It's difficult to trade sucessfully

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It's difficult to trade sucessfully

Postby deaddog » 10 Oct 2011 15:43

Shakespeare wrote:I have a theory that wide-market indexing is inefficient in Toronto because of the large number of cyclicals. You make money on cyclicals by trading, not buying-and-holding - but it's difficult to trade them sucessfully.

So I don't include resources or materials in my portfolio. (Or RIM/NT).


Shakes: Care to expand on why you find it difficult to trade them successfully?

Is it difficulty in finding entries and exits or is it difficulty in controlling the most human of emotions, fear and greed?

At one time the expenses involved, brokerage fees and taxes, took quite a bite out of profits but with today’s registered plans and deep discount brokers it cost very little to play the game.

I know that studies have shown that the majority can’t beat the market by trading but the minority can. What are they doing different than the crowd? Is it a skill that can be learned?
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Re: It's difficult to trade sucessfully

Postby travesty » 10 Oct 2011 15:55

Sorry, which studies show that a minority can beat the market consistently?
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Re: It's difficult to trade sucessfully

Postby ockham » 10 Oct 2011 16:03

deaddog wrote:
I know that studies have shown that the majority can’t beat the market by trading but the minority can. What are they doing different than the crowd? Is it a skill that can be learned?

And, year over year, is the membership of said minority the same, or does it change??
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Re: It's difficult to trade sucessfully

Postby blonde » 10 Oct 2011 16:40

I know that studies have shown that the majority can’t beat the market by trading but the minority can. What are they doing different than the crowd? Is it a skill that can be learned?


1) Investing is an ART. Having the Luck-Gene/s in the gene-pool helps most of the time.

2) If you want to predict the future it is best to Create-It yourself. Being in the Loop helps most of the time.

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Re: It's difficult to trade sucessfully

Postby deaddog » 10 Oct 2011 18:34

travesty wrote:Sorry, which studies show that a minority can beat the market consistently?


Not sure. But if 90% fail I assume that 10% are successful.

travesty wrote:Sorry, which studies show that a minority can beat the market consistently?

Again I have no reference but I see no reason why they can’t. Market Wizards, all three books give examples of traders that have market beating records. And no I don’t know what they are doing today.

Sorry guys I have no academic studies to back up my statements.

The main question is why traders cannot beat the market. If we can figure out what why they are not successful then possibly by not doing what they are doing we can beat the market.
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Re: It's difficult to trade sucessfully

Postby Sensei » 11 Oct 2011 09:19

Hi,

I'd have to agree with Shakespeare's theory:

I have a theory that wide-market indexing is inefficient in Toronto because of the large number of cyclicals. You make money on cyclicals by trading, not buying-and-holding - but it's difficult to trade them successfully.


I would also add that the cyclical companies in Canada are too small to be any worthwhile buy-and-hold candidates either singly or in mfs. Buying and holding cyclicals works better with very large cap companies that can weather the downs and these are located outside Canada.

Most of the studies on beating the market have been done on active fund managers mainly because their records of achievement are so publicly available. Some examples are discussed Here Estimates range from a high of 15% beating the market to a low of 0.6% when the false discovery rate is applied (all successful active fund managers with dumb luck managers stripped out.)

I don't know of any studies on individuals, but I imagine that a lot of investors, me included, never think about 'beating the market' and we just look for positive returns and /or sustainable and growing dividends. Beating the market seems more like a 'discussion' topic for the high testosterone crowd. I'm just try to get an income together before I have to retire. Also, being a pacifist, I prefer to work in cooperation with the market, not 'beat it'. :wink:
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Re: It's difficult to trade sucessfully

Postby deaddog » 11 Oct 2011 11:21

Let me rephrase the question?

Why is it difficult for an individual to trade successfully?
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Re: It's difficult to trade sucessfully

Postby Rickson9 » 11 Oct 2011 11:38

deaddog wrote:Why is it difficult for an individual to trade successfully?


What definition of "trading" are we working with here?
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Re: It's difficult to trade sucessfully

Postby Shakespeare » 11 Oct 2011 11:51

What I posted was that it was difficult to trade cyclicals successfully, actually. That is not the title of this thread.
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Re: It's difficult to trade sucessfully

Postby kcowan » 11 Oct 2011 12:12

I know a guy (friend of a friend) who spends about 5 hours a day trading. He uses professional tools to assist in decision-making and claims to make $1500 a day. I have not pursued him on his claims because I have no interest in another day job.
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Re: It's difficult to trade sucessfully

Postby Taggart » 11 Oct 2011 12:33

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Re: It's difficult to trade sucessfully

Postby Shakespeare » 11 Oct 2011 12:37

There's also Sharpe's The Arithmetic of Active Management, from which it follows that only a minority can make after-cost trading profits compared to the market as a whole.
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Re: It's difficult to trade sucessfully

Postby AltaRed » 11 Oct 2011 19:15

Shakespeare wrote:There's also Sharpe's The Arithmetic of Active Management, from which it follows that only a minority can make after-cost trading profits compared to the market as a whole.

I doubt that it can be done by anyone on a sustained basis. If so, there should be several billionaire traders out there promoting themselves.
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Re: It's difficult to trade sucessfully

Postby deaddog » 11 Oct 2011 19:26

Rickson9 wrote:What definition of "trading" are we working with here?

Making money with capital gains. Buying undervalued stocks and selling them when they become over valued. Buying a momentum stock and selling after it goes up. Taking small losses and big profits. Not necessarily day trading. Market timing.


Shakespeare wrote:What I posted was that it was difficult to trade cyclicals successfully, actually. That is not the title of this thread.

Well OK why do you, specifically you, find it difficult to trade cyclicals

kcowan wrote:I know a guy (friend of a friend) who spends about 5 hours a day trading. He uses professional tools to assist in decision-making and claims to make $1500 a day. I have not pursued him on his claims because I have no interest in another day job.

Not really relevant, I’d be more interested in someone who failed and specifically why he failed.

Haven’t had time to read all the studies but they seem to use average returns. In the first one the buy and hold investor averaged better than the trader. The reasons given for the poor performance were; Commission costs, over confidence and holding losers and selling winners.
Commission costs are now much lower; As traders we should be able to plan around the other two.
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Re: It's difficult to trade sucessfully

Postby newguy » 11 Oct 2011 19:47

AltaRed wrote:I doubt that it can be done by anyone on a sustained basis. If so, there should be several billionaire traders out there promoting themselves.

Not really if you think about it. The big traders have size to worry about. The public money traders have reputation and day to day performance to worry about. The small trader has only himself to worry about and they don't really publicize very much. There are places you can find out about such things but the consistent traders are usually small and take their profits out before getting too big.

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Re: It's difficult to trade sucessfully

Postby Shakespeare » 11 Oct 2011 19:49

find it difficult to trade cyclicals
To do so successfully requires forecasting the price of (say) oil successfully - twice.

Even the professionals can't do that reliably.
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Re: It's difficult to trade sucessfully

Postby AltaRed » 11 Oct 2011 20:16

Shakespeare wrote:Even the professionals can't do that reliably.

No, but I do remember you saying some time ago (years perhaps) that the time to buy cyclicals was when P/E was high on a relative basis, not low (with other considerations of why P/E was high of course, i.e. not because of a speculative startup). I don't think many understood that at the time. Cyclicals have huge earnings swings and a high P/E typically results when earnings are deep in the doo-doo. This means buying at maximum pessimism, i.e. when oil (or NG) is in the dump. Professionals have a hard time doing that because their names are 'mud' until cyclicals come out of their funk. Few can stand public/media/analyst pressure that long.
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Re: It's difficult to trade sucessfully

Postby Shakespeare » 11 Oct 2011 20:22

I do remember you saying some time ago (years perhaps) that the time to buy cyclicals was when P/E was high on a relative basis
That's correct for industrial/manufacturing cyclicals. I don't know how well it holds for resource cyclicals.
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Re: It's difficult to trade sucessfully

Postby AltaRed » 11 Oct 2011 20:28

Shakespeare wrote:
I do remember you saying some time ago (years perhaps) that the time to buy cyclicals was when P/E was high on a relative basis
That's correct for industrial/manufacturing cyclicals. I don't know how well it holds for resource cyclicals.

Works similarly (except for speculative juniors of course). ECA could be considered a buy now due to low NG prices. One may have to wait a year or two to get $30+ (again) out of it.
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Re: It's difficult to trade sucessfully

Postby Rickson9 » 11 Oct 2011 22:22

deaddog wrote:
Rickson9 wrote:What definition of "trading" are we working with here?

Making money with capital gains. Buying undervalued stocks and selling them when they become over valued. Buying a momentum stock and selling after it goes up. Taking small losses and big profits. Not necessarily day trading. Market timing.


Is there a time component in there? I mean, I literally do all of the things that you mention (except selling when over valued), but most individuals would not call me a trader because I hold stocks for more than 10 years.

1. I attempt to buy 'undervalued' stocks
2. I attempt to take small losses and big profits
3. My buys appear on the surface to be market timing (buying during crashes)

It would appear that I have all the characteristics of a 'trader'?
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Re: It's difficult to trade sucessfully

Postby Sensei » 12 Oct 2011 00:11

Hi,

Deaddog, may I ask if you are playing devil's advocate here?

I would describe myself as an investor, but I'd stop short of saying that I'm a robotic buy-an-hold type. I would describe you as a trader rather than an investor. FWIW, I read your system quite carefully some months back and I think I could implement it and make money at it. Whether I could beat the market or not, I can't say. Are you beating the market and, if so, which one?
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Re: It's difficult to trade sucessfully

Postby deaddog » 12 Oct 2011 11:28

Rickson9 wrote:It would appear that I have all the characteristics of a 'trader'?

I guess you could be considered a long term trend follower with no risk control.
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Re: It's difficult to trade sucessfully

Postby deaddog » 12 Oct 2011 11:30

Sensei wrote:Hi,

Deaddog, may I ask if you are playing devil's advocate here?

I would describe myself as an investor, but I'd stop short of saying that I'm a robotic buy-an-hold type. I would describe you as a trader rather than an investor. FWIW, I read your system quite carefully some months back and I think I could implement it and make money at it. Whether I could beat the market or not, I can't say. Are you beating the market and, if so, which one?

I don’t think I’m arguing just for the sake of argument. I like to challenge conventional thinking.

When I someone says that something can’t be done, yet people seem to be doing it, you have to wonder about their perspective. I have to ask why can’t I do it.

Yes I would consider myself a trader. I will hold stocks for a long period of time if they continue to perform. For the most part my positions are long. I get out of the market when it trends against me.

I don’t know if I’m beating the market or not. My objective is to make more money every year than I could make with a dividend portfolio. That much I'v been able to accomplish. Right now I’m 100% cash in my trading account and have realized gains of 9.8% for the year. My dividend account which I trade or should I say rebalance by chasing yield is down 9%.
However the objective of the dividend account is to give me a better return than term deposits with a better tax treatment.
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Re: It's difficult to trade sucessfully

Postby StuBee » 12 Oct 2011 11:56

I really doubt that you can beat the market. Some people do but I think that they are lucky. Luck tends to be whimsical. It comes and goes... IMHO, the only reason markets go up is because the world is getting bigger either absolutely (greater population) or relatively (more "wants/needs" per person). I do not consider myself a trader. If, over the long-term, my portfolio is rising it is simply because I am sitting on a train going up and (during the accumulative phase) buying as I go along.

And, frankly, my returns have not been stellar: My 15 year CAGR is 6.5% compared to my benchmark which is 7.7%. I am not complaining here but simply stating my reality.

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Re: It's difficult to trade sucessfully

Postby deaddog » 12 Oct 2011 12:13

StuBee wrote:I really doubt that you can beat the market. Some people do but I think that they are lucky. Luck tends to be whimsical. It comes and goes... IMHO, the only reason markets go up is because the world is getting bigger either absolutely (greater population) or relatively (more "wants/needs" per person). I do not consider myself a trader. If, over the long-term, my portfolio is rising it is simply because I am sitting on a train going up and (during the accumulative phase) buying as I go along.

And, frankly, my returns have not been stellar: My 15 year CAGR is 6.5% compared to my benchmark which is 7.7%. I am not complaining here but simply stating my reality.

StuBee

Why would you invest in anything other than the market? Why not buy an index fund or ETF.
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