Books on Investng / Stocks

[Bradman]

On another thread someone posted the titles of a couple books about investing, and I'll be durned if I can't find it now. Would you be able to post it here if you remember? Any other good materials or websites you use might be helpful too. Thanks.

[SnerpGoodWord]

This thread?

What are the best financial books?

[Bradman]

After a little research I believe it was "The Intelligent Investor" By Benjamin Graham - thanks.

[SnerpGoodWord]

My financial reading recommendation list is something like this:

The Intelligent Investor - classic value investing
Market Wizards & New Market Wizards - information on trading/speculation and general terminology, plus a nice pep talk
Common Stocks and Uncommon Profits - more value investing
Liar's Poker - an understanding of the institutional side (and very funny)
Market Microstructure for Practitioners - understand how a market really works
If It Doesn't Go Up, Don't Buy It - a working & debugged trading system for $30
How To Make Money In Stocks - another working & debugged trading system (albeit a more sophisticated and discretionary one) for $10
Options As A Strategic Investment - encyclopedic info about derivatives
The Bond Market: Trading and Risk Management - practical information about the US bond market. Sadly out of print.

[Bradman]

Thanks Snerp, any of these good for day/swing trades?

[SnerpGoodWord]

Not really. What kind of instrument are you looking at day/swing trading?

[Bradman]

Originally Posted by SnerpGoodWord

Not really. What kind of instrument are you looking at day/swing trading?

Common stock or leveraged ETF's are the only ones I know of with my trading account. What I commonly do is look at the google finance page and make a watch list of "popular" stocks on that page, do a little research on them and try to make a momentum trade usually long, but I have gone short at times, but it often seems a hassle to find short shares available.

Sometimes I will try to make a play off the news, like when the earthquake hit Japan, there was an ETF short that went up about 30% in a couple days. If anything big happens in the middle east I would look at some oil plays, etc.
I bought UGA (gasoline ETF) the other day and got out after a few points, but now I'm wondering if I should have stay in...

I have thought about getting in front of the earnings reports, but that seems way too much of a guessing game to me.

What amazes me sometimes is how much these thing run sometimes, even for several days in a row, but usually if I'm up double digit I will get out because it seems there is an equal chance it will correct down the next day.

I try to limit losses to around 5%, but this can backfire if it's just a head-fake and then shoot up.

I'm open to any and all ideas if you have any, or maybe you think it's silly to try and trade this way - It certainly doesn't seem easy to me, and tends to be nerve racking.

[SnerpGoodWord]

I think your approach could be reasonable. That said, being that it's on the discretionary side of the discretionary/technical system divide, it's going to require a lot of discipline and forethought and it will be very hard to prove it's working.

Personally, discretionary trading is not for me. If I take a loss on a discretionary trade, it seems like MY fault. If I take a loss on a technical trade that's part of a back and forward tested system, it's just something I know will happen some times. Now, admittedly that's all psychological, but psychology is a big part of trading - if your mental willingness to trade (well) is gone, you're out of the industry. So I do everything I can to protect myself from burnout - let the computer trade for me, don't sweat trades in real-time and instead analyze them in blocks of 10-30 etc.

One other distinction is whether to focus on one instrument, or trade the world. Both have advantages - with one instrument, you learn its behavior. But you also risk trading it at times when it's not behaving optimally. When you trade the world, there's always something to trade (quick, #11 sugar is crashing!!!) but you never know much (relatively speaking) about what you're trading. Is there a mid-week sugar inventory announcement? Hell if I know.

Based on that, my personal preference is to trade one instrument technically, and then add additional instruments if I feel I have extra time and interest.

If you're having difficulties with shorting and access to instruments, you may need a better broker. For retail traders like us, Interactive Brokers is pretty standard.

Book wise, you might look at Marcel Link's High Probability Trading - it might give you some ideas and is well thought of.

[Lucidism]

Snerp, weren't you at one time considering making a web site or course to share your trading knowledge? Are you still thinking about doing this?

[Bradman]

Thanks, I appreciate your insight as always.

[SnerpGoodWord]

Originally Posted by Lucidism

Snerp, weren't you at one time considering making a web site or course to share your trading knowledge? Are you still thinking about doing this?

I've looked at the idea twice, and have registered a site. But it's definitely a long range plan right now because I'm having a hard time figuring out how to target it. There are a very small number of technical short term traders out there, and I wouldn't necessarily recommend people follow me down that path. So I would probably be sharing information on longer term (say, at least 5 day holding period) strategies, and more general economics and finance information. I think that would have the broadest appeal. But I've polled interest in a few venues, and found less than I would have liked.

There's also the question of if and how the site would be monetized. The trading space has a lot of scams, so honest monetization is hard. For example, even respectable sites like Motley Fool run adds for obvious scams through adsense. Courses are even worse. I'm not sure there a single legitimate vendor of trading training in the world. Literally not a one.

[Lucidism]

Originally Posted by SnerpGoodWord

Courses are even worse. I'm not sure there a single legitimate vendor of trading training in the world. Literally not a one.

It would be a lot of work, but do you think you know enough to create a good course? It would be a rarity in the industry!

[SnerpGoodWord]

Originally Posted by Lucidism

It would be a lot of work, but do you think you know enough to create a good course? It would be a rarity in the industry!

It's a possibility, but there are some barriers that prevent people from creating effective trading training courses that I don't really know how to overcome:

- Time frame and immersion. The entities that do successfully train traders (investment banks and prop firms which don't sell their training) do it largely via immersion over year+ time frames. This may be the only way that works. Courses can't easily replicate this environment.

- Selectivity. Not everyone is cut out to be a successful trader. Those who are successful are unusually intelligent and have certain personalities (typically the rare ENTx types by Myers Briggs testing). They also tend to be much less risk adverse than the rest of the population (which is also why they blow up so frequently and spectacularly). Any course that didn't screen for those attributes might have trouble achieving results.

- Opportunity cost. Time spend developing and teaching courses is time spent not developing or trading working trading systems. Thus, as a general rule, it doesn't make economic sense to have profitable traders teach.

- Capital. To make it worth your time to short term trade, one typically needs at least $30K of risk capital. For highly leverage instruments a good trader might be able to eek out a living from that. For more conventional instruments and levels of skill, something like $500K is required. Most customers of a trading course wouldn't come close to those numbers, and the course fee would just make the situation worse.

- The wide variety of trader types. A dark pool/ECN rebate trader is not the same thing as a commodity trend follower is not the same thing a a growth stock speculator is not the same thing as a electronic market maker/HFT trader is not the same thing as a pit market maker is not the same thing as a bond arbitrageur. While at some level they're all the same, and experienced traders can move to different instruments, time frames, and approaches, newbies are generally best off to learn one aspect in depth. But since there are so many choices it's hard to figure out what should be taught.

[Lucidism]

I see. Well then, perhaps this is why no courses really exist! I considered the Opportunity Cost point, but wasn't aware of the others.

[SnerpGoodWord]

The only solution I know of for all those problems is to train in an institution environment - that is, train someone you intend to subsequently pay to trade your money. That resolves all the issues one way or another. But it does nothing to address the demand for trading information from the general public.

And as long as that demand exists, there will be people around to give them what they think they want.