If you are starting to trade the markets, then you have to ask yourself this question, “Are you a gambler or a professional trader?”
This blog is for those who wish to approach trading professionally. In a sea of techniques that teach you how to become a professional trader, the core qualities for the trader remain the same time-tested methods of learning, acquiring skills, and educating oneself.
Reading about the experiences of successful traders of the past and the present can be immensely valuable in this journey.
Several books exist that document the journey of people who have made it big in trading.
These books can pave a pivotal role in educating and equipping those who undertake this journey to develop their personalities and trading styles.
The author in these blog posts endeavors to go through top trading books with critical takeaways, meaningful insights, and essential Quotes that can provide the tools for building trading strategies and building a mindset/perspective essential for being successful in the markets.
Since human psychology remains the same, it makes these timeless books tales that will enrich your life and your portfolio.
Let’s dive right in:
Top 10 Trading Books
Reminiscences of a Stock Operator
Reminiscences of a Stock Operator was first published in 1923; it is the autobiography of “Jesse Lauriston Livermore,” a famous Wall Street speculator.
Central Theme
Fear, greed, hope, and ignorance will drive the markets as long as humans make trading decisions.
The book can be divided into three parts:
- The first part starts with the early years of Livermore’s life during 1890 to 1910 where he is involved in playing the bid-ask spread on leverage of 100 to 1
- The second part deals with the author’s journey and the New York Stock Exchange, where the author gets liquidated many times because of using leverage
- The third part of the book gives details of how market manipulation worked and how the author used it for his own advantage before US SEC was created
Key Takeaways:
1. If traders are going to engage in the markets, then they should not listen to anyone and develop their own system.
2. When the corporate or government assures the masses that “nothing is wrong”, then get your money and run. When the insiders announce nothing but are buying, then the trader should be buying.
3. It is when traders think about who is buying and who is selling what quantity in this batch and what quantity in total at what time. That is where the real story is.
4. Whatever happens in the stock market today has happened before and will happen again.
5. Men who can both be right and sit tight are uncommon. Patience is a virtue that is rewarding in the markets. Waiting for the right setups is essential.
6. Markets do not beat you, it is you who beats you. So conquer your mind first and then think about concurring the markets.
7. Analyse your mistakes and learn from them. Do not make the same mistake again. The variety of mistakes one can make is infinite, the idea is to minimize the spectrum of those which you are more likely to make repeatedly.
8. The professional trader are essentially concerned with playing their system repeatedly rather than making money. Money is the by-product of using their system
9. When you know what not to do to lose money, you begin to learn what to do to win.
Noteworthy Quotes
“It is inseparable from human nature to hope and to fear. In speculation, when the market goes against you, you hope that every day will be the last day—and you lose more than you should have you not listened to hope—to the same ally that is so potent a success-bringer to empire builders and pioneers, big and little. And when the market goes your way, you become fearful that the next day will take away your profit, and you get out—too soon. Fear keeps you from making as much money as you ought to. The successful trader has to fight these two deep-seated instincts. He has to reverse what you might call his natural impulses. Instead of hoping, he must fear; instead of fear, he must hope.”
“If the unusual never happened there would be no difference in people and then there wouldn’t be any fun in life. The game would become merely a matter of addition and subtraction. It would make of us a race of bookkeepers with with plodding minds. It’s the guessing that develops a man’s brainpower. Just consider what you have to do to guess right.”
“A trader gets to play the game as the professional billiard player does—that is, he looks far ahead instead of considering the particular shot before him. It gets to be an instinct to play for position.”
“A trader, in addition to studying basic conditions, remembering market precedents and keeping in mind the psychology of the outside public as well as the limitations of his brokers, must also know himself and provide against his own weaknesses. There is no need to feel anger over being human.”
Source (Reminiscences of a Stock Operator – Jesse Livermore.)
Market Wizards by Jack D. Schwager
What do the best investors/traders of all time have in common between them? What separates them from the vast majority of unsuccessful investors? How do the world’s most successful traders amass tens, hundreds of millions of dollars a year?
In his 1989 classic, Jack Schwager sets out to answer these questions in a series of interviews. Top Traders/Investors sharing wisdom in this book include Bruce Kovner, Richard Dennis, Paul Tudor Jones, Gary Bielfeldt, Ed Seykota, Larry Hite, Michael Steinhardt, William O’Neil, David Ryan, Marty Schwartz, James B. Rogers, Jr, Mark Weinstein, Tom Baldwin, Tony Saliba, Dr. Van K.
Central Theme
- Through interviews, this book seeks to answer, How the world of finance works
- The book covers a wide variety of trading techniques. It also covers various markets (treasuries, futures, commodities etc.).
- The book also sheds light on these successful traders’ traits and characteristics.
- All the successful traders seem to have this formula in common:
- Solid methodology + Proper mental attitude = trading Success
- Solid methodology + Proper mental attitude = trading Success
- The book explains how beliefs, mental states, and mental strategies affect one’s ability to trade successfully.
- All traders have a unique style of trading. They have made their systems which are best suited to their personalities, then use technical analysis and fundamentals to make trades.
- Most claim their losses result from not following their own rules.
Key Takeaways:
1. All those interviewed have a driving desire to become successful traders, in many cases, overcoming significant obstacles to reach their goals.
2. It was seen that all the traders have immense confidence in their back-tested systems. and they seem confident that they will succed in the market with their strategies
3. Significantly, discipline was the word most frequently mentioned. They all love what they are doing.
4. All the top traders approach trading very professionally and spend significant time of the day either analysing or trading.
5. Risk management is critical elements in the trading strategy of virtually all those interviewed.
6. Patience is the key to trading and waiting for actionable setups to occur is essential before trade is taken
7. The importance of acting independently of the crowd was frequently emphasized.
8. All top traders understand that losing is part of the game.
9. Always question yourself and your ability. Do not ever feel that you are perfect. The second you do, you are dead.
10. Expect the unexpected in the markets, expect the extreme. The unexpected and the impossible happen now and then.
Noteworthy Quotes
“Being a trader is like being a boxer: Every now and then, the market gives you a good wallop. After twenty years you get a bit punch-drunk.”
“At the beginning, trade small because that’s when you are as bad as you are ever going to be. Learn from your mistakes.’
“He taught me that trading is very competitive and you have to be able to handle getting your butt kicked. No matter how you cut it, there are enormous emotional ups and downs involved.”
“First of all, never play macho man with the market. Second, never overtrade. My major problem was not the number of points I lost on the trade, but that I was trading far too many contracts relative to the equity in the accounts that I handled.”
“Mr. Stupid, why risk everything on one trade? Why not make your life a pursuit of happiness rather than pain?”
“I am always thinking about losing money as opposed to making money. Risk control is the most important thing in trading.”
“Don’t ever average losers. Decrease your trading volume when you are trading poorly; increase your volume when you are trading well.”
“If you have a losing position that is making you uncomfortable, the solution is very simple: Get out, because you can always get back in. There is nothing better than a fresh start.”
“You should have the attitude that if a trade loses, you can handle it without any problem and come back to do the next trade. You can’t let a losing trade get to you emotionally.”
The New Market Wizards: Conversations with America’s Top Traders by Jack D. Schwager
In The New Market Wizards, successful traders relate the financial strategies that have rocketed them to success, as well as the embarrassing losses that have proven them all too human.
Here are some of the personalities featured in The New Market Wizards: Gil Blake, a virtually unknown fund timer who over a twelve-year period realized a 45 percent annual return and was.
Profitable in an astounding 134 out of 139 months; Bill Lipschutz, an architect who became Salomon Brothers’ most successful currency trader, sometimes trading single positions as large as several billion dollars; Blair Hull, a former blackjack player who used his knowledge of probability theory to transform a $1 million starting stake into an option trading company with one hundred employees that has garnered cumulative net profits in excess of $90 million; William.
Eckhardt, the little-known mathematician and trader who collaborated with Richard Dennis in developing trading systems and helping the group of traders who collectively became known as the Turtles; Stanley Druckenmiller, who manages a multi-billion-dollar fund and has realized an average annual return of 45 percent since the mid-1980s by utilizing an eclectic investment approach that incorporates positions in the bond, currency, and futures markets (in addition to.
Traditional long stock positions) while also permitting short selling in all these markets; and Richard Driehaus, whose fund has beaten the Russell Index by a better than 2:1 ratio since 1980 and by a 6:1 ratio measured in terms of cumulative return.
Central Theme
- The book is series of Interviews traders reveal how they do it and what, personally, separates them from the herd
- Top traders describe the financial strategies behind their phenomenal successes, as well as the painfully instructive lessons learned from their worst losses
- Book reveals that, despite their various quirks and differences, all the biggest winners rank diligent research, self-confidence, a specific plan and the courage to cut losses as the keys to winning big
- Throughout, Schwager provides valuable insight and analysis to help put interviewees responses into perspective, and he provides a technical basics primer at the end of the book
Key Takeaways:
1. Almost every trader seems to agree that psychology is more important than the trading system a person uses. The important things are stuff like confidence in your system, discipline to trade it properly, not second guessing yourself, resisting greed and fear, etc
2. Trading psychology. After you’ve learned your craft well enough to be on auto-pilot for continuing to grow your skills, the next important thing for longevity relates to psychology. This book is excellent for appreciating this.
3. You don’t want to have a position before a move has started. You want to wait until the move is already under way before you get into the market.
4. You can’t train people how to trade by just imparting knowledge. The key to trading success is emotional discipline.
5. It’s no longer sufficient to assume that because you trade with the trend, you’ll make money. Of course, you still need to be with the trend, because it puts the percentages in your favor, but you also have to pay a lot more attention to where you’re getting in and out.
6. Buy on breaks and sell on rallies as major trends are now frequently preceded by a sharp price change in the opposite direction.
Noteworthy Quotes
“One of my favorite patterns is the tendency for the markets to move from relative lows to relative highs and vice versa every two to four days. This pattern is a function of human behavior. It takes several days of a market rallying before it looks really good. That’s when everyone wants to buy it, and that’s the time when the professionals, like myself, are selling. Conversely, when the market has been down for a few days, and everyone is bearish, that’s the time I like to be buying.”
“If instead of saying, “I’m going to do this trade,” you say, “I’m going to watch myself do this trade,” all of a sudden you find that the process is a lot easier.”
“My goal on Wall Street was never to get rich but to stay in business. There’s a big difference. If you’re out of the business, you can never get rich. That’s why you have to be especially cautious when you’re trading a larger position size.”
“About every two generations—roughly every forty-seven to sixty years—there’s a deflationary market. For example, in respect to the commodity markets, we’re currently in a deflationary phase that began in 1980. Over the past two hundred years, these deflationary phases have typically lasted between eight and twelve years. Since we’re currently in the twelfth year of commodity price deflation, I think we’re very close to a major bottom in commodity prices.
“If trading (or any other job or endeavor) is a source of anxiety, fear, frustration, depression, or anger, something is wrong—even if you are successful in a conventional sense,”
Trading in the Zone: Master the Market with Confidence, Discipline, and a Winning Attitude by Mark Douglas
Douglas uncovers the underlying reasons for lack of consistency and helps traders overcome the ingrained mental habits that cost them money. He takes on the myths of the market and exposes them one by one teaching traders to look beyond random outcomes, to understand the true realities of risk, and to be comfortable with the “probabilities” of market movement that governs all market speculation.
Central Theme
- The book covers the psychological aspect within one-self that prevents him/her from reaching consistency. The most common logic for new traders is to try to learn every method available to them. If they fall short of success, they attend more webinars, seminaries, and read more books, only to confuse themselves further. They’ve succeeded at ‘step 1’ but continue to fall back into trying to find new/more trading methods/tools (indicators, charting systems etc…). How do we get to ‘step 2’?
- Have you ever hesitated on putting on a trade? Did you get pissed off when a stock did exactly what you thought it would but you just couldn’t pull the trigger? This is why we have analysts as talking heads on T.V. today. They have an “edge” in the markets because they’re able to perceive the markets from an objective standpoint (from the markets perspective) but as soon as they put their own money on the line, they start to perceive the markets in a threatening way; essentially, the trader’s own beliefs, ingrained in their mind, cause them to perceive the market in a threatening way. And that is why most traders fail in this business.
- So ‘step 2’: re-wire our thinking about the markets and learn to think in probabilities.
- Trading successfully is a paradox. What makes people successful in today’s society, will not make one successful in the trading world. And it all comes down to our beliefs.
Key Takeaways:
1. Internalize the rules of markets – anything can and will happen
2. There’s an infinite amount of stuff to analyze – analysis is not the key , beliefs are.
3. Trading is a creative form of self-expression as there’s an infinity of positions and ways to trade
4. Perceive markets objectively, remove emotion from ticks
5. Keep track of your trades and the market health
6. Cultivate your self-perception that you are a winning trader
7. Trade your edge
8. Consistency trumps all
Noteworthy Quotes
“we need to be completely reconciled with the risk put on a trade. If we don’t genuinely accept the risk, then we’ll cut our winners short, we’ll cut a trade flat only to see it work in the direction once you exit, and the list goes on. We start to narrow our focus on the pain that we try to avoid! We put over-emphasis on every down-tick or up-tick… we no longer watch the price action in an neutral state of mind, instead we start to trade our core beliefs that make us unsuccessful. And remember, our core beliefs (things we’ve learned in our upbringing) DON’T make us successful as traders.”
“I AM A CONSISTENT WINNER BECAUSE:
1. I objectively identify my edges.
2. I predefine the risk of every trade.
3. I completely accept the risk or I am willing to let go of the trade.
4. I act on my edges without reservation or hesitation.
5. I pay myself as the market makes money available to me.
6. I continually monitor my susceptibility for making errors.
7. I understand the absolute necessity of these principles of consistent success and, therefore, I never violate them.”
“consistency is a state of mind that, once achieved, won’t allow you to “be” any other way.”
“If you have to win, if you have to be right, if you can’t lose or can’t be wrong, you will cause yourself to define and perceive categories of market information as painful.”
“People normally describe this kind of internal mental shift as an “ah, ha” experience, or the moment when the light goes on. Everyone has had these kinds of experiences, and there are some common qualities associated with them. First, we usually feel different. The world even seems different, as if it had suddenly changed. Typically, we might say at the moment of the breakthrough something like, “Why didn’t you tell me this before?” or, “It was right in front of me the whole time, but I just didn’t see it”
The Intelligent Investor by Benjamin Graham
Benjamin Graham’s last line in The Intelligent Investor sums up the entire book in his trade-mark common-sense way: “ To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks.”
First published in 1949 this book is not written for speculators but for the layman who wants to have a sound approach to grow his wealth steadily. He believes that lay investors can achieve “a creditable if unspectacular result with a minimum of effort and capability…since anyone – by just buying and holding a representative list – can equal the performance of the market averages…”
Graham chastises average investors for their sloth and ignorance, for willingly giving up their responsibility and rights as business owners to management. This, he feels, is due to the institutionalisation of financial services which has left investors a step removed from ownership.
Central Theme
What The Intelligent Investor does is that it lays the foundation for laymen by giving a sound approach to investment, written with common sense and simplicity.
Key Takeaways:
1. Graham divides investors into 2 camps: defensive and enterprising. The defensive investor is risk-averse, seeking to preserve capital and obtain a reasonable return. The enterprising investor is more risk-tolerant, willing and able to analyze stocks and bonds to find higher returns.
Defensive portfolio
• 25-75% US bonds, depending on investor’s risk tolerance and situation
• common stocks of “leading” or “prominent” US companies (blue chips), purchased at a reasonable price based on historical data
Enterprising portfolio
• buy low, sell high
• growth stocks
• value stocks
• take advantage of “special situations” like mergers and acquisitions, business reorganizations, etc.
2. Risk vs safety
Risky investments are those that have a chance of declining in price, but a history of positive returns. You don’t care about temporary declines as long as you hold the investment, because it’s not until you sell that the decline would be realized. Unsafe investments are those with history of poor returns over many years; these are not wise investments.
3. Prices sometimes reflect the present, and sometimes reflect the future; because you can’t tell which, it’s hard to determine if stocks are fairly priced.
4. Margin of safety
Margin of safety is the secret to sound investing.
This is a business’ value over its debt (its ability to earn more than it needs to cover its expenses), or the difference between price and value.Guarantees a better chance of profit than loss (not a guaranteed profit).Diversification across several stocks increases the certainty of profit.nThe margin is based on statistical data, not speculation
5. But don’t buy SIMPLY because the company is cheap; look for EPS growth ideally > 30% (cumulative) over the course of the prior 10 years. This is a good indicator of a stable and sound business model.
6. Look for a current ratio (current assets / current liabilities) greater than 2, as a signal the company is financially secure.
7. Strongly prefer companies with dividends, and with consistent dividend growth.
8. Don’t invest in companies that have had negative earnings-per-share in the last three years.
Noteworthy Quotes
“Your main goal should be to not LOSE money; so understand the distinction between ‘investing’ and ‘speculating,’ and understand that most so-called investors are actually speculators. Minimize the extent to which you are a speculator. If you go in trying to get rich quick, you’ll lose.”
“Those who tries to beat the market, as many smart people have tied to do this and failed.”
“Every stock market broker thinks he can outdo the market. That means the stock market experts as a whole is trying to beat itself – a logical contradiction. They just cancel each other out.
One should not rely on a financial advisor who promises the sky and raise your hopes that he can do better that the market average. That, claims Graham, is not possible.
“The real money in investing will have to be made, as most of it has been in the past, not out of buying and selling but out of owning and holding securities, receiving interest and dividends and benefiting form their longer-term increase in value.”
“Ultimately, it is important for investors to give themselves a margin of safety by buying a stock at a price that is lower that its appraised value and to diversify the portfolio. These would put the investors in good stead, as against speculators.”
“To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks.”
“The real money in investing will have to be made – as most of it has been in the past – not out of buying and selling, but out of owning and holding securities, receiving interest and dividends, and benefiting from their long-term increase in value.”
Trade Like a Stock Market Wizard: How to Achieve Super Performance in Stocks in Any Market by Mark Minervini
U.S. Investing Champion Mark Minervini reveals the proven, time-tested trading system he used to achieve triple-digit returns for five consecutive years, averaging 220% per year for a 33,500% compounded total return. In Trade Like a Stock Market Wizard, Minervini unveils his trademarked stock market method SEPA, which provides out-sized returns in virtually every market by combining careful risk management, self-analysis, and perseverance. He explains in detail how to select precise entry points and preserve capital—for consistent triple- digit returns. Whether you’re just getting started in the stock market or you’re a seasoned pro, Minervini will show how you how to achieve SUPERPERFORMANCE! You’ll gain valuable knowledge as he shares lessons, trading truths, and specific tactics–all derived from his 30-year career as one of America’s most successful stock traders.
Central Theme
Trade Like a Stock Market Wizard teaches you:
1. How to find the best stocks before they make big price gains
2. How to avoid costly mistakes made by most investors
3. How to manage losses and protect profits
4. How to avoid high-risk situations Precisely when to buy and when to sell
5. How to buy an IPO
6. Why traditional valuation doesn’t work for fast-growing Superperformers
7. Examples of Minervini’s personal trades with his comments With more than 160 chart examples and numerous case studies proving the remarkable effectiveness of Minervini’s methodology,
8. Trade Like a Stock Market Wizard puts in your hands one of the most effective and–until now–secretive stock investing systems in the world.
9. Mark Minervini has a trademarked stock market method that produces outsized returns in virtually every market. It’s called Specific Entry Point Analysis–SEPA–and it has been proven effective for selecting precise entry points, preserving capital and profits with even more precise exit points–and consistently producing triple-digit returns.
Key Takeaways:
1. The SEPA strategy to pick stocks.
Key elements of SEPA: Trend, Fundamentals, Catalyst, Entry points, Exit points. SEPA(strategic entry point analysis)- For picking good stocks look for trends, fundamentals,catalyst(the driving force behind stock movement), entry point & exit points.
* Align supporting fundamentals with constructive price actions during a healthy overall market.
Always look for Market leaders, top competitors, institutional favorites,turnaround situations.
2. Pick leaders in terms of earning,sales,margin & relative price strength
3. Condition must fit: good company fundamental, stock price , good volume activity & overall market conditions.
4. Potential shortlist based on
a) Future earning & positive estimate revision
b)Rapid price appreciation based on supply/demand imbalance
c)institutional volume support
5. 4 stages of stock movement-
a) consolidation phase- you should avoid buying here
b) accumulation phase- here you should buy
c)topping phase
d)declining phase
6. Be on the lookout for new industries & companies with market niches, specialised expertise, proprietory technology,positive sector change such as deregulation.
7. profitability, sustainability & visibility represent the most influential factors that move stock price.
8. As the bear market is bottoming , leading stocks, the ones that best resisted the decline will turn up first and then sprint ahead.
9. Look for resilient stock that hold up the best, rebound the fastest & gain the most% wise off the general market boom
10. The stock that emerges 1st in the early stages of new bull market with greatest power are generally the best candidate for super performers.
11. See earning coming from robust top line sales not from cost cutting or plant closure or any other accounting gimmicks
12. Focus on high quality earning – where did earning come from? Did the company post better result because of stronger sales? If sales were strong, was it because of single products or 1 major customers? Is growth vulnerable?
*Look for earning that come from core operations, not from one time gain or an extraordinary events.
13. To determine whether market is looking favourably on company earning , look for
* Initial response- Did the stock rally or experience sell off? If it sold off , does it resume its slide after a dead cat bounce? Does stock price come roaring back?
* Subsequent Resistance- How well does it hold its gain & resist profit taking?
*Resilience- Did the stock recover quickly & powerfully? or did it fail to rally after a pullback?
14. Risk management-
* If you cant learn to accept small losses, sooner or later you will make big losses. It is inevitable. Learn how to lose small amount possible when you are wrong.
* Always keep reward/risk ration>1 preferably 2:1 or 3:1
*You must make more on your winner than lose on your losers
15. Generally super-performance occurs when the stock is relatively young.
16. Value doesn’t move stock prices, people do.
17. Your portfolio should consist of the best companies in four to five top sectors.
Noteworthy Quotes
“Stocks move for 2 reason- anticipation & surprise. Every price movement is rooted in – anticipation of news, important business change, reaction to an unexpected events & a surprise. “Buy the rumour, sell the facts”
“When you see market rotation, where price moves from leaders to follow on stocks & laggards, it is warning that market rally may be entering its later stage.”
“Losers average losers”
“Over diversification is not a good idea. (5-6 are good)”
“Stoploss is crucial.”
“It is more important to make money than to be right.”
“Write down your strategy before buying”
“Size matters”
Trading for a Living: Psychology, Trading Tactics, Money Management by Alexander Elder
Alexander Elder is a scholarly educator and popular author who’s been teaching traders for years. He is the author of The New Trading for a Living, which is published by Pearson. Published in 1993 this international best-seller has been translated into more than a dozen languages.
Trading for a Living imparts techniques, ideas, and tools to help you master both your trading abilities and your financial strategy through three M’s: your mind, your method, and your money. There’s a companion volume to Trading for a Living–Study Guide for Traders–that provides an in-depth analysis of the chapters and chapters you need to be a profitable trader.
Central Theme
The central theme of the book revolves around Psychology, Trade Management, Risk and reward, Trading charts/graphs (There are a lot of charts), concepts of How to Buy Low and Sell high, Emotions and Trading, Indicators, and trading systems/setups
Key Takeaways
- The book emphasizes that becoming a cool, calm, and a collected trader is a process reliant upon the behaviors of the market crowd. There is a good opportunity to profit from that knowledge and take advantage of it.
- How to use the computer to actually find good trades and develop a powerful trading system
- How to find the places with the best odds for success.
- How to locate entry and exit points, decide on and take profit targets, and set stop targets.
- Trading for a Living helps you develop strategies and discipline your mind and offer ideas on trading strategies. It also provides the necessary information on trading the market, as well as provides you insight on how to trade.
Noteworthy Quotes
“Your goal is to trade well, not to trade often.”
“You need to know exactly under what conditions you will enter and exit a trade.”
“You must not change your plan while you have an open position.”
Behavioural Investing by James Montier
The book explores the innate biases we face as human beings, how they show up in the investment process. The book urges readers to adopt an empirically based skeptical approach instead of instinctual and intuitive approach while investing in the markets.
Behavioral investing seeks to bridge the gap between psychology and investing. Once we recognize our biases, we must acknowledge that knowledge does not equals behavior. The solution lies in constructing and adopting an investment process that is partly robust to behaviour mistakes.
The author does an incredible job of combining insights from applied psychology with a thorough understanding of the investment problem. The content is practitioner-focused throughout and will be essential reading for any investment professional looking to improve their investing behavior to maximize gains.
Central Theme
The book is an encyclopedic compendium of topics related to behavioral finance. It is an collection of useful empirical finance literature.
Key Takeaways
- Be less sure of your views, especially if they are forecasts. Think in probabilities
- Research finds that People dislike losses far more than they like gains.
- Most people end up not acknowledging mistakes, let alone learning from them.
- High turnover, large portfolios, and Short Term horizons relate to the illusion of control.
- It is a mistake to put forecasting at the heart of the investment process
- Six traits of the best value managers; highly concentrated, focussed, willing to hold cash, Long Term vision, acceptance of bad years, prepared to close the fund to new money.
- Don’t equate happiness with money- people adapt to income shifts relatively quickly.
Noteworthy Quotes
“Success in investing doesn’t correlate with IQ once you’re above the level of 100. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.”
“Group-think tends to have eight symptoms:
1. An illusion of invulnerability. This creates excessive optimism that encourages taking extreme risks.
2. Collective rationalization. Members of the group discount warnings and do not reconsider their assumptions.
3. Belief in inherent morality. Members believe in the rightness of their cause and therefore ignore the ethical or moral consequences of their decisions.
4. Stereotyped views of out-groups. Negative views of “enemy” make effective responses to conflict seem unnecessary. Remember how those who wouldn’t go along with the dot-com bubble were dismissed as simply not getting it.
5. Direct pressure on dissenters. Members are under pressure not to express arguments against any of the group’s views.
6. Self-censorship. Doubts and deviations from the perceived group consensus are not expressed.
7. Illusion of unanimity. The majority view and judgments are assumed to be unanimous.
8. “Mind guards” are appointed. Members protect the group and the leader from information that is problematic or contradictory to the group’s cohesiveness, view, and/or decisions. This is confirmatory bias writ large.”
“Investors should learn to follow the seven P’s—: Perfect planning and preparation prevent piss poor performance. That is to say, we should do our investment research when we are in a cold, rational state—and when nothing much is happening in the markets—and then precommit to following our own analysis and prepared action steps.”
When Genius Failed: The Rise and Fall of Long-Term Capital Management by Roger Lowenstein
Roger Lowenstein in this book captures explains how A hedge fund made and lost money and how the personalities of its partners, the arrogance of their mathematical certainty, and the culture of Wall Street itself contributed to both their rise and fall.
The book is based on confidential internal memos and interviews with dozens of key players.
Central Theme
The book is an engrossing look at what happens when even intelligent people rely on models and disregard the human factor in investing.
Their models failed to account for the fact that when people are motivated by fear or greed, they are capable of acting in extreme ways.
Key Takeaways
Investing and gambling are two completely different things. The only resemblance is that both involve risk.
The best thing you can do is put together a dream squad; it will attract other dream players, clients, and investors.
Greed and arrogance have strong upper limits; you can only go so far with them.
Loyalty and friendship are qualities that can and should be cultivated.
Quantifying and evaluating risks is not the same as avoiding them; the two should not be confused.
The use of immense leverage to magnify returns– and render even mild downturns fatal to investors
Noteworthy Quotes
“Investors long for steady waters, but paradoxically, the opportunities are richest when markets turn turbulent.”
“For men who prided themselves on being disciples of reason, their drive to live on the edge seemd inexplicable, unless they believed that becoming the richest would certify them as also being the smartest.”
“Merton … humbly warned, however, “It’s a wrong perception to believe that you can eliminate risk just because you can measure it.”
“As Peter Bernstein has written, nature’s pattern emerges only from the chaotic disorder of many random events.”
“Markets can remain irrational longer than you can remain solvent.”
Pit Bull: Lessons from Wall Street’s Champion Day Trader by Martin Schwartz, Dave Morine, Paul Flint
This is the true account of how Schwartz climbed to the top of his profession, the people and places he met along the way, and the trader’s tactics and procedures he deployed to make his millions. It is an autobiography from one of the best traders of the late 20th century. This is a must-read for anyone considering handling other people’s money. The author depicts the evil side of the industry and how it might harm the money manager.
Central Theme
The book focuses mainly on short term trading and Trading psychology. Your greatest market foe is yourself, And the implication is, because no two persons have the same emotional/mental outlook, the same method does not work for everyone. Your trades should be developed in accordance with your personality. Know thyself and separate the trade from the ego.
Key Takeaways
Investing and gambling are two completely different things. The only resemblance is that both involve risk.
The best thing you can do is put together a dream squad; it will attract other dream players, clients, and investors.
Greed and arrogance have strong upper limits; you can only go so far with them.
Loyalty and friendship are qualities that can and should be cultivated.
Quantifying and evaluating risks is not the same as avoiding them; the two should not be confused.
The use of immense leverage to magnify returns– and render even mild downturns fatal to investors
Noteworthy Quotes
“Past performance is not necessarily indicative of future performance.”
“As Peter Bernstein has written, nature’s pattern emerges only from the chaotic disorder of many random events.”
“But after Kapor took Merton’s finance course, he decided that quantitative finance was less a science than a faith – a doctrine for ideologues “blinded by the power of the model.” It appealed to intellectuals who craved a sense of order but could lead them disastrously astray if markets moved outside the model.”
“It’s a wrong perception to believe that you can eliminate risk just because you can measure it.”
Dare to dream. It’s not where you are, it’s where you’re going that counts.
If you don’t have a dream, how you gonna make a dream come true?”
We are Subverto Trading Club, a group of professional traders from around the globe who were drawn together under a common objective: To seek out students who are determined to empower themselves with the skills needed to be successful in trading. Whether you want to supplement your primary career or make your way as a professional trader, we have the tools and expertise to show you the way.
Come check out our discord with a free 3-day trial: ask questions, peruse chat history, and observe us at work. We look forward to seeing you there! 
