10 burglary tips for speculators

Discussion in 'Trading' started by jerryz, Jan 7, 2006.

  1. jerryz


    I thought this was interesting. From Neiderhoffer's site.

    10 burglary tips for speculators

    1. Track Records. Don't take them at face value. They often contain great rates of return. Often these are made with great results at the beginning with small amounts of money and house-generated trades. Pay strict attention to inflows and outflows. Often the "manager" can show 30% a year returns and still lose dollars overall. Beware especially of funds where the managers end up owning a large proportion of the assets. The only constant is fees, and that's the explanation. Same goes for the Sharpe ratio. A good rule of thumb: the higher the past Sharpe, the worse the subsequent expectation. Remember, the only way to get a high Sharpe is by Martingaling it. That's what casinos love. The only one who can grind is the house.
    2. Protect the entry. Just as many doors are hollow and easy prey for burglars, many entries are based on ephemeral factors with no foundation. Have a reason for all trades. Secure the trade with adequate capital so that a dealer will not be able to squeeze you out of your position without undue hardship. Remember that most squeezes are opportunistic: They follow the rule of least effort. If you're an easy target, with inadequate margin, a fixed time to get out -- "beware, oh you day traders" -- they'll squeeze you without even having to force the entry.
    3. Have adequate escape routes. You don't want to confront the enemy head on. He might be young and nervous and create a life-threatening situation. Be flexible in how you can get out. Never get cornered with just one way of getting out as this could lead to disaster. If it doesn't go your way in the expected time, will it still be good? If not, do get out.
    4. Viewing. Try to figure out who's on the other side of the door or trade. If you're trading with a bank for example, with foreign exchange do realize they make about $100 billion a year on their trades. Are you really that much smarter than they are? Of course not. Is there really going to be that much money left for you to profit from the total pool after they take theirs out? Same goes for the guys named "Doc" among the handful who still trade commodities such as rice or flax. They've been around for 75 years each, on average. In a zero-sum game, who's more likely to end up the winner? Think of the survival test popularized by Stigler, which shows that the most efficient companies and individuals are those who are most numerous and live the longest. Much better to trade on the opposite side of the ephemeral traders, the public, who invariably lose money.
    5. Vary your routines. Be sure to specinvest at different times of the day. Your adversaries are like crocodiles: They remember what you did last time, and they're not going to let you get away twice. Neither always a buyer or a seller be, except in markets where there's a drift.
    6. Don't leave clues. Don't leave newspapers or trade slips around that tell the adversary what you're going to do. Never telegraph the other side that you are a buyer or seller before entering the trade. And whatever you do, make sure that your positions are fungible so you can get out with any other counterparty -- not the original one you have the position on with, like you have to do most of the time in foreign exchange or options where the other sides know what your positions are at all times. Just as it's good to have neighbor park in your driveway when you're away, it's good to place other trades through your account so that the other side won't know at all times which way you're going and what you're planning to do.
    7. Create the illusion of security. Always remember that the adversary is guided by opportunism and least effort. If he thinks just a few ticks or few million bucks will cause you to exit, or be tripped on such things as a barrier option, you're gone. Send money to the clearing firms promptly, and always take the calls of your counterparties even when you're in the hole, of they'll know you're on a trip to ruin.
    8. Keep a routine mien. Just as the homeowner should always keep some shades and blinds up, the specinvestor should always have a semblance of activity even when petrified with a terrible position. Call for a quote in normal everyday routine. And whatever you do, never leave a message on your answering machine that you're out of town (or can't meet a call).
    9. Lock the door to attached trades. A cascading series of losses can do you in just as surely as poor security on your main positions. I heard of a trader who could have made a fortune on options and U.S. stocks in 1997 if he hadn't been hit with a cascading loss when the enemy broke into his positions in southeast Asia. Burglars often enter through garages; the positions you're not as concerned about are much worse secured than the main ones.
    10. What to do after the burglary. No matter what I say, let's face it: We are going to be victimized. After the specdectomy has occurred, don't rush right back into the market. The adversary might still be there. And they are better armed and prepared than you. Once burned is enough. Take a break. Go to a neighboring house and call the Specbusters for advice.
  2. where is neidorhoofs site?
  3. thanks ripley
    neat site :D
  4. this is by far the best site I have EVER been to about investing

    thanks marketsurfer,ripley :)

    ANy other sites similar to these blogs/ thoughts from other big investors?
  5. jerryz


    Victor: Any trend that exists can be quantified and its departure from randomness can be measured with the usual statistical procedures, such as confidence intervals and likelihoods. Serial correlation coefficients, regression coefficients of current changes versus past changes, and magnitudes of the impact of past moving averages on the future, distributions of the length of runs, the correllelogram, the expected waiting times between peaks and valleys, survival statistics. All these techniques are very good at discovering any non-random elements.

    Is anyone familiar with these measures?

  6. sure. here's a primer on statistics. perhaps someone else can share other resources.....


  7. And for the burglar/speculators out there, Mr. Neiderhoffer might suggest, based on painful personal experience, that when the lights come on you should stop filling your bags with loot and get the hell out.
  8. Pekelo


    I think this is a giant missconception most of the time. It is possible that in Forex or in certain other markets it is important to know who is on the other side, but if you are trading with the trend you are making money anyway. When my indicator predicts that the market is going to fall, I don't care who is on the other side as long as he is buying from me when I am shorting.

    Also you might don't know the reason why the other side does what it does. Maybe they are hedging or they need cash that is their reason for selling, you just don't know. They might do one thing in one market but they also do almost the opposite in another one.

    Also the other side can be (and they are frequently) wrong. Several big trading entities are losing money.

    If everybody would watch and follow what the "big boys" do there would be no market...
    #10     Feb 4, 2006