I bought my first copy of Market Wizards almost 20 years ago and it remains not only the most read book in my trading library but also the most useful. In my early days I used to be an avid reader of trading books but most would get the once over and then get dumped in a corner and forgotten or they would go onto to perform a useful function such as holding one corner of a book case up.

Market Wizards never suffered this fate and still dragged out of the bookcase at least once a month when I have few spare minutes. The reason for this is simple – it contains brilliant stories of people who actually do what they say they do. It also presents a uniquely human face to trading. Often articles on traders focus on how much money they make or the luxury lives they lead. Market Wizards tells a different story because it looks at the early failures of its subjects and all participants are honest in examining their failings.

It is this relentless honesty that sets them apart from poor traders. Poor traders are the ultimate self-deceivers nothing is ever their fault. They are crap at trading because they have the wrong indicator, the wrong computer, the wrong broker – what they do have is the wrong attitude and a profound unwillingness to sit down and look at themselves and their own failures not just in trading but in all aspects of their lives.

We all fail – that is simply the nature of being human and the only way to avoid failure is not to do anything, which in many ways is the default human state. If I don’t want to fail at anything then I simply don’t do anything and if I do try something and fail then it can always be someone else’s fault since in today’s society it is never the fault of the individual.

If you have found yourself reaching into your excuse book after something has gone pear shaped then you may need to re-examine your motivation for trading or for that matter doing anything.

Consider this quote from Bruce Kovner

“[Michael Marcus - another top trader] taught me one other thing that is absolutely critical: You have to be willing to make mistakes regularly; there is nothing wrong with it. Michael taught me about making your best judgement, being wrong, making your next best judgement, being wrong, making your third best judgement, and then doubling your money.” – Bruce Kovner

How willing are you to make the mistakes necessary to fail and how willing are you to examine your mistakes.

But he’s OK ……….. ya reckon

In a narrow market, when prices are not getting anywhere to speak of but move in a narrow range, there is no sense in trying to anticipate what next big movement is going to be – up or down.
Instead of hoping he must fear and instead of fearing he must hope. He must fear that his loss may develop into a much bigger loss, and hope that his profit may become a big profit.

A man may beat a stock or group at a certain time, but no man living can beat the stock market.
A man must know himself thoroughly if he is going to make a good job out of trading in the speculative markets.
I learned that the weaknesses to which a speculator is prone are almost numberless.

Among the hazards of speculation the happening of the unexpected – I might even say of the unexpectable – ranks high.

Observation, experience, memory and mathematics – these are what the successful trader must depend on.

There is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again.
Of course there is always a reason for fluctuations, but what the tape does not concern itself with the why and wherefore. It doesn’t go into explanations. The reason for what a certain stock does today may not be known for two or three days, or weeks, or months. But what the dickens does that matter? Your business with the tape is now – not tomorrow. The reason can wait. But you must act instantly or be left.

There is a time for all things, but I didn’t know it. And that is precisely what beats so many men on Wall Street who are very far from being in the main sucker class. There is the plain fool, who does the wrong thing at all times everywhere, but there is the Wall Street fool, who thinks he must trade all the time. No man can always have adequate reasons for buying and selling stocks daily – or sufficient knowledge to make his play an intelligent play.

The desire for constant action irrespective of underlying conditions is responsible for many losses on Wall Street even among the professionals, who feel that they must take home some money every day, as though they were working for regular wages.

I have nothing to say…….

Male Organ and Economic Growth: Does Size Matter*?

Abstract

This paper explores the link between economic development and penile length between 1960 and 1985. It estimates an augmented Solow model utilizing the Mankiw-Romer-Weil 121 country dataset. The size of male organ is found to have an inverse U-shaped relationship with the level of GDP in 1985. It can alone explain over 15% of the variation in GDP. The GDP maximizing size is around 13.5 centimetres, and a collapse in economic development is identified as the size of male organ exceeds 16 centimetres. Economic growth between 1960 and 1985 is negatively associated with the size of male organ, and it alone explains 20% of the variation in GDP growth. With due reservations it is also found to be more important determinant of GDP growth than country’s political regime type. Controlling for male organ slows convergence and mitigates the negative effect of population growth on economic development slightly. Although all evidence is suggestive at this stage, the `male organ hypothesis’ put forward here is robust to exhaustive set of controls and rests on surprisingly strong correlations.

The following two charts caught my eye simply because of the congestion of price.

The need for certainty is innately human. Unfortunately, markets cannot provide this certainty so we attempt to craft it by imposing a set of predicted outcomes upon a market that cares little for our predictions. As our predictions are proved incorrect, we adjust them to suit the market thereby never having to admit that we were wrong. This is the hallmark of those with predictive methodologies. The predictions are never wrong it is just that the market did not conform to the original prediction so a new one had to be made.

The point is not that people make predictions despite the overwhelming evidence that that they are hopeless at it, but rather that people continue to listen to them despite the fact that they are invariably wrong.

This raises the question: with a new calendar year upon us what do we do? The answer to this is simple and I have distilled my thoughts for the New Year into five main points.

1. Accept all possible outcomes

It is said that acceptance is the fine line between misery and ecstasy. As a trader, you need to accept all possible outcomes; all possible defeats and all possible victories. This also means that you accept what the market is doing at any given time – railing against the market going up when you are short is pointless.

2. Anxiety exists in the past and the future, not the present

The trader need only exist in the moment. The past and the future are irrelevant. What separates the ordinary from the extraordinary is that the extraordinary do not let fear overcome them. It does not stop them from achieving what they want to achieve. Too often people are bounded not by any external constraint but by their own fear.

All of us feel fear as to be afraid is natural. To be afraid of the unknown and the unstructured is a feature of evolution and has served us well.

Fear is an effective and powerful enemy for the trader, it is also not as harmless as many people imagine. It is one of the most powerful of our foes because we can give our fears as much power as is necessary for them to overwhelm us if we so choose.

3. Dream, the power to imagine

Habitual imagery is important to what we believe about ourselves. Pessimism breeds negative expectations and negative outcomes. Optimism breeds positive expectations and positive outcomes. We have a tendency to become what we think about ourselves.

As traders you must acquire the power to believe in the possibility of all positive outcomes. Believing follows a set path.

1. The evolution of a set of intuitive responses. This is to a degree an intellectual response based upon a sequence of trials. Through this, we obtain a sequence of reinforced beliefs in our trading system and ourselves.
2. Evolution of an intuitive sequence of beliefs, this leads to the concept of faith. This is the highest level of belief. It is your belief in your ability as a trader. Most important is the faith in yourself that you can keep going in the face of adversity. My belief is that people by and large are weak and they falter at the first hurdle. The greatest skill some people possess is the ability to make excuses for themselves.

4. Recover, learn the skill of resilience

Taking risks involves the implied assumption that failure is possible but not inevitable.

When we face defeat traditionally, we encounter grief. This emotion can be handled like other emotions it merely takes appropriate strategies.

The first stage is to acknowledge that something has gone wrong. If we possess the rationality necessary to be a trader then we cannot hide from what has happened. Denial is not part of our nature. A loss is a loss and no amount of rationalization can distort this fact.

Denial gives way to anger at almost any inappropriate source. We are angry at our system, the advice we took, the black box sitting on our desk. These are all scapegoats for the true villain which is you. Your mistakes are your own.

5. Point your bum in the right direction

If there is a single technical point that will enhance your trading success it is understanding the prevailing trend in the market and pointing yourself in that direction.

Having eschewed the notion of prediction I will leave the final word to Psychic Nikki ‘astrologer to the stars’ who last year predicted that Barack Obama would be assassinated, a plane and a meteorite would collide and that the stockmarket would go up and down. What more do you need to know.

Okidoki…..apparently oil is going to $150. So file this Barrons cover away and see how they go

In the past month or so it seemed like hardly a day when by when I dont get an email from some peanut rabitting on about Rare Earth Elements (REE’s) or I notice some shonk predicting the end of the world, so you had better buy XYZ Dodgy Rare Earth Ventures. To make matters worse  some of the journals I subscribe to are carrying on about them. If I were a cynic I would be tempted to call this a bubble.

Having forgotten most of my high school chemistry and all of my uni chemistry I decided to do a bit of research to try and put the somewhat hysterical nature of the commentary into some perspective. And to be honest it is good for the old grey matter to try and work things out. Too often traders are myopic in their approach to markets and cannot see the bigger picture

The first thing to note about the elements that make up the group known as rare earths are not actually that rare. Their abundance is on a par with more well known industrial metals such as copper, zinc, lead, tin or nickel. Even the rarest of these metals  thulium and lutetium are 200 times more abundant than gold. However, the  problem with these elements is that unlike traditional metals they do not display a tendency to concentrate in ore bodies. As a result of this there has been little commercial or technological desire to prove up new reserves and to mine them until now. A consequence of this the majority of the world’s supply now comes from China – a situation that makes many uneasy. This disquiet has intensified with China seeking to preserve its supplies internally by introducing export quotas.

For those who have forgotten their high school chemistry REE’s are a set of seventeen elements within the periodic table. In uber technical terms they are the 15 lanthonoids  plus scandium and yttrium and they do all sorts of nifty things.

The current situation has arisen because of advances in technology – most of the gadgets we use in every-day life in some way makes use of the REE’s. Everything from touch screens to sophisticated magnets to head phones are in some way reliant upon these very unfamiliar elements. New clean green technologies are dependant upon REE’s. Whilst the obvious answer to the problem of supply might be to either dig more out the ground or search for substitute materials.  The problem is that finding it and digging it out of the ground is a costly and time consuming process. The mining process is also bedevilled by environmental concerns. The largest mine in the USA at Mountain Pass in California had been dormant for years due to concerns associated with the radioactive contaminants that are part of the mining process. The other alternative a  search for substitutes is at this stage fairly futile. For example Europium has been used to produce the red colour in TV’s for 50 years and we are yet to find a replacement.

The issue for traders is how to trade these metals and unfortunately they are traded via private treaty which means they are not traded on a public exchange in the same manner as say gold or copper. As such it is impossible to directly take advantage of the recent extreme price spikes.

This means that the only way for local investors to gain access is via indirect investment and it is here that is gets really quite interesting.

From what I have been able to gather domestically there are eight REE associated listed vehicles.

• Lynas Corporation Ltd (LYC)
• Alkane  Resources Ltd (ALK)
• Arafura Resources Ltd (ARU)
• Greenland Minerals and Energy Ltd (GGG)
• Navigator Reosurces (NAV)
• Kimberly Rare Earths (KRE)
• Krucible Metals Ltd (KRB)
• Hastings Rare Metals Ltd (HAS)

As can be seen from the table below the performance of these shares has been somewhat mixed over the past year with the stand out performing being Alkane which started the financial year at $0.23 and at the time of writing was sitting at around $2.00. Which is down from its high of $2.59.

As it would seem even indirect exposure to the REE’s can be profitable. However, this is generally the way with hyped up stocks – everyone jumps on the bandwagon. Now this is not a bad thing since as trend followers it doesn’t matter what form the underlying psychology of the run takes just so long as there is a run. The point to not is that this is a very hyped up market with all sorts of predictions as to what may or may not happen. These prognostications however worldly and educated they sound are simply guesses. Hence, they need to be treated as such. All that matters is that these issues have as a group been trending higher. Whether that trend continues as the dire predictions for REE’s unfold or whether it all ends in a bust will not be known until after the event.

I just like the title of this piece and the paragraph below actually sums up a lot of life in general -

“There’s no device known to mankind that will prevent people from being idiots,” said Mark Rasch, director of network security and privacy consulting for Falls Church, Virginia-based Computer Sciences Corp. (CSC)