Career advice for a 15yr old

[Dunecat]

Have you given any thought as to how much you would like to make on your capital in your first year?

24% for a fund is pretty good. You mentioned you had a few thousand (5?). If you make 24%, that eqautes to £1,000 or so profit over a year. Will you be happy with this? Or do you want to earn more?

I'm asking you these questions as I'm trying to get a sense of what it is you want from trading, or how you think you might go about trying to achieve it, and in what time frame.

Do you really want to wait years to make a decent return? Why is your mind so closed to exploring ANY type of trading other than "value investing"?

I don't like gambling. I want to minimize risk as far as possible while still making as much money as possible. If it takes courage, determination and skill, it's right down my alley. 24% is good, but I will not truly be happy until I achieve 50%+. Whether or not I get there is another thing altogether 🙄 , but I will try.

 

[gooseman]

50+% return consistently is way out of reach. look at the erturns from a bond fund or a long equity fund. absolutely nowhere near that

 

[Dunecat]

right i had a few ideas:

Stops aren't nesscessairly bad but they are useful risk control device. If you don't use stops you had better be sure your research is spot on.

Value investing is about risk, you get paid for taking risk. The big returns comes from taking illquid and diverse positions which often are unavailable to retail investors. It has gotten to the point where most "value investors" can't outperform the sp500 by more than 3%. This is more relevant when you consider the future won't be like the past.

Most value investing stories are heavily glamorized, accounting isn't easy.

Value investing isn't a secret and the easy returns are long gone. Remember Buffet is a great investor because he realized the market had changed and he abandoned net-net stocks and moved to franchise, which is essentially hidden asset value.

Momentum trading works, there are numerous academic studies that show that momentum trading works, esp over 6m periods. If you want to make money you can do it momentum trading, if you want to look smart do whatever the **** you like.

So the conclusion is reading a few books don't mean ****. It is the same with everything, if it so ****ing easy everyone would be doing it. Your seeing the big returns but your not thinking, big returns come from somewhere.

However, there are lessons to be learned from value investing. So these books - Seth Klarman, Joel Greenblatt, Stephen Penman, Bruce Greenwald, Damodaran's Investment valuation, Dreman, christopher browne, there also some articles with walter schloss interviews out there and whitman's distress investing is also good. You can find value investment research at http://www.valueinvestorsclub.com/value2/ which is run by Greenblatt.

However, if you just read these books though you would get ****ed, the reason why is value investing doesn't teach you to avoid "value traps". To know why something works, you have to know why the opposite doesn't (so why is growth bad?). you quickly find that growth/momentum/whatever investing isn't that stupid and that you just don't know what you don't know. An example of this, is you saying that economists don't use logic, this is so unbelievably erroneous i don't know where to start but it these easy assumptions that causes useful ideas to be missed.

No, they certainly use logic, but trying to predict something as irrational as the market is pretty hard at the best of times right?

It just came across to me that value investing takes a lot of courage, faith that it will work and patience to achieve any returns, and determination that you will succeed at it. The way people give up so easily and don't try (here's a good one; "I'd love to be rich but I know that'll never happen") seemed to fit pretty well to me. But I've read a few books from the people you've mentioned, but I've had a few perceptions of momentum trading bred into me from the people who wrote these books. They're probably bias, but it's all a matter of standpoint. What decent, acclaimed books can you recommend on momentum and technical?

What do you think about value opportunities in emerging markets like asia? Although the hidden ones might be not as bountiful as once were, there are still good companies that have bad PR that make their prices half pretty quickly. Like I said before, language may be an issue, but there should be some good opportunities there don't you think?

The thing that seems to be more attractive about value is that you're looking at the actual business and seeing whether or not it can succeed, or continue to. Buffet is still making those mega returns though, GS doubled from 08-09, which was a tidy 100% return in one year. He put some 9 billion into them didn't he?

 

[Dunecat]

i wouldn't bother it isn't complicated, look at support/resistance and put a 20/50 EMA on the chart and your there. i would recommend psuedo-growth books like lynch and phil fisher.

you can get annual reports in english most of the time, but the only interesting place is japan, i haven't looked personally. the accounting rules are very different and you need to be an expert and my only reason for saying japan is cos the nikkei has done **** all for about 20 years. asia is well-covered. if your think of trying to get outsize returns by looking at different countries your looking more at pakistan, chile, madgascar, vietnam, i've that places like nigeria are overdone...like seriously out of the way countries that need some serious skillzz. Basically you cant get returns from just loading up a P/E screen, you need a lot more.

Words like faith and courage dont mean ****, they are just words...what matter is numbers...there are a lot of people playing this game and everyone wants it.

Man, I personally think faith and courage is what got buffet and soros n co where they are today. There are a lot of people playing this game, and just the way value investing is means that people will probably just avoid it. This is how it came across to me.

Yeah I'm kinda reading a book by peter lynch now called one up on wall street. It's interesting, but I think that the techniques learned in value investing could help you net out the companies with higher prospects.

When you guys go to buy a stock, do you take the time to do any value analysis? Like CA vs CL, return on equity etc? Or is it just all about whether or not people think that the majority think it has a high prospect of increasing? Enron just makes me wary about following the masses... that was a while back, but it seemed nobody took the proper time to question and vet that company...
that and the way that brokers seem to get their predictions wrong most of the time. But just opinions.

 

[barjon]

Dunecat

mmm, value technique is a respectable tool for INVESTING for the long term as opposed to TRADING over relatively much shorter timescales.

Over the long term a rising share price is driven primarily by increasing dividends (or the expectation of them increasing - see "bubble" for unrealistic expectations). Value analysis relies on that.

Now, with BP you regard them as cheap mainly, it seems, because they won't be allowed to go bust (who says?). Big as they are they have already taken a hit equivalent to one year's dividend cost and there's more to come, maybe much, much more - who knows. At the moment that ongoing cost is not quantifiable other than by sheer guess work so how can anyone say that they represent good value at the current price.

Sure, you can take a punt that the drop in price has been overdone - and you might be right - but don't confuse that with rational value analysis.

jon

 

[Dunecat]

Hm, you've got a point with the investing vs trading.

But BP shouldn't go bust, just like I said before, it is in the most lucrative industry there is.. but I suppose all that cost cutting finally caught up with them lol. If Obama keeps fleecing them I will get concerned about their health, but he hasn't done much since that 20 billion compensation fund correct? My thoughts are just that their pockets are considerably deep and that it would seem unlikely that Obama would squeeze a company like that until it dies. It is owned by foreign people, and I think what he is doing is hardly an example that a capitalistic nation should demonstrate. It is not government owned...

So how would you classify rational value analysis?

 

[barjon]

Dunecat

I didn't say BP were likely to go bust, although it's not outside the realms of possibilities. What I did say was that no-one yet can put a credible estimate on what it is all likely to cost them over the long run, nor how that will affect their profits and ability to pay dividends. Obama may have soaked them for 20 billion so far, but he also said that that figure didn't represent an upper cap.

Rational value analysis is based on proven figures and credible estimates - not hunches and guesswork

jon

 

[cm-phil]

For your first time putting money in the market, I probably would stay away from BP. It's a very complicated situation and even seasoned traders cannot completely wrap their heads around it. This is mainly because the extent of the damage remains to be seen, and whether or not the $20 billion relief acts as a "cap" also remains to be seen.

Try to hit singles, not home runs. Look at tech companies - you are probably more familiar with technology anyway being young.

 

[Dunecat]

Technology companies.... do you guys ever do in depth analysis of them? If so, how do you do it?

When you mention technology companies there's always a little red flag that goes up in my mind because of what happened in 2000. They're not all like that, but what do you guys do to make sure they aren't shams?

 

[4xpipcounter]

Hey, I feel about your age now posting in the middle of all these T2W veterans.
This is my opinion, but just another viewpoint. I know you are very bright, adn something tells me you are getting straight "A's" in all math-related classes. I know you have to be very good at reading graphs and charts.
Have your dad get you a free demo account with any broker offereing them. You can take the next 3 years learning a technical methodology of trading. 24% per year!? Are you kidding. You can make that monthly trading forex, stocks, commodities--whatever you wish.
All you need to do is track all the ideas and learn from all you can. Practice with and study all the different indicators. Be conscious of proper margin management. Make trades when they match up with your entry standards. This way you can watch your demo account and see just how much you can make. Keep this in mind. Do not track the quantity of monet you make, but track the percentage of gains. After all, 10,000 on 100,000 is the same as 100 on 1,000. Get the picture? You can start a demo account with $100,000, but you may not have that to initially invest. Also, if you od bankrupt your demo, jsut start a new one, and just keep doing it until you have perfected your methodology.

I don't like gambling. I want to minimize risk as far as possible while still making as much money as possible. If it takes courage, determination and skill, it's right down my alley. 24% is good, but I will not truly be happy until I achieve 50%+. Whether or not I get there is another thing altogether 🙄 , but I will try.

 

[Dunecat]

4pix, do you use any value methods in your contrarian trading style? Contrarian is similar to value trading isnt it?

I have had a few trial trading accounts, but I was only engaging in basic momentum trading(the return wasn't bad for a few months work I must say) as real value trading requires that year or two to see any proper returns. Some people in previous threads think Buffet's purchase of 9 billion GS was on insider information, but I think it looked like a good company when I looked through it's financials. Do you guys think he worked on insider info? GS has doubled and a bit since he bought them in 08, which is really impressive.

I know you guys aren't particularly keen on BP, but that's what makes it suitable for a buy opportunity right? It's that fear of the small chance of "what if..?" that has driven it into the ground. Is it really any riskier than what a trader would do in a year anyway? Just a small amount of money would be a good idea I think. My dad is eager for me to start investing his money, which in USD is 4000-5000. I don't want to keep him waiting for several years lol...
Maybe I just have to take that risk and take a diversified portfolio of Aussie/NZ undervalued companies, with maybe a bit of gold and BP if I can afford them.

To everyone here who thinks BP is a bad idea,(apart from fear of uncertainty) is there any financial reason behind why you think they are a bad idea? I know there's always that slight chance of a company going belly up, but I feel this is such a good opportunity for what normally is such an excellent company.

I should also look into GS; their P/E has gone down to 5.6 without the share price changing, which must indicate their profits are increasing significantly, but it's early days and these are just things I think I should look into.

24% monthly? What are you getting for annual returns? I know there is money to be made on bubbles. The chinese stock market has had a 400% increase from 05-08, which could hint to a bubble, which has been seen in the housing market, Would the best system not be technical/momentum trading in the boom years before picking up the stable companies when they're going cheap? Mcdonalds, coke etc were all going really cheap when the housing bubble burst, and the people that cashed in on them then have made some serious bank.

 

[meanreversion]

Some people in previous threads think Buffet's purchase of 9 billion GS was on insider information, but I think it looked like a good company when I looked through it's financials. Do you guys think he worked on insider info? GS has doubled and a bit since he bought them in 08, which is really impressive.

To everyone here who thinks BP is a bad idea,(apart from fear of uncertainty) is there any financial reason behind why you think they are a bad idea? I know there's always that slight chance of a company going belly up, but I feel this is such a good opportunity for what normally is such an excellent company.

Buffett's purchase of Goldman stock was done around $115, it's now $135. He is also long call options, struck at $115. Buffett is of course the ultimate investor with balls of steel, but let's get the facts right, this is not "double".

BP - what do you REALLY know about them? You say they are excellent, I would beg to differ. Their petrol prices in the UK and US are usually the highest. Their safety record is simply appalling, 700+ violations in the last few years.

What about their accounts? Do you know enough about reading an annual statement to understand their financial position? Even if you did, how do you know the numbers aren't being massaged? The reports for Enron were pretty good until the company folded.

There are thousands of industry insiders who trade BP shares all the time. Your knowledge compared to theirs is nothing. Your knowledge is probably less than the average BP shareholder.

Can you see where I'm going with this? The only thing you know with any certainty is the PRICE. You know where BP is trading, that's all. You don't even know what the dividend is, as that's been cancelled.

You have to trade what you see (the price). Right now it's in a massive downtrend (obviously). Buy BP by all means, but it's a pure gamble on how soon they plug the leak and whether Obama tries to extract more cash from them, something about which no-one has any idea, least of all you!

 

[JRP2891]

Try to hit singles, not home runs.

Strategy dependent. I know that 95% of my profits come from less than 5% of my trades.

 

[Chartsy]

damn boy; you're a smart 15 year old 😉

 

[JRP2891]

The only thing you know with any certainty is the PRICE. You know where BP is trading, that's all. You don't even know what the dividend is, as that's been cancelled.

You have to trade what you see (the price). Right now it's in a massive downtrend (obviously). Buy BP by all means, but it's a pure gamble

Exactly.

 

[Dunecat]

Yeah I can see where you are going with that MR. I did take the time to look through their reports, but like you said, there could be a hint of enron in there. Aren't a company that size meant to be closely audited anyway? Especially in sight of the recent bad PR?

It's probably best if I wait a few months, but I am fairly sure that the durable competitive advantage and economic significance will help them pull through. You're probably right, it is a bit of a gamble. But even a small amount of money into them would be worth it in my opinion. Note : small.

But let's get off BP, I don't plan on acting on it for a while, and that's for another thread.
Can I get some feedback on my other questions?

And my mistake about Buffet, I could've sworn that Forbes said he bought in the 08 low, when it was at 60-70.

 

[gooseman]

well BP have been smoked this morning and theer has been some good news....figure that.

going belly up i don't think is a situation t envisage, too many good assets. takeover target yes but that brings into play price.say you pay 320 and exxon comes in and scoops out 280 per share....

as for reading GS's statements-you might be a smart cookie for 15 but understand their statements you don't. Buffet has his fingers in so many pies and his primary game is insurance. that deal with GS was gold dust for him.

 

[Dunecat]

well BP have been smoked this morning and theer has been some good news....figure that.

going belly up i don't think is a situation t envisage, too many good assets. takeover target yes but that brings into play price.say you pay 320 and exxon comes in and scoops out 280 per share....

as for reading GS's statements-you might be a smart cookie for 15 but understand their statements you don't. Buffet has his fingers in so many pies and his primary game is insurance. that deal with GS was gold dust for him.

Well, I can have a look anyway.

Yeah, takeover was a situation my dad told me about, but I know little about what could happen if that did occur. I need to look that up... is details about takeovers on wiki?

 

[gamma]

Dunecat,
Would like to borrow this saying of yours for what follows

Before the more experienced members pounce on me, I just want to say something. Whatever I say in my posts in purely opinion, sometimes with cited sources to reinforce my opinion. Correct it if you want, but don't insult me for having it.

I am a currency trader so really don't know much about stocks



Would it not be more prudent to simply buy the call options risking a much smaller amount.

 

[Dunecat]

Yeah, I suppose in the realm of smaller amount is best. But another one will come around in a few years anyway.