Wednesday, February 7, 2007

The Gambler

You've got to know when to hold em,
know when to walk away, know when to run.

So many market participants want to hit home runs every time they get to bat. They tell me they don't want to wait for the stock to play out over time. They want riches now. Well this is how I have learned it works.

Know when to hold em
This is where your biggest gains will come from. Follow the daily/weekly high and lows and take on some probing positions. The ones that work you hold and start adding to.

While the position is working look for other opportunities to present themselves. Develop a simple effective tracking system. A system that is fast, easy, and focused. I call this systematic focus. The goal is to create a continued flow of capital gains. This way when one investment needs to be sold, your capital has already been placed in another working position as well as others waiting to develop. Have the money work its way to the successful opportunities and pull it from the losers. This will insure that the capital gains wheel is always moving forward regardless of market position.

Many times you will find that you were right, but never really made enough money or end up flat to slightly down on the position. I have learned that successful speculators when the time is appropriate seize the opportunity [Carpe diem]. Like in sports, when the opportunity is there, they go for the win, and they go all out. That is the distinction. We know that at the point where we are winning, we seize the moment to secure the victory for certain. When one gets to a point of holding a position that is working and the time is right Carpe diem.

Know when to walk away

If you can recognize that 7 out of 10 opportunities will not materialize as expected and you can react, get out fast enough, then you will be able to stay in the game. One gets to trade because of this. Capital is valuable and not worth keeping on an opportunity that is not working or even worse losing. In the meantime, continue stalking other candidates while always staying close to the action via whats moving. Otherwise you run the risk of stalking/holding position that are out of the action.

Unsuccessful speculators try to break even as they hope to square up. In the meantime, the loser becomes a distraction, and you drift farther away from the action, and your capital gains wheel slows down.

One winning position will more than make up for the loss on the right trade. The longer you hold the baggage the more it becomes a chronic persistent fixture. You can always buy it back later. The issue is when to make the trade, not what. All boats will rise with the tide so as long as you are moving in the same direction as the general market, you will be fine. Never tell the market what you think, let the market tell you. This is an argument that you will not win and you will go bankrupt trying to win.

Know when to run

I find that those who are all in and have nothing left but [air] to sell are the greatest promoters of their new investment idea or opportunity. When the taxi driver is telling you about the stock, well you should have already sold, because return on capital is diluted more and more as the price, awareness, and excitement increases. This is why what everybody knows is not worth knowing if you are expecting to profit via speculation.

By all means [BAM], if everyone knows there is a bad restaurant, don't eat there. I have noticed that it is the best kept secrets that offer the best value. So if everyone but you knows the are the greater fool and we are more than happy to sell you our shares.

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