Tuesday, July 2, 2013

13 Insights From Paul Tudor Jones

PTJ is not only a successful hedge fund manager and philanthropist, but also very original and clear thinker. Here are some of his best market-related insights:

1. Markets have consistently experienced “100-year events” every five years. While I spend a significant amount of my time on analytics and collecting fundamental information, at the end of the day, I am a slave to the tape and proud of it.

2. I see the younger generation hampered by the need to understand and rationalize why something should go up or down. Usually, by the time that becomes self-evident, the move is already over.

3. When I got into the business, there was so little information on fundamentals, and what little information one could get was largely imperfect. We learned just to go with the chart. Why work when Mr. Market can do it for you?

4. These days, there are many more deep intellectuals in the business, and that, coupled with the explosion of information on the Internet, creates an illusion that there is an explanation for everything and that the primary tast is simply to find that explanation. As a result, technical analysis is at the bottom of the study list for many of the younger generation, particularly since the skill often requires them to close their eyes and trust price action. The pain of gain is just too overwhelming to bear.

5. There is no training — classroom or otherwise — that can prepare for trading the last third of a move, whether it’s the end of a bull market or the end of a bear market. There’s typically no logic to it; irrationality reigns supreme, and no class can teach what to do during that brief, volatile reign. The only way to learn how to trade during that last, exquisite third of a move is to do it, or, more precisely, live it.

6. Fundamentals might be good for the first third or first 50 or 60 percent of a move, but the last third of a great bull market is typically a blow-off, whereas the mania runs wild and prices go parabolic.

7. That cotton trade was almost the deal breaker for me. It was at that point that I said, ‘Mr. Stupid, why risk everything on one trade? Why not make your life a pursuit of happiness rather than pain?’

8. If I have positions going against me, I get right out; if they are going for me, I keep them… Risk control is the most important thing in trading. 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.

9. Losers average down losers

10. The concept of paying one-hundred-and-something times earnings for any company for me is just anathema. Having said that, at the end of the day, your job is to buy what goes up and to sell what goes down so really who gives a damn about PE’s?

11. The normal progression of most traders that I’ve seen is that the older they get something happens. Sometimes they get more successful and therefore they take less risk. That’s something that as a company we literally sit and work with. That’s certainly something that I’ve had to come to grips with in particular over the past 12 to 18 months. You have to actively manage against your natural tendency to become more conservative. You do that because all of a sudden you become successful and don’t want to lose what you have and/or in my case you get married and have children and naturally, consciously or subconsciously, you become more conservative.

12. I look for opportunities with tremendously skewed reward-risk opportunities. Don’t ever let them get into your pocket – that means there’s no reason to leverage substantially. There’s no reason to take substantial amounts of financial risk ever, because you should always be able to find something where you can skew the reward risk relationship so greatly in your favor that you can take a variety of small investments with great reward risk opportunities that should give you minimum draw down pain and maximum upside opportunities.

13. I believe the very best money is made at the market turns. Everyone says you get killed trying to pick tops and bottoms and you make all your money by playing the trend in the middle. Well for twelve years I have been missing the meat in the middle but I have made a lot of money at tops and bottoms.

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This One Indicator Could Help You Make Enough to Trade for a Living

Trading for a living is a dream many people have. It is actually possible to reach that goal, although it can be difficult. To trade for a living requires different strategies than long-term investing. Risks are higher for short-term strategies, but the rewards, especially the ability to work from home or anywhere in the world, are also high.

The first difference between trading and investing is the time frame. Traders are looking for short-term, high-probability opportunities. Investors are looking for something that can be owned for years and offer steady gains. Investors will generally need to consider a company's financial statements. Traders usually look only at recent price action to make buy and sell decisions.

One popular short-term trading strategy is the 2-day Relative Strength Index (RSI). Usually RSI is calculated using 14 days' worth of data. Short-term traders use only two days in their calculation. Buys are taken when RSI falls below 5, and a variety of sell rules can be applied. The simplest strategy closes positions five days after they are opened.  (more)

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How to Survive a Disaster with James Rawles : Survivalblog.com

Survivalism expert Jim Rawles discussed what we can do to prepare for disasters and catastrophes, particularly in the case of the power grid being knocked out. The greatest threat we face is from socioeconomic collapse, which could be triggered by mass inflation, leading to the dollar becoming worthless, he said. While the US has had local and regional disasters, we've never had a national event, such as an EMP attack or huge solar storm that would take down the entire grid. People need to be prepared and learn self-sufficiency in the event of such an outcome, he advised, adding that if there's severe damage to the power grid it could take years to restore service.

One of the most important things for preparation is a water filtration system-- "If you don't have water within 24 hours, you're going to be a refugee," he said. People in northern climates also have to consider heating issues, such as having a working fireplace and expedition-quality sleeping bags. He recommended that people have up to a three-year supply of food-- one year for themselves, and the rest to give to charity. Interestingly, he also suggested stockpiling nickels. In contrast to other current coins, the 5 cent pieces are made from copper and nickel, and may at some point in the future have some utility for barter, he said.

Low cost training options (such as through the Red Cross) can put you and your family ahead in your chance for survival, as well as joining local volunteer Fire Departments or ham radio clubs, where you can learn about the community and make important contacts, he continued. Rawles also suggested making a 'List of Lists': separate sheets of paper with various headings such as Food, Medicine, Self-Defense, and Communication; each page would have a list of topics they need to address for self-sufficiency.
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3 Trades That Could Double Your Money by Christmas: LF, EBIX, STKL

While undervalued stocks can do well in bull or bear markets, it is especially important to consider the potential risks in a bear market. For now, we don't know if a bear market is beginning, but we do know that nervousness seems to be the dominant trend in the markets. Words from the Federal Reserve can send the Dow Jones Industrial Average down by hundreds of points in a day, so risk needs to be the primary consideration in investment decisions.

Risk can be controlled in a number of ways. One approach is to invest only a small amount of money. By using call options, risk is limited to the amount paid for the option and it is possible to buy calls at very cheap prices. Yet the gains can be substantial.

Looking for potential winners, we found three stocks trading with PEG ratios less than 1 and with options that could rise in value before the end of the year.

The PEG ratio compares the price-to-earnings (P/E) ratio of a company to its earnings growth rate. Companies that are growing earnings faster than average should be trading with P/E ratios that are higher than average. Slow-growing companies should have below-average P/E ratios.  (more)

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Arch Capital Group Ltd. (NASDAQ: ACGL)

Arch Capital Group Ltd., through its subsidiaries, provides insurance and reinsurance solutions worldwide. It operates in two segments, Insurance and Reinsurance. The Insurance segment offers primary and excess casualty insurance coverage, including railroad and middle market energy business, as well as to middle and large accounts in the construction industry; directors and officers' liability insurance; medical professional and general liability insurance; collateral protection, debt cancellation, and service contract reimbursement products; loss sensitive primary casualty insurance programs; professional liability; general liability, commercial automobile, inland marine, and property insurance to program managers; property, energy, marine, and aviation; surety; and travel and accident insurance products. This segment markets its products through a group of licensed independent retail and wholesale brokers. The Reinsurance segment reinsures third party liability and workers compensation exposures; individual property risks of a ceding company; and catastrophic perils on a treaty basis.
To review a current H&S pattern on Arch's stock, please take a look at the 1-year chart of ACGL (Arch Capital Group, Ltd.) below with my added notations:
1-year chart of ACGL (Arch Capital Group, Ltd.) ACGL had been on a steady, yearlong rally until peaking in May. Over the last (3) months the stock had created a very important level at $51 (red), which was also the “neckline” support for the H&S pattern. Above the neckline you will notice the H&S pattern itself (navy). Confirmation of the H&S occurred when ACGL broke its $51 “neckline” support. So, the stock should be moving lower overall from here.
Keep in mind that simple is usually better. Had I never pointed out this H&S pattern, one would still think this stock is moving lower simply if it broke below the $51 support level. In short, whether you noticed the pattern or not, the trade would still be the same: On the break below the key $51 level.
The Tale of the Tape: After embarking on a nice uptrend, ACGL confirmed a head & shoulders pattern. A short trade could be placed now, or could be entered on any rallies up to or near the $51 area.
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The Coming CHINA Crisis - w/ Bert Dohmen & Ty Andros

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