students that “mistakes are bad”, instead of teaching the importance of learning from mistakes.
6). If you are involved in the markets, you must learn to deal with what you don’t know. Anyone involved in markets knows you can never be absolutely confident. You can’t approach trading by saying, “I know I’m right on this one.” Dalio likes to put his ideas in front of other people so they can shoot them down and tell him where he may be wrong.
7). “The markets teach you that you have to be an independent thinker. And any time you are an independent thinker, there is a reasonable chance you are going to be wrong.”
8). Ray learned in his early working years that currency depreciation and money printing are good for stocks. He was surprised to see US stocks rise after Nixon closed the gold exchange window in 1971 (effectively ending the gold standard). The lesson was reinforced when the Fed eased massively in 1982 during the Latin American debt crisis. Stocks rallied, and of course, this marked the beginning of an 18-year bull market.
9). From these earlier experiences, Dalio learned not to trust what policy makers say. He has learned these lessons repeatedly over the years (much like our previous “Market Wizard”, ).
10). Dalio vividly recalls a time when he was nearly ruined trading pork bellies in the early 1970s. He was long at a time when bellies were trading limit down every day. He didn’t know when the losses would end, and every morning he’d hear the price board click down 200 points (the daily limit) and stay there. The experience taught him the importance of risk management – “I never wanted to experience that pain again”.
11). “In trading you have to be defensive and aggressive at the same time. If you are not aggressive, you’re not going to make money, and if you are not defensive, you are not going to keep money.”.
12). Bridgewater views diversification and asset correlation differently than most. As Dalio puts it, “People think that a thing called correlation exists. That’s wrong.”. Instead, he describes a world in which assets behave a certain way in response to environmental determinants. Correlations between say, stocks and bonds, are not static, but are changing in response to “drivers” (catalysts) that can cause assets to move together or inversely.
13). By studying how asset prices move in response to certain drivers, Bridgewater looks to build portfolios of truly uncorrelated assets. By combining assets that have very slight correlations, they are able to diversify among 15 assets (instead of 100 or 1000 more closely linked assets). This helps them cut volatility and greatly improve their return/risk ratio.
14). We are currently in the midst of a “broad global deleveraging” that is negative for growth. Since the United States can print its own money, it will do so to alleviate the pressures of deflation and depression. The effectiveness of quantitative easing will be limited, since owners of bonds purchased by the Fed will use the money to buy similar assets. Dalio elaborates on our future economic course and possible policy approaches to these problems throughout the interview.
There’s a lot more in Schwager’s chapter with Ray Dalio. These notes just scratch the surface on Bridgewater’s process and their quest for the Holy Grail of investing.
There is also an addendum to the chapter containing Dalio’s big picture view of long-term economic cycles and a historical “stage analysis” of the economic rise and fall of nations.
Be sure to check out this latest (a very worthwhile read) and look for our upcoming posts for more “Lessons from Hedge Fund Market Wizards“. In the meantime, you’ll find more lessons and interviews in our related posts below.
If you’re enjoying these posts and would like to see more, please subscribe to our and follow Finance Trends in real-time on and . You can also check out our related posts below for more market wisdom and trading insights.
*Photo credit: .
The Financial Times reports that the US will put from banks who say they are ready to pay back the government.
“Strong banks will be allowed to repay bail-out funds they received from the US government but only if such a move passes a test to determine whether it is in the national economic interest, a senior administration official has told the Financial Times.
“Our general objective is going to be what is good for the system,” the senior official said. “We want the system to have enough capital.”
His comments come as , and other relatively strong banks are pressing to be allowed to repay their bail-out funds…”
Pretty amazing, isn’t it? Some of these banks were in the first place (so as not to “stigmatize” banks that truly needed the money).
Now the government is trying to control the repayment schedule of said funds, or at least give the impression that they are successfully directing the economy and driving a shattered industry to act in the “national interest” by providing “credit to support the recovery”, etc.
Is the government simply trying to maintain control over the troubled banking industry, or are conditions on TARP repayments a way to ensure that all banks look the same (with none visibly stronger or weaker than the others) in the eyes of the public?
has some additional commentary on the issue of TARP repayments, and Paul Kedrosky offers up which illustrates how well the industry has done in recent months, thanks largely to taxpayer funded bailouts (H/T to ).
Related articles and posts:
1. – Finance Trends.
2. – Finance Trends.
3. – Naked Capitalism.
Video discussion featuring John Paulson (Paulson & Co. hedge fund chief) and economist Joseph Stiglitz discussing the “massive mispricing” of mortgage backed assets during the real estate bubble. Hat tip to .
Surprisingly, Paulson makes the claim that government had nothing to do with the conditions that fueled the mortgage finance & securitization bubble. He also says that the government “had to step in” to prop up the banking system due to fears of systemic collapse.
This opinion is in stark contrast to our view, and that of most other Austrian-school thinkers. Simply stated, the easy money and credit conditions which primed this real estate bubble would not have been available without government or central bank interference in the market for interest rates.
The widely held notion of this latest boom-bust cycle as a “free-market failure” is incorrect. It should instead be recognized for what it is:.
Related articles and posts:
1.– Finance Trends
2.– Finance Trends
The good people at the Mises Institute have been quick to upload from this weekend’s .
As noted in our Friday, the guest list looked stellar, so we’ll be eagerly awaiting more uploads. So far, there’s audio of a very interesting talk from Christopher Whalen called, , as well as lectures from Robert Murphy and Doug French on Austrian Business Cycle Theory (ABCT) and interest rates.
With added presentations from the likes of Kevin Duffy, Marc Faber, Lawrence Parks and more, we can’t wait to hear the rest of the audio clips as soon they’re added.
If you want to get down to the root of the most recent boom & bust periods and understand why we’re facing a legion of bailouts and economic problems, these discussions are a great resource to further that understanding. Enjoy, and tell your friends.
Just wanted to give all of our readers (including those of you in ) a quick heads up on a couple items of interest at Finance Trends.
First,will be hosting its weekly tonight at 9 PM EST. For those who don’t know, MacroTwits is a fun & engaging macroeconomic roundtable hosted by blogger and Stocktwits member, .
As you can see from the link above, MacroTwits is now televised live on Stocktwits.tv, alongside of a streaming chat box where Stocktwits members share market commentary and macro links in 140 characters or less.
You don’t have to sign up to Twitter or Stocktwits to follow the discussion, but you will have to join Twitter & “follow” Stocktwits if you want to participate in the forum. For more onand Stocktwits, please see our explanatory post.
Secondly, we’ll be running a little contest here in a couple of days. Details will be laid out in full early in the week, so I’ll just mention it here as a quick FYI. We plan to give away a free print subscription (or two) to, so if you’d like to participate and aim for the prize, we’d love to have you join in (contest entry will be as simple as leaving a comment).
Thanks, and we’ll see you tonight at