Re: The Great Depression Ahead
- From: mg <mgkelson@xxxxxxxxx>
- Date: Mon, 22 Dec 2008 10:52:17 -0800 (PST)
On Dec 22, 8:21 am, Gary <n...@xxxxxxxx> wrote:
On Sun, 21 Dec 2008 19:41:37 -0800 (PST), mg <mgkel...@xxxxxxxxx>
wrote:
On Dec 21, 12:17 pm, Rumpelstiltskin
<PleaseDoNotReplyByEm...@xxxxxxxxxxx> wrote:
On Sun, 21 Dec 2008 09:18:35 -0800 (PST), mg <mgkel...@xxxxxxxxx>
<snip>
I think I have mentioned it before, but I used to have this mental
list of stock market investing rules. Actually, I wish I had written
them down. One of them says that one of the worst things that can
happen to an investor is to get lucky because, as you say, he will
think it's due to his ability and intelligence.
An equivalent expression I've heard is "Never confuse a
bull market with intelligence."
I regret to say I did that. Did you? If you say "no", I might
think you're lying! :-)
I had a gym teacher in the 8th grade that once told the class, "Never
tell anyone anything that's hard to believe even if it's the truth
because they might not believe you".
However, I will violate that rule by telling you I never did. One of
the reasons I never did is because I had about 3 years of (part time)
experience as a blackjack player in Nevada playing Edward O. Thorpes,
10-count system. That experience taught me that one always needs a
system and that systems usually only have a relatively small advantage
and have to work over time. The other reason is that I made all of my
big gains with my 401K program and I traded daily and made money
gradually (but consistantly) over a period of about 4 years. 401K
systems by their nature require relatively small gains or losses. So,
a person never really has a chance for a big, one-time windfall that
might mislead you into thinking you have some magic skills, etc.
I always wanted to be a pro gambler but I never had the courage to go
that route. Back in the 1960s I had a plan worked out where I would
go to Las Vegas and make a modest living at the casinos. My plan
involved working every day -- just like a regular job -- at the tables
and careful money management. I figured if I limited both my wins and
losses, I could get the odds on my side. The idea worked on a
small scale at local card and crap games, but there were not enough
to permit me to work every day.
Something else I used to do that people laugh at is whenever I had a
losing day, I would review what happened to see if it was just the
result of random event or if I had made some sort of mistake or been
lazy, etc. If I had not made a mistake, I would simply try to learn
something from the loss. If I had made a mistake by being emotional or
lazy, etc., I would look at myself straight in the mirror and say,
"You're a dumb son of bitch". That tended to keep me both motivated
and humble.
Having said all that, though, I was lucky in the following respects:
1. When I was trading, 401K programs allowed daily trading (without
charge of course).
That "without charge" always helps. Before I got an online account
in 1997, I was paying as much as $150 to a full commission broker on
the buy AND the sell. You can't do a lot of day trading with that
handicap. But I tried. When I signed up with Scottrade at $7 a
trade, I thought I was another Diamond Jim Brady.
I had done some trading with a commodity broker because the
commissions on commodity futures was a lot less than on stock. But
it was DANGEROUS.
Shortly after I retired they changed the rules to
only allow trading once per month.
2. At the time I was trading, from 1998 to 2001, there was a huge bull
market, except in 2001. In addition, I did happen to be out of the
market on 9/11, which was, to a large extent, pure luck.
I had the same thing happen. I cashed in in early 2001. It wasn't
because I was that smart, but my long term plan called for me to get
into income producing instruments at that time. I was lucky and
missed Osama's visit. .
In general, I was out of the market on 9/11 for the same reason you
were. I was getting close to retirement plus I had a rule that I
didn't fool around much with bear markets.
Me and a friend bought Thorpe's "Beat the Dealer" book hot off the
press and were probably one of the first one's to play the system. We
practiced for about 3 or 4 months and played thousands of hands and
then graphed the results on paper and hung the graphs on a wall. The
graphs showed the same results that Thorpe claimed in his book; slow,
but steady winnings based on a few percentage points advantage.
Thorpe's book did warn of cheating by casinos at blackjack, but we
ignored that chapter assuming the possibility of a casino cheating was
pretty remote, if not totally ridiculous. The reality, however, was
that we were cheated a lot. After awhile, I think the casinos probably
had our pictures.
One of the things that enticed me about the stock market was that
unlike, blackjack, for instance, one didn't have to worry about
cheating. I wasn't totally correct, however. Here's an example news
item:
"US mutual fund industry hit by fraud scandal
By Joseph Kay
10 November 2003
The latest scandal to hit Wall Street and corporate America centers on
the mutual fund industry. Several mutual fund firms, investment banks
and hedge funds have been implicated in “market timing” and illegal
late trading of mutual fund shares. These practices have benefited an
elite group of investors and fund managers at the expense of millions
of small investors.
The US Securities and Exchange Commission (SEC) and state regulators
in New York and Massachusetts have brought charges against such firms
as the mutual fund giant Putnam Investments, the brokerage firm
Prudential Securities and a series of smaller mutual fund companies.
Individual brokers and executives at some of these firms are facing
criminal charges, while the mutual funds themselves face civil fraud
charges.
Congressional hearings are currently being held, and new charges
continue to surface. What started two months ago as a settlement with
a single hedge fund has expanded to encompass large sections of the
mutual fund industry.
The charges concern manipulations made possible by the peculiar way in
which mutual funds are priced . . ."
http://www.wsws.org/articles/2003/nov2003/fund-n10.shtml
.
- References:
- Re: The Great Depression Ahead
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- Re: The Great Depression Ahead
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