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The newsletter other trading professionals demand
I can assure you that these businesses aren't the only ones who were operating on such financial thin ice. Some, even in Australia, are so fragile that a stiff breeze could blow them away - let alone a week long blizzard. Things aren't as stable as the Government would have us believe. Take Bourke Road in Sydney, for example. Sydney Council, in an eco-mental fling, declared that this busy, thriving commercial area, should have a cycle path on it. No - don't worry that there is no longer any car parks to park along it. Don't listen to the businesses that are crumbling in this area, laying off their employees because their customers no longer walk in the front door, as they've had to park a couple of kilometres away. Never be concerned that the delivery trucks can no longer load or unload their goods because they can't stop along that road any more. Why would that be a problem? Paying homage to green ideals in order to collect votes is the issue here! Interestingly, when Lord Mayor Clover Moore officially launched the cycleway, she couldn't find a car park so was forced to park on private property. I'm guessing she didn't really see the irony in this. So, what has this got to do with trading? I'll tell you what it has to do with trading. Outside of our cosy Trading Game community of successful traders, people are suffering. Government decisions, the weather, and other weird influences can make or break them. With trading though, you are in control of your own destiny. You are not subject to these forces. You have the ability to learn how to trade, and do it, at any time, as a full-time occupation or alongside your other activities, wherever and however you like. Traders experience the ultimate in freedom. Develop the skills to trade effectively and no-one, and nothing can EVER take them away from you. Even the short selling ban last year where the regulators stuck their sticky little beaks into our home turf didn't create a ripple. Our traders shifted to shorting indices where there were no restrictions. By reading this newsletter, you've already started on your journey towards freedom and security. Quite frankly, there are other traders who aren't part of our community who are missing out! They haven't realised that there is a different way to trade, a better way, an infinitely more successful way. I'm so glad you're in our inner circle so you never have to suffer the vagaries of the weather, the Government, or some other external force. You've realised your financial future is in your hands. You know that alone... you are vulnerable. But with a bit of help - you can achieve greatness and you have our full support! Keep reading to find out the gems of trading wisdom that are included in this month's Trading Game newsletter.
In this month's newsletter: - Tate on Trading - A Short-Cut to Reality
Chris Tate From time to time (read daily) we get emails regarding some aspect of trading or the markets. Some of these are downright stupid and are written by people who would be taxed by the intellectual challenge of running a Mr. Whippy van. Others are enlightening in what they reveal about how people view themselves in relation to the markets. Some contain some excellent observations and are worth keeping and occasionally one comes from the twilight zone. Recently one came across my desk from an individual who wanted to know how long it would take then to replace their income of $50,000 per year using their $20,000 trading balance. Ordinarily I bin such emails because they come from a place that I am not interested in exploring (nuff nuff world). However, I thought it would be an interesting intellectual exercise to make a few assumptions and see how long it might take. I assumed a constant growth rate of 20% p.a. with no losing years and no inflation to make things a bit simpler. Itturns out that using these parameters and the back of an envelope it would take over 12 years to achieve this. Now obviously this was not what the letter writer wanted to hear. Their frame of reference was that it should take no more than three. This is very revealing because it touches on two issues. Firstly, the unrealistic expectations that are part of human psychology. Secondly, these expectations are being fed from somewhere. Humans have always been irrational in their perception of the world. Herbert Simons, one of the early architects of game theory, postulated the notion of bounded rationality. That is the responses of each individual are limited by their information, cognitive ability and time. Effectively everyone is handicapped by time, information and intellectual ability. However, I would extend this statement to say that people are bounded by rationality but also have the capacity of unbounded irrationality. This irrationality is part of being human and manifests itself in examples ranging from such as attempting to financially plan by playing the lottery or that women's magazines are actually factual documents. I want to look at two of Simon's triad of limitations, cognitive ability and information. People such as our letter writer might not hold the belief that that it is possible to convert $20,000 into a fund capable of generating $50,000 a year in next to no time if it were not for information they were receiving. Obviously, someone has told them this is not only possible - but a certainty. For some reason they regarded their source of information as credible hence the easy acceptance of such advice. Humans will always defer to what they perceive to be a higher source of authority. This statement of "its easy to live off $50,000 whilst only trading $20,000" has been seized upon despite the innate irrationality of the statement and the inability to analyse this statement with any degree of rigor. Critical thinking and year six maths quickly highlights how stupid it is. However, such a situation feeds back to some extent into people's laziness. The default state for most people is torpor and it is very difficult for them to overcome their own inertia so anything that reinforces this natural state is seized upon as being true and correct. In many ways though, this may not be the fault of the individual since trading is presented as an immensely easy task that takes no time at all to master. You simply have to listen to the tone of the advertisements you hear in the media to form this impression. This is the biggest problem in this industry - there are large numbers of spruikers who are willing to tell people what they want to hear - even if it is completely untrue. Now this may tally with PT Barnum's observation that "you will never go broke underestimating the intelligence of the general public" but it does little for the individual attempting to learn how this game works. In all honesty, I would not be wanting to be a beginner trader searching for a source of trading education right now. It would be devilishly difficult unless you had some sources of advice you could trust. Unless you are fortunate enough to find me and Louise at The Trading Game straight away, there is simply a plethora of rubbish out there to wade through. Everything from people who are telling new traders to put all their money in a single trade and investment magazines which insist on publishing drivel based upon astrology. If you see this sort of nonsense in a respected industry publication how are you to tell rubbish from reality? The simple fact is that trading is a difficult and taxing profession and learning it takes time and support. The emphasis here is upon time - most new traders don't survive long enough to become profitable. This occurs because they are not taught the relevant skills necessary to survive. This occurs because someone has fed into their weaknesses by telling them there is a short cut to success. Unfortunately, there are no short cuts to anything worthwhile having.
Louise Bedford The Rudd government last week introduced it's 'Resource Super Profits Tax' (RSPT). What is it? Well, let's have a look at the various issues that arise from this announcement. What is a 'super' profit? Let's go beyond the emotive names and descriptions peddled by the spin doctors and look at some figures. Here's a worked example produced by a friend of ours - Kris Sayce of Money Morning: Let's say a mining company starts up with $8 million of capital which it invests in searching for raw materials. Then let's say the mining firm generates $10 million of revenue. Now let's minus $9 million of operating costs. That gives a gross profit of $1 million. Then, under this new Super Profit tax, the mining company gets to earn a "normal" rate of return which is set at the 10 year government bond rate. For example, 6%. 6% of $8 million (the starting capital) is $480,000. So, the mining company's net profit, is $1 million, less the $480,000 deduction which leaves a Super Profit of $520,000. This is taxed at 40%. What a joke. Yes Kris, indeed. Apparently the government has now taken on the role of referee in deciding how much of a company's profit is socially and morally acceptable (and is taxed as regular profits). They've then decided that any profits beyond this level must be a result of obscene greed and exploitation and should be taxed as 'super' profits. Just the name chosen to describe these profits is laced with spin by implying these profits beyond a certain threshold are undeserved and therefore fair game for the government to plunder. And who decides what that threshold should be? Prime Minister Rudd has pinpointed the 10 year government bond rate as a satisfactory return to investors. Satisfactory to whom? And to apply this tax to only the Resources sector is just contemptuous and short-sighted. Clearly it's all just nonsense. Selling the Spin To sell the concept to the Australian public Treasurer Wayne Swan claimed that "The nation's mineral resource is owned by the people of Australia, not the mining companies. We are putting in place a set of arrangements which are reasonable, which we believe will return to the owners of the resource, that is the Australian people a fair share which has fallen away dramatically in recent years." I'm not sure this is at all accurate. Before they even start digging, the mining companies have to establish the right to mine an area, do geological surveys and build transport infrastructure, all of which is expensive. They then get to keep the profits after state production royalties and company tax (30%) are paid. Why should anyone else other than owners and shareholders share in the profits. Non-investors didn't take any of the risks so why should they get any of the profits? As has already been reported, any particular mining company may now re-evaluate the feasibility of pursuing a venture in Australia. Great, now the minerals are left hundreds of metres underground for all Australians to enjoy. Yippee! What now? So, after the announcement of the RSPT wiped billions from the resources sector in subsequent trading, what does this mean for traders? Because you're up against numbskull bureaucracies, you need to take control of your own financial future. Get educated, make your own money and protect it. When your stops are hit - get out. When you get a signal to enter a position - get in. Plus, remember to keep your position sizes small. These are the basic principles behind effective trading. When engaging the market, remember that the market is emotionally driven and that's why your best strategy is to remain unemotional. Trade mechanically - act on stop losses and manage your risk. Because, if you can keep your head when all those about you are losing theirs, you'll be the tallest one in the room. - Louise Bedford
Well... it happened again. Within just a couple of days after flashing the green light to open the Mentor Program for June, we booked out. Quick as a flash. It's probably because we limit the numbers so we can give our exceptional traders as much precious time as they need to achieve results. Traders like Marty Ewer. Here is what Marty has to say about the Mentor Program:
The traders who are safely and soundly booked into the June 2010 Mentor Program will shortly be on their way to creating life-changing income. Surely it's about time that you were too! Get off the fence and Chris and Louise will show you where the money is. Becoming a part of our Mentor Program is the best investment you'll ever make. Register your details now and you'll receive for FREE:
If you have a sneaking suspicion that there might be other traders who have discovered a "paint by numbers" system, and that you're being left behind - now is your chance to make a huge difference to your financial future! Click on the link below and you can watch a video from Louise about the benefits of Priority Notification and a video featuring past mentorees talking about the results they have achieved. Have a look!
The market landscape is currently being reshaped by a range of forces, some local and some global. Whilst being aware of these macro forces can give some perspective on the markets, remember to consistently analyse them through unemotional and mechanical channels. Technical analysis, when used alongside good money and risk management will give you long-term positive returns that are not dependent on your, or anyone else's, analysis of the news of the day. Until next month... Happy Trading!
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