Good morning,
It’s Thursday and finally I can take my long due break. US markets will be closed for Thanksgiving tonight and I can relax over a few glasses of red wine without having to wake up early tomorrow to write this blog. I am pleasantly surprised that the responses to my advertisement exceeded my expectation, and I am looking forward to the coming session. A gentleman called in response to the advertisement and asked what superior technique he can learn from me. To be honest, the best technique is to keep the strategy simple. It is always simplicity that’s the best policy to trade stocks. There’s this magazine which I subscribe (Knowledge) which is published by BBC and in this month’s issue there’s an article about stock trading. The research compared the returns of a monkey’s portfolio using darts to choose the stocks by throwing the darts at a board with all the listed companies in US against a senior stock analyst’s portfolio with his acclaimed stock selections and timing skills. Who do you think will have the better returns? It’s the monkey! Paying peanuts and getting a monkey? Sometime it’s not too bad after all.
This research reminds me of the lessons I learned in my Master’s that research do show that taking into consideration of trading commission, it is not possible to beat the market over time consistently and if it does, it is because the trader is lucky. You must be questioning me that indeed there are friends of yours that have made good money trading stocks. Well, to understand the research we must understand what “the market” is really. If a trader trades in 5 stocks in NYSE, his market will be the same 5 stocks that he trades in. Obviously if he compares his returns with that of the whole S&P500, he is expected to have higher returns simply because he is taking more risk, and his excess returns are rewards for the risk he took. It is not an easy theory to understand. It really a matter of relativity. Let’s assume a trader trades on Citibank shares at $2 and immediate sold the shares at $2.50.If the share declined to $1.80 at market close, most of us will say that he has “beaten” the market, which is the performance of the Citibank share. Honestly, has he “beaten” the market? Firstly, I can say that he is lucky because no one can really predict the next price movement. Secondly, to beat the market means he has to trade continuously throughout the same time frame, i.e. he should have short the stocks before the price decline. If we take the same time frame from the moment he bought the share to the time he sold, his return was actually the same return of the share, and with the commission for the trade, do you think that he has “beaten” the market?
The biggest lesson I learnt is when trading the stock market, I should not be aiming to beat the market. Rather my focus is to achieve my expected returns for the risk I take. I can never predict correctly all the time how the stock price will move, but with all the timely and right information of the companies of the stocks I am buying, I stand a better chance to achieve my targeted returns over time. Companies with good business strategies and are financially strong should grow over time. Buying the shares of these companies cannot be too wrong and if we can understand the behaviour of the market participants for these companies, we can time to buy at a good price and sell when we are happy with our returns. So since we cannot beat the market, I doubt there are superior complicated techniques out there that can claim they can beat the market. All we need to do is to study and understand the companies we are buying and honestly it is really all that complicating.
Last night was good for me and my forecast for the markets was hit on. US stocks advance was supported by data that pointed to stabilisation in the labour and housing markets. New claims for jobless benefits fell sharply in the latest week and new claims for unemployment fell to a 13-month low, beating economists’ expected claim. Continuing claims, a measure of Americans who have been receiving benefits for a week or more, fell to beat economists expectations. Sales of new US family homes rose in October to their highest level in a year in September, also beating economists estimates. Trading volume was light one day before the Thanksgiving holiday. Gold prices hit record highs last night, in line with my forecast the previous day, lifted by a report that India may consider buying more bullion from IMF and a weaker USD. Crude oil prices advanced on a weaker US dollar and after a government report showed that US fuel demand gained for a second week.
For KUTE’s selection, NOV gained 2% to close at $44.88. My limits were hit and I am really going to enjoy my holidays with the tidy profits I made with this counter this week. MGLN closed 0.48% down at $37.10 and APOG lost 1.68% at $14.06.
Have a great holiday and I will be back on Monday morning for the new stocks trading plan. Adios.
Francies Cheng
BBus MAppliedFinance
It’s Thursday and finally I can take my long due break. US markets will be closed for Thanksgiving tonight and I can relax over a few glasses of red wine without having to wake up early tomorrow to write this blog. I am pleasantly surprised that the responses to my advertisement exceeded my expectation, and I am looking forward to the coming session. A gentleman called in response to the advertisement and asked what superior technique he can learn from me. To be honest, the best technique is to keep the strategy simple. It is always simplicity that’s the best policy to trade stocks. There’s this magazine which I subscribe (Knowledge) which is published by BBC and in this month’s issue there’s an article about stock trading. The research compared the returns of a monkey’s portfolio using darts to choose the stocks by throwing the darts at a board with all the listed companies in US against a senior stock analyst’s portfolio with his acclaimed stock selections and timing skills. Who do you think will have the better returns? It’s the monkey! Paying peanuts and getting a monkey? Sometime it’s not too bad after all.
This research reminds me of the lessons I learned in my Master’s that research do show that taking into consideration of trading commission, it is not possible to beat the market over time consistently and if it does, it is because the trader is lucky. You must be questioning me that indeed there are friends of yours that have made good money trading stocks. Well, to understand the research we must understand what “the market” is really. If a trader trades in 5 stocks in NYSE, his market will be the same 5 stocks that he trades in. Obviously if he compares his returns with that of the whole S&P500, he is expected to have higher returns simply because he is taking more risk, and his excess returns are rewards for the risk he took. It is not an easy theory to understand. It really a matter of relativity. Let’s assume a trader trades on Citibank shares at $2 and immediate sold the shares at $2.50.If the share declined to $1.80 at market close, most of us will say that he has “beaten” the market, which is the performance of the Citibank share. Honestly, has he “beaten” the market? Firstly, I can say that he is lucky because no one can really predict the next price movement. Secondly, to beat the market means he has to trade continuously throughout the same time frame, i.e. he should have short the stocks before the price decline. If we take the same time frame from the moment he bought the share to the time he sold, his return was actually the same return of the share, and with the commission for the trade, do you think that he has “beaten” the market?
The biggest lesson I learnt is when trading the stock market, I should not be aiming to beat the market. Rather my focus is to achieve my expected returns for the risk I take. I can never predict correctly all the time how the stock price will move, but with all the timely and right information of the companies of the stocks I am buying, I stand a better chance to achieve my targeted returns over time. Companies with good business strategies and are financially strong should grow over time. Buying the shares of these companies cannot be too wrong and if we can understand the behaviour of the market participants for these companies, we can time to buy at a good price and sell when we are happy with our returns. So since we cannot beat the market, I doubt there are superior complicated techniques out there that can claim they can beat the market. All we need to do is to study and understand the companies we are buying and honestly it is really all that complicating.
Last night was good for me and my forecast for the markets was hit on. US stocks advance was supported by data that pointed to stabilisation in the labour and housing markets. New claims for jobless benefits fell sharply in the latest week and new claims for unemployment fell to a 13-month low, beating economists’ expected claim. Continuing claims, a measure of Americans who have been receiving benefits for a week or more, fell to beat economists expectations. Sales of new US family homes rose in October to their highest level in a year in September, also beating economists estimates. Trading volume was light one day before the Thanksgiving holiday. Gold prices hit record highs last night, in line with my forecast the previous day, lifted by a report that India may consider buying more bullion from IMF and a weaker USD. Crude oil prices advanced on a weaker US dollar and after a government report showed that US fuel demand gained for a second week.
For KUTE’s selection, NOV gained 2% to close at $44.88. My limits were hit and I am really going to enjoy my holidays with the tidy profits I made with this counter this week. MGLN closed 0.48% down at $37.10 and APOG lost 1.68% at $14.06.
Have a great holiday and I will be back on Monday morning for the new stocks trading plan. Adios.
Francies Cheng
BBus MAppliedFinance
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