Charlie Munger opines (PDF):

I think the reason why we got into such idiocy in investment management is best illustrated by a story that I tell about the guy who sold fishing tackle. I asked him, “My God, they’re purple and green. Do fish really take these lures?” And he said, “Mister, I don’t sell to fish.”

I might have major beefs with Munger’s tight relationship with Washington (see: Trend Commandments), but that is nice insight into why market bubbles never stop and disco once ruled.

Source: Barry Ritholtz & Interloper.

It does not matter if you’re trading stocks or soybeans. Trading is trading, and the name of the game is to make money, not get an A in “How to Read a Balance Sheet.”

Technical analysis, the other market theory, operates in stark contrast. It is based on the belief that at any given point in time, market prices reflect all known fundamentals for that particular market. Instead of trying to evaluate fundamental factors, technical analysis looks at market prices themselves.

Wise investment choices for the new year:

Trend Commandments
The Little Book of Trading
The Complete TurtleTrader
Trend Following
Broke: The New American Dream

What are you reading and watching?

Note: Yes, a re-post for the new year!

FAQs:

What makes the TREX system different?

The core is money management. Within the system you have the ability to turn money management on/off. It makes a huge difference. Here are a few hypothetical examples:

Without Money Management:
Corn: $22,125.00
Sugar: $52,016.00
Japanese Yen: $86,187.50

With Money Management:
Corn: $107,450.00
Sugar: $158,422.00
Japanese Yen: $167,362.50 [disclaimer below]

You can trade minis, full-size contracts and choose your level/risk per trade, etc. It is 100% plug-and-play into the TradeStation® platform. Backtested results assume a maximum risk per trade of $4,000. You can change the $4000 to any number you want.

Do I need to use TradeStation® for brokerage services if I buy the code?

No. You can use the code without having a brokerage account with TradeStation®. Our software package is available for purchase alone. TradeStation’s® fees are here.

Do I need real time data to run the system?

No. The system runs on end of day data. You do not need real time data.

Can I customize the system to my parameters?

Yes. You can customize many of the variables and money management settings in the system code. Two people can run the same code and have different results. Why? Risk tolerances are not universal. People have different appetites.

Can I add markets not shown on the examples page?

Yes. We include a sample of these markets in the trading logic manual provided with the system.

What is included?

Each purchase includes the trading system program, open code, and a manual describing how to use and modify our TradeStation® trend following system.

Disclaimer: Trend Following℠, TurtleTrader® & TurtleTrader.com® provides analytical tools, research and trading systems. Company programs are for trend following trading training and managed futures educational purposes only. Testimonials included may not represent typical results. Neither unique experiences, past performances, historical tests, nor included or accessible strategies constitute recommendations or guarantee future results. Users are solely responsible for selection of stocks, currencies, options, commodities, futures contracts, strategies, and monitoring their brokerage accounts. The Company, its subsidiaries, employees, and agents do not solicit or execute trades or give investment advice, and are not registered as brokers or advisors with any federal or state agency. For more information about commodities and futures trading, please see the Commodities Futures Trading Commissions web site at www.cftc.gov. Trading in forex, stocks, futures and options is speculative in nature and not appropriate for all investors. Investors should only use risk capital that they are prepared to lose when trading forex, stocks, futures, and options because there is always the risk of substantial loss. Clients should fully examine their own personal financial situation before trading

From Richard Russell:

Once the Dow breaks under 10,000, I believe that the analysts and the PUBLIC will become frightened and start to cut back on their buying. The newspapers will halt their bullish stance, and a great stillness will envelope that land. That stillness will be the result of shock as it dawns on Americans that they are seeing something far different than what they were expecting.

Russell has seen much, and has wisdom that comes from nearly 90 years, but market betting on predictions is tough living. In terms of his overall economic and political views? He might very well be right, but that’s not enough for market profit. You can be right about markets and still lose money. Think about it.

Richard Russell writes:

At the La Jolla Rehab Center, I still read 10 papers and maybe 25 magazines every week, and let’s be honest. The news is so confusing that it is absolutely impossible to come to any sort of intelligible conclusion. I’m embarrassed to say that for the first time in six decades I don’t really know what’s going on. The Dow, the last few months has traveled thousands of points and ended up nowhere — actually as of yesterday’s close the Dow and the S&P were down for the year showing net losses for all the frantic activity. My advice, is to stay with gold, some cash, and Permanent Portfolio (PRPFX). I also think silver is particularly interesting here, and I advise the purchase of 10 oz silver bars. Buy them and pile them up in your bank vault.

The news is always confusing. That is simply not a new phenomena.

Russell has some great thoughts, but sometimes he mixes in views that dramatically confuse sound trend trading principles. Internal consistency is absolutely key for survival.

This is a great example of predictive technical analysis. That means language like:

The market just failed a test by breaking down out of the triangle formation, but the technical damage is not serious, and a decline to the 1175 area to clear intermediate-term overbought conditions could be absorbed without major technical damage being done. On the other hand, if the ultra-short-term oversold spikes have produced sufficient internal compression, yesterday’s breakdown could prove to be the final shakeout preceeding a new rally. In any case I view the recent decline as a correction within the rally that began in October.

Trend following is not that. It is reactive technical analysis.

Big difference?

One attempts to predict (impossibly unreliable) price moves and the other reacts to and follows price moves (decades of proof). What will you choose?

More here:

From The Little Book of Trading:

Kevin Bruce is living proof that there is no need to be in New York, London, or Chicago–flaunting a sharp business suit and trading in a sky rise. Bruce is a small-town guy from Georgia with no ancestral connection to Wall Street, who has not only made it on Wall Street but conquered it. Heed his path.

Bruce spends his time far away tucked in quiet spots in Richmond, Virginia. He works out six times a week at his local YMCA, and still drives his 1996 Ford pickup. With a net worth of nearly $100 million, he prefers to live life just as he always did before making that fortune. He is low profile. Most people have no idea of his wealth. He says, “I guess that means I’ve done a pretty good job of just being me.”

More:

While Bruce was crafty in his early trading, almost tripling his initial seed money, he was really crafty in the way he built up his $5,000 nest egg. When he was about 15, he started the practice of packing a lunch and taking it to school. The cafeteria food wasn’t great, but he could buy a lunch for just 35 cents. Bruce would meet other kids in the bathroom daily and auction off his home-style lunch. He would then eat the cafeteria lunch–and would usually net about $2. Nice trade!

Inspirational? Yes, absolutely.

Of course, you could always grab a tent, your best protest vibe and head to lower Manhattan to live at Occupy Wall Street. However, I am willing to bet the next Kevin Bruce is not hanging out there.

I wonder if the general public will ever really allow themselves to understand that the talking heads, the opinion makers, and the market prediction gurus are not the path to increased profits? The Internet has become a massive pool of opinion attempting 24/7 to explain the market spike of the day. How does all of that translate to profit? It doesn’t.

Right now, today, this chart is very true:

Will it always hold? Who knows.

That’s life right now: up, down, up, down. Will it always be that way? No. Eventually sideways and choppy will move to clearer up or down sustained trends. From there it might go choppy to trends to bigger trends to choppy. How can you take advantage of this phenomena to make money? First step: never try to predict anything.

—

“Prediction is very difficult, especially about the future.”
Niels Bohr
Danish physicist (1885–1962)