Some key questions asked by Brett N. Steenbarger, Ph.D. in his ‘A Trader’s Self-Evaluation Checklist’?

Are trading losses often followed by further trading losses? Do you end up losing money in ‘revenge trading’ just to regain money lost? Do you finish trading prematurely when you’re up money, failing to exploit a good day?

Do you cut winning trades short because, deep inside, you don’t think you’ll be able to make large profits? Do you become stubborn in positions, turning small losers into large ones?

Is trading making you happy, proud, fulfilled, and content, or does it more often leave you feeling unhappy, guilty, frustrated, and dissatisfied? Are you having fun trading even when it’s hard work?

Are you making trades because the market is giving you opportunity, or are you placing trades to fulfill needs — for excitement, self-esteem, recognition, etc. — that are not being met in the rest of your life?

Nice.

A comment from here:

“They have been unable to increase lending. Our fiscal operations have been largely targeted on the same markets – the lending markets. Unfortunately, the crux of this problem does not reside at the banking level, but rather the consumer level.”

True, and while I prefer tax cuts and small business targeting (if the government has to have a hand), I am afraid no one or no group can force this economy to spark for some basic reasons:

1. Too much capacity across all aspects of real estate. Not changing any time soon. We overbuilt for a gold rush that was only here as long as some bubble (any bubble) stayed in place. Pop.

2. Since 1995 two bubbles (dot con and real estate) gave everyone the belief that they could get rich overnight. That motivation was huge! It’s gone. What could possibly get the animal spirits of millions gearing up again to get rich? What new bubble? Time travel? Life extension? It sure as h*** is not alternative energy.

3. Our greatest invention, the internet, is arbitraging away typical ‘jobs’ at breathtaking speed. Can’t stop it. Genie is out of the bottle.

Now what? No central planning from whatever group can fix what ails us and if you are waiting for a fix — you are going to lose many years off your life. In terms of getting ahead, it’s every man for himself — whether we admit it or not.

Bernard Drury of Drury Capital writes in his May 10 newsletter:

“While trading losses are never welcome, we know that encountering price corrections is an intrinsic part of trading these markets. As ever, [our] Program employs a disciplined approach to trade selection, position sizing, portfolio balancing, and equity protection when adverse market conditions are encountered. During a period when markets are behaving in a manner contrary to positions, [our] Program gradually reduces risk in a systematic manner. In some cases, positions in the opposite direction of the original trend may be established, even while some trades in the same sector are still positioned in the original direction. It is a dynamic process that responds continuously to changes in market conditions.”

Wise insights from a long time trend follower who I was fortunate to spend time with.

From WSJ this week:

“Hedge funds known as trend followers – which chase market movements, rather than making fundamental investment decisions – also appear to have been hurt on bad trades.”

Notice the not so subtle slap against trend following above. It’s the cavalier and reckless sounding “chase” versus the wise and stoic sounding “fundamental investment decisions.”

Also, I notice the emotionally charged use of “bad trade.” What was the bad trade? A preset loss to take that trend followers knew about in advance of ever entering the position?

I grew up watching the Baltimore Orioles and can still pretty much from memory name their starting teams from the late 70s and early 80s Their manager at the time Earl Weaver, and he won a ton, believed in the home run (from my book ‘Trend Following’):

“Earl Weaver designed his offenses to maximize the chance of a three-run homer. He didn’t bunt, and he had a special taste for guys who got on base and guys who hit home runs.”

Some classic Earl (NSFW or kids):

Shout out to Jeff Anderton.

From Fannie Mae:

“Fannie Mae exists to expand affordable housing and bring global capital to local communities in order to serve the U.S. housing market. Fannie Mae has a federal charter and operates in America’s secondary mortgage market to enhance the liquidity of the mortgage market by providing funds to mortgage bankers and other lenders so that they may lend to home buyers. Our job is to help those who house America.“

And from Bloomberg:

“The bailout of Fannie Mae (FNM) and Freddie Mac (FRD), already the largest on record, could reach $1 trillion. Fannie and Freddie, 80 percent-owned by taxpayers, hold or guarantee 53 percent of the nation’s $10.7 trillion in residential mortgages. Their federal regulator is having them delist their shares, which have been trading for about $1 each, from U.S. stock exchanges. As of Mar. 31, borrowers were late on $338.4 billion worth of loans, up from $206.1 billion a year earlier. The companies have drawn $145 billion from an unlimited government line of credit.”

Fannie Mae says their job is to help those who house America. Pardon me. Who else is helping them in this mythological secondary mortgage market?

This came into me:

“Dear Mr. Covel, Being actively involved in Trading/Investment industry you might be interested in becoming aware of 11 new scientifically researched Elite Patterns for ETFs and stocks. Specialness of these patterns is that they potentiate great profit in a short period of time. More than 12 million intraday sessions for ETFs, leveraged ETFs and stocks were analyzed before Elite Patterns were selected. Instead of analyzing traditional patterns, researchers used raw data, i.e. one-minute price and volume data, to discover highly profitable intraday patterns. Addressing you as a trading/investment professional we consider you would like to try a W-long pattern on our website for free. We appreciate your business opinion and looking forward to your feedback.”
Cordially,
xxx

Ahem…bullshit.

From William Eckhardt:

“An important feature of our approach is that we work almost exclusively with price, past and current. One reason for this is that to make any progress in the early stages of quantitative investigation you usually have to reduce the relevant factors to one or two crucial variables. Price is definitely the variable traders live and die by, so it is the obvious candidate for investigation. The other reason is that in a system that’s making good use of price information, it is very difficult to add other information without degradation. Pure price systems are close enough to the North Pole that any departure tends to bring you farther south.”

More from a conversation never heard on CNBC:

“Many systematic traders spend the majority of their time searching for good places to initiate. It just seems to be part of human nature to focus on the most hopeful point of the trading cycle. Our research indicated that liquidations are vastly more important than initiations. If you initiate purely randomly, you do surprisingly well with a good liquidation criterion. In contract, random liquidations will kill the best system.”

More from Eckhardt can be found in my 2nd book.

Real estate seems to be in trouble again as evidenced by here and here. However, I still love the logic from a critic of my film:

“Actually, all houses WILL eventually regain their value. It will be the very simple combination of eventual market stabilization and inflation. It’s why even with a burst bubble, my modest home is worth twice what I paid for it—because I bought it 11 years ago. It’s why all homes in 5 or 10 years will be worth more than they are today.”

There are sheep in my film for a reason.

Buy the film.

High res film posters.

Put aside everything.

If you want to trade, be a trend follower, but let’s put that aside for a second too.

When does the economy recover? I don’t see it. On the backs of iPhone sales and tequila shots (no one ever stops drinking even when the economy is dead)?

Not happening. Let’s be straight. It all comes down to the millions upon millions of people who believe two precepts:

1. Real estate always goes up.

2. Stocks always go up.

When those people have their Aha! moment — we will be at the tipping point. “But, Mike the President talked about getting rid of fossil fuels soon and that will create millions of jobs.”

Look. I see pigs flying.