An interesting brief on happiness. An Excerpt:

“Popular writers focus on the causes of happiness, but defining and measuring it is a more basic first step for the advance of a science of happiness.”

An article from Futures Magazine dated 1986 (PDF) from Tom Willis’ web site. The article titled, “Do Trading Advisors Run Into A Dollar Trading Barrier?” shows some fears have been around for quite some time.

An excerpt from “Commodities as an Asset Class”:

“Are commodities the new El Dorado for institutional investors? There are sufficient reasons for the re-evaluation of this asset class even without the significant increase in oil prices in recent years. For institutional investors there are aspects that are much more important than short-term speculative gains, such as the interesting potential of the commodities asset class in terms of correlation, diversification and protection from inflation.”

Read paper (PDF).

A good excerpt from Yahoo Finance:

The main rule for selling is to sell what you see, not what you think. This rather difficult concept is counterintuitive, because stocks often climax and fall off the cliff even while their fundamentals, earnings history and future look spectacular. Chipmaker Marvell Technology Group (NASDAQ:MRVL) breezed past Thomson First Call consensus estimates in each of the past 13 quarters, by 2% to 11%. Earnings bounded 50% or more and sales 31% and higher in the past eight quarters. Double-digit earnings and sales growth are expected through next year. Profit margins have also been strong, while cash flow has been growing. So why is the stock 52% below its all-time high?

You don’t need to know why it is 52% off its all-time high. You just need to know that it is.

Brett Steenbarger put together a list of “common reasons why traders (and most other human beings!) fall short of being fully intentional”:

1. Environmental distractions and boredom cause a lack of focus – All of us have limits to our attention span and these are easily taxed during quiet times in the market;

2. Fatigue and mental overload create a loss of concentration – The demands of watching the screen hour after hour make it difficult to be sharp, creating fatigue effects that are well-known to pilots, car drivers, and soldiers;

3. Overconfidence follows a string of successes – It is common for traders to attribute success to skill and failure to situational, external factors. As a result, a string of even random wins can lead traders to become overconfident and veer from trading plans–especially by trading too frequently and/or trading excessive size;

4. Unwillingness to accept losses – This leads traders to alter their trade plans after trades have gone into the red, turning what were meant to be short-term trades into longer-term holds and transforming trades with small size into large trades by adding to losers;

5. Loss of confidence in one’s trading plan/strategy because it has not been adequately tested and battle-tested – It is difficult to tolerate even normal drawdowns unless you have confidence in your methods. This confidence does not come from mere positive self-talk. Rather, it is a function of testing your methods (historically and in real-time) and seeing in your own experience that they truly work;

6. Personality traits that lead to impulsivity and low frustration tolerance in stressful situations – Psychological research suggests that some individuals are more impulsive than others and less conscientious about adhering to plans and intentions. These personality traits often are accompanied by stimulation-seeking and a high degree of risk tolerance: a deadly combination.

7. Situational performance pressures – These include trading slumps and increased personal expenses that change how traders trade and lead them to place P/L ahead of making good trades. By worrying too much about how much money they make, traders can no longer follow markets with a clear head;

8. Trading positions that are excessive for the account size – This is much more common than is usually acknowledged. It creates exaggerated P/L swings and emotional reactions that interfere with cool, calm planful behavior;

9. Not having a clearly defined trading plan/strategy in the first place – Interestingly, many traders do not consider themselves to be discretionary traders, but in fact do not have a firm, explicit set of trading rules that they follow. It is difficult to be consistent with a plan (and to evaluate your consistency), if you don’t have the plan clearly laid out;

10. Trading a time frame, style, or market that does not match your talents, skills, risk tolerance, and personality – All too often, traders veer from their plans because those plans are ones that they feel they *should* follow, but that don’t truly come naturally to them. These departures from discipline are actually unconscious attempts to trade in a style that is more in tune with the trader’s skills and talents.

Source: Brett Steenbarger

Barbara Dixon, a student of famed trend follower Richard Donchian, wrote twenty years ago in Commodities magazine:

Donchian is one of the most respected technicians on Wall Street – especially in commodities. He began his career on 1930 and says he became hooked on markets when read Edwin LeFevre’s fictionalized biography of Jesse Livermore, Reminiscences of a Stock Operator. His interest in technical analysis arose after he suffered some losses following the 1929 crash. This led to his discovery that only the chartists made sense and money. Donchian wrote his first market letter in 1930 at the age of 25, and Shearson’s present ‘Trend Timing’ commodity letter originated in 1960 when Donchian joined Hayden Stone. These letters have served as primers for countless commodity traders. The ‘Twenty Trading Guides’ make a fine supplement to the letters and will probably survive and prove valid for the next 44 years as well.

1. Beware of acting immediately on widespread public opinion. Even if correct, if will usually delay the move.
2. From a period of dullness and inactivity, watch for and prepare to follow a move in the direction in which volume increases.
3. LIMIT LOSSES, ride profits – irrespective of all other rules.
4. Light commitments are advisable when a market position is not certain. Clearly defined moves are signaled frequently enough to make life interesting, and concentration on these moves to the virtual exclusion of others will prevent unprofitable ‘whipsawing.’
5. Seldom take a position in the direction of an immediately preceding three-day move. Wait for one-day reversal.
6. Judicious use of stop orders is valuable aid to profitable trading. Stops may be used to protect profits, to limit losses and to take positions from certain formations such as triangular foci. Stop orders are apt to be more valuable and less treacherous if used in proper relation to the chart formation.
7. In a market in which upswings are likely to equal or exceed downswings, a heavier position should be taken for the upswings for percentage reasons – a decline from 50 to 25 will net only 50% profit, whereas an advance from 25 to 50 will net 100%.
8. In taking a position, price orders are allowable. In closing a position, use ‘market’ orders.
9. Buy strong acting, strong background commodities and sell weak ones, subject to all other rules.
10. Moves in which rails (now the Transportation Index) lead or participate strongly are usually worth following more than moves in which rails lag.
11. A study of the capitalization of a company, the degree of activity of an issue (a varying factor), and whether an issue is a lethargic truck horse like Consolidated Edison or Exxon or a spirited, volatile race horse like Teledyne (NYSE) or Resorts International (American) is fully as important as a study of statistical reports. (Volatile stocks are 1978 counterparts of two issues mentioned in 1934, Aluminum Co. of America, then on the Curb, and Case Threshing Machine, now J.I. Case, a part of Tenneco.)

I posted a quote the other day from Boone Pickens. Some more:

Be willing to make decisions. That’s the most important quality in a good leader. Don’t fall victim to what I call the ready-aim-aim-aim-aim syndrome. You must be willing to fire.
T. Boone Pickens

I’ve always believed that it’s important to show a new look periodically. Predictability can lead to failure.
T. Boone Pickens

Keep things informal. Talking is the natural way to do business. Writing is great for keeping records and putting down details, but talk generates ideas. Great things come from out luncheon meetings which consist of a sandwich, a cup of soup, and a good idea or two. No martinis.
T. Boone Pickens

Work eight hours and sleep eight hours and make sure that they are not the same hours.
T. Boone Pickens

Here are the top earners for 2005:

1. James Simons $1.5 billion – Renaissance Technologies
2. Boone Pickens $1.4 billion – BP Capital Management
3. George Soros $840 million – Soros Fund Management
4. Steven Cohen $550 million – SAC Capital Advisors
5. Paul Tudor Jones $500 million – Tudor Investment
6. Edward Lampert $425 million – ESL Investments
7. Bruce Kovner $400 million – Caxton Associates
8. David Tepper $400 million – Appaloosa Management
9. David Shaw $340 million – D.E. Shaw
10. Stephen Mandel $275 million – Lone Pine Capital

You can’t make this kind of money with short term in and out trading.

A great excerpt from Yahoo Finance by Jim Citrin:

“Participation in sports and fitness has multiple benefits for people of all ages. For young athletes and girls in particular, organized sports boost self-esteem and motivation, essential ingredients in the development of future leaders. Studies show that young athletes who are happy earn better grades, have fewer problems outside school than non-athlete classmates, have better attendance, and drop out far less frequently. Not that sport is unique to developing these qualities. Other competitive collaborative activities such as the military, theater, dance troupes, or debate teams can build them up as well. But there’s something special about the physicality of sports and fitness. Those who exercise regularly know the manifold benefits to keeping active and in shape. A lot of scientific evidence shows that exercise provides a short-term increase in the ability to process data. Exercise has also been shown to reduce depression and anxiety, illnesses that can hamper the functioning of the brain. And over the long term, exercise has been shown to help prevent the mental effects of aging.”

I have met many people in my life who were successful, however, the ones who have had sports backgrounds always seem to have something ‘extra’.

I have received feedback over the months from an old pro in the trading industry. I share some excerpts below:

Your Boone Pickens story reminds me of how lucky I am to have met some of the great ones over the years and Boone was one of them. In the mid eighties one of my trading mentors was xxx from xxx. He died a few years back but had accumulated a small fortune from trend following and his oil business. One of his neighbors was the legendary Oil wildcatter xxx. [He] had sent his Lear 25 to [my home town] to ferry me back to xxx for the day…[they] told me Bob Mosbacher and Boone Pickens were in Town visiting and we could have lunch at the country club with them if I liked. Boone was as down to earth as any man I ever met and Bob Mosbacher was a peach of a guy himself. Bob is a Texas wildcatter cut from the same cloth as Boone. Multi-million dollar deals done on a handshake type folks. I also remember Mrs. Mosbacher who was very easy on the eye and a real down to earth lady. All these guys were successful in business and trading and the thing that stuck with me through the years was how nice they were as people. Boone treated me like we were old friends I guess partly because of my relationship with xxx but he seemed truly interested in my plans to become a CTA, which I did in 1986. I guess when I met these guys the oil business had been terrible and I bet they were all broke or close to broke. Boone Pickens told me he had been broke before but never between his ears. I would relate that to some of the ups and downs we go through as traders but it is important to never be broke between one’s ears. [From my mentor] I heard several truisms that have stuck with me over the years.

#1 They don’t dedicate monuments to crowds.
#2 A man that won’t lie to his wife is no gentleman.
#3 Brokerage houses: they may be “right” but I am the one making the money.
#4 You cannot trust a man with no bad habits or a bible on his desk. If you see a picture of Jesus in his office run. xxx was a Christian but he did not trust those who wore it on their sleeve.
#5 I smoke short camels because I can smoke them faster. Of course xxx died of a heart attack brought on by his smoking habit.
#6 If you want to know what a market is going to do just put a weekly chart up on the wall and back away a distance. Whatever the market has been doing it will keep doing until it does something else. We would call that a trend although I never heard him use the word “trend” one time in 15 years but he was a trend follower.

Here is 3 month chart of Yahoo (reflecting today’s 20% drop).

Here is 1 year chart of Yahoo.

If you were not only looking at Yahoo fundamentals, was today’s move a ‘surprise’? if you were looking at the price action, were you surprised?

The exchange HedgeStreet sent me a news release the other day on binaries (PDF). A useful primer and exchange for many traders. My hope is that they will also eventually go the route of providing much longer term options like LEAPS®.