The Traders Journal

A Through Z of Investing: The Essentials

Fair warning: everyone has some comments to offer when you write an investment book.  And they do.  

For 25 years now, I’ve operated under the caveat:  “if it ain’t broken, don’t try to fix it.”  As a former entrepreneur, my customers reviewed my performance daily.  As an athlete, the stopwatch rated and ranked me.  As a trader, the markets always critique the choices I make.   Feedback like this is nothing new, and I’m used to it. 

It’s the source of the feedback that’s always mattered to me.  In other words, the accolades from close friends and family is what I strive for.  The applause from the multitudes is not. 


Therefore, when Fred (not his real name) read our book, I actively solicited his opinion.  His background is very similar to mine as an entrepreneur.  We diverged when he cashed out and decided to hire a money manager while I decided to do it myself.  Fred kept a percentage of his assets to self-manage which he calls his “funny money”.  

It’s no surprise to me that over the years, his funny money fund has outperformed his professionally managed account by a wide margin.  I’d describe Fred as a serious hobbyist investor. 

He told me that when he read our book, he got energized and motivated to increase the size of his funny money pool.  I was thrilled, but also curious.  So I offered to buy the beer and be the stenographer if he would verbalize what he deemed to be the highlights of our book. As is typical of Fred’s organizational thinking patterns, he started at A and listed a few points that came to his mind.  Before long, he had moved on to B, C, D and all the way to Z.

So here is Fred’s blog with his key takeaways about achieving stock market mastery.  I invite you to download the book’s first chapter for FREE and judge for yourself.

http://store.stockcharts.com/collections/frontpage/products/tensile-trading-1

A.1)  Asset protection and asset allocation.  Focus on the former, then the latter before you buy individual equities.
A.2)  Accept responsibility for your actions in the investment arena.

B.1)  Business of investing.  Adopt a mindset that approaches investing as a responsible business executive would.
B.2)  Beliefs matter.  Understand and monitor your beliefs about your methodology, yourself and the markets.

C.1)  Chartlists and Charts.  How you organize these will impact your profits.  Don’t shortchange yourself.  Take the time to set them up properly.
C.2)  Correlations matter.  Investing in highly correlated asset groups kills diversification and increases risk.

D.1)  Daily Journal.  Wow!  What a difference that makes, although a weekly journal is fine too.
D.2)  Discipline.  If you are undisciplined, leave your assets with a professional money manager.

E.1)  Endowment effect.  Just because you own an equity is no reason to fall in love with it and go blind when its fortunes change.
E.2)  Earnings matter.  So does estate planning.

F.1)  Five levels of investor growth.  You can’t skip a stage just because you are above-average.
F.2)  Filters.  Be aware of your personal filters, as well as how and when those filters impact your investing.

G.1)  Growth.  Not all of one’s portfolio should be focused on growth stocks.  A balanced core and explore investing approach works best.
G.2)  Give yourself a break.  You cannot win on 100% of your trades.  Some losses are just the price of doing business.

H.1)  History matters.  The markets may not repeat themselves exactly, but they do rhyme.  Know your history.
H.2)  Hang in there.  The markets absolutely reward those who diligently make an effort to learn about its unique personality.

I.1)  Investor Self.  Don’t be naïve and underestimate the bottom line affect this has on your profitability.  
I.2)  Investors Quad.  Understand what it takes to get to first base, then second base and third base.  To reach home plate and score, you must run all the bases.  No short cuts.

J.1)  Just do it.  (Thank you, Nike!)  Investing is not a procrastinator’s game.  Action is required.
J.2)  Journal.  That’s worth repeating.  Write in it on a schedule that you’re comfortable with.  You’ll be amazed at the lessons you glean.

K.1)  Knowledge makes money.  Don’t assume that your high IQ will automatically deliver profits.
K.2)  Keep learning.  The markets are always changing.  You must learn to embrace change too.

L.1)  Losses.  Get your ego out of the way.  If the market tells you that you are wrong, take a small loss quickly.  Stop being wrong.
L.2)  Language of the market.  Understand, for example, the difference between a market order and a limit order.  Vocabulary matters.  Learn the language of investing.

M.1)  Monitoring.  This is where profits are won or lost.  Don’t lose your focus.
M.2)  Mental discipline.  Bundle that with motivation.  Together they will add up to at least a couple of percentage points in profits at the end of the year.

N.1)  Niche Dominance.  Your specific asset basket may be best served by either an ETF or a mutual fund.  Whichever the case, it should be the “best of the breed.”
N.2)  Net Worth.  Assess precisely what your assets are, how much they are worth and where they reside.  This assessment should be reconciled at least once a year.

O.1)  On Balance Volume.  What an amazing indicator.  It shows investors if the institutions are actually accumulating (buying) or distributing (selling) their positions in a specific equity.  This just could be your new best friend.  
O.2)  Organization.  Great insights are provided in the book.  Chartlists properly organized make investing run smoothly and profitably while maximizing your insights and minimizing your time.

P.1)  Pyramid trading.  Buying into or selling out of positions in tranches less than 100% of your position has statistical validity.
P.2)  Perfection paralysis.  Investors can’t wait for every single indicator to line up perfectly or they’ll never make a trade.  You learn to pull the trigger based on probabilities, not perfection. 

Q)  Questions.  Ask the right questions or you’ll always get the wrong answers.

R.1)  Risk tolerance.  If you don’t understand your personal risk tolerance, the markets will teach you for a steep price.
R.2)  Revisit, Retune, and Refine to improve your investing skills.  This ongoing feedback loop must become second nature to you if improvement is what you seek.

S.1)  Sisters Strategy.  What a simple yet sensational methodology.  In equities as in life, you are the company you keep.  Use it to your advantage.
S.2)  Seasonality.  Talk about free money.  Rebalancing your asset allocation baskets using seasonality puts money in your pocket season after season.

T.1)  Telescope to Microscope.  It’s straightforward and insight producing.  Start with the long term chart, move to the intermediate term, then short term and finally use minute-to-minute data charts.  The equities will come alive!
T.2)  Technical Analysis.  I can’t believe I spent so many years ulcerating myself by focusing solely on fundamental analysis.  Blending technical analysis together with fundamental analysis has been the Holy Grail for me.

U)  You.  If you have the sincere desire to become a successful investor, the markets are happy to oblige you, but remember that you can also be your own worst enemy.

V)  Volatility.  You must be able to accept and embrace change and volatility.  It’s the fuel that drives investing.

W.1)  Written Plan.  I was amazed that simply committing to a written trading plan could have such a profound impact.
W.2)  Wyckoff Analysis.  If you are unfamiliar with Richard Wyckoff, do yourself a big favor and dig into this.

X)  X-Ray.  When you input all your individual stocks, ETFs and mutual funds into Morningstar.com’s X-ray tool, you will be blown away by what its unbundling reveals about your portfolio.  

Y)  Yearn to excel.  The stock market is not for lazy investors who are looking for a quick easy buck.  Getting rich slowly, however, is doable.

Z)  Zee. Could be Z-class mutual fund shares or Zillow’s ticker symbol.  It’s not Jay-Z and investing is definitely not a place for catching up on your zees (i.e. sleep).

Readers can judge for themselves whether or not my friend, Fred, is spot-on.  Download Chapter One for free, and let me know what you think.

http://store.stockcharts.com/collections/frontpage/products/tensile-trading-1

Trade well; trade with discipline!
-Gatis Roze, MBA, CMT

Presenter of the Tensile Trading DVD, Stock Market Mastery.

Developer of the StockCharts.com Tensile Trading ChartPack

P.S. Click HERE for information on my future appearances & seminars.

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