A stock operator's thoughts and ideas about market principles
Stock Trader and
Economy Student
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Jun/09/2007
Uncertainty as Confidence, Not as Ignorance
The reason I almost never write about specific stocks or short term market predictions, is that my forecasting gives no edge whatsoever. I just can't take seriously those who have opinions on everything from currencies to commodities to individual stocks.
The single most important skill as a stock operator, in my opinion, is to be conscious about what you don't know. If you are really honest about your limitations it will be much easier to trade when you really do have an edge. And if you never find an edge, that's OK too, as you can benefit from the up drift passively and spend your time on something else than active trading.
The paradox is that while this helps me in my trading activities, it strongly handicaps me in situations where I'm supposed to give the impression that I know a lot about markets. If I'm asked where I believe the oil price will go, I can give interesting numbers and facts, but no prediction. I am a twenty two years old working from my computer; how in the name of God can I beat all the hedge funds and investment banks with limitless resources? People tend to buy this argument, so I do get credit here.
But then it becomes more of a problem when people start to ask more specifically about my trading. I never like to tell exactly what I do, as I have a healthy dose of paranoia when it comes to telling how I trade. But if I never tell, people cannot tell whether I'm just a gambler or a serious trader. So I find a compromise, telling rough lines about the computer testing (which most people find so boring they will never try to copy it) and that I try to find out what incentives the buyers and sellers have to move the price.
The problem now is that people always crave for a specific tip, but short term trades are useless in that manner. So then I just tell about one of my few long term investments. When they then ask about fundamentals and market cap, I cannot answer. Why; because I look at who trades a stock and how its transaction microstructure looks like. This will indirectly give me all the info I need from much better informed sources than myself. So if I do try to make a fundamental analysis I will fool myself - though the all ready fooled ones will be fooled to believe I am much better than I really am.
I suspect these fools in every bull market to crowd together, make big money, so big in fact that their influence on the economy and the inflation of stock prices, will force the cycles to change and clean them out from time to time.
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