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What’s Your Peloton

I went for a 7-mile run on the treadmill this morning. I watched the Tour de France. It got me thinking about something I read a few months ago on Howard Lindzon’s blog. One of his ten years of blogging lessons comes to mind:

“Invest in yourself and your network. One of the oldest races is the ‘Tour De France’. The ‘peloton’ is a french word originally meaning ‘platoon’. A well developed peloton helps reduce ‘drag’ or as I like to say, speeds you up by as much as 40 percent.”

And that got me thinking about my own peloton. For me, I think it goes beyond people (although that’s certainly a part of it). I also owe thanks to Howard for creating StockTwits, and helping me find some of my own peloton members.

In terms of tools though, here are some things that I’d be hard-pressed to live without:

  • Finviz.com: This is just one of the most robust and easy to use stock screeners. I’ve done tons of videos about free FinViz stock screens. It’s just a great tool for finding stock ideas.
  • Morningstar.ca: I just love that Morningstar has 10 year historical financial data for almost every stock. It’s a great way to start analyzing investment opportunities. I’m very grateful for this free data source.
  • Google Spreadsheets: These free online spreadsheets are my favourite way to keep my abreast of potential opportunities. You can easily pull data in from Google Finance too, which creates powerful sheets that automatically update.
  • My BrokerHaving a low-cost broker with good execution is critical to success in the stock markets. Low commissions help reduce drag. I also like that my broker has advanced order types, like conditional orders, which can help me customize the way I get filled to try and avoid getting stopped out on head fakes.

Remember, your peloton is what will help you break out from the pack. It’s the boost you need to blaze ahead. Everything else is just the desperate crowd nipping at your heels.

By the way, if you aren’t keeping up with Howard’s blog, you should be. He’s been crushing the Swiss alps with his own peleton.

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Doing What’s Uncomfortable

I’m sure I’ve written about this before. But it’s an important theme that’s always good to remember. Basically: it often pays to do what feels counter-intuitive.

I liked this Trading Nation clip from the Crossing Wall Street (CWS) Blog. The host asked, will the Dow reach 20,000? And Eddy Elfenbein, as well as the other guest, indicated it might. But here’s where it gets interesting…

Eddy shared some statistics, about how buying at new highs generally leads to more new highs. But as you might know, buying at new highs isn’t easy.

Especially as value-focused investors, there’s a tendency to try and pick bottoms. And look, I appreciate a good deal as much as the next person. But you need to be careful about being right vs. making money.

Finance is full of very bright people. And there’s a tendency to want to do things uniquely, differently or in a more elegant and complex manner. but sometimes simple is more robust.

If buying at the highs is what works (and the data is pretty compelling), then maybe it’s just best to do that. Even if it’s not easy.

walls and globalization

Globalization, House Prices and Walls

There are lots of anti establishment movements these days. Brexit, Trump and Sanders are the most poignant right now, but there are many similar nationalist movements across Europe. Election results are telling the story.

Is this the downside of globalization? Do people actually prefer an inefficient economy? Are you ready to compete on a global scale?

A local example, here in Toronto and mirrored in Vancouver, is endlessly rising home prices. It isn’t my fellow millennials bidding over asking price to tear down a house and build a bigger one. In the few personal experiences ive encountered it’s  always foreign buyers. The data, more broadly speaking, suggests these overseas agents are having a role.

So is the inability to own an abode the cost we pay for access to global markets? It very well might be. And for me, that’s okay. But did the majority of our politicians and government economists foresee this trade off when they voted for free trade? Do they regret it? Do their constituents? I don’t, but some others likely do.

Plus, is local home ownership something we want to encourage in our communities? Again, data and talking points suggest this could be the case. So it begs the question…

Is that how we got to talk about building walls? On one hand, it’s crass and crude. On the other, well, surely we must do something if we want to maintain our societal norms, right?

Interesting times, as always.

Studies in Tape Reading Book Review

Studies in Tape Reading Book ReviewStudies in Tape Reading by Richard Demille Wyckoff is a classic trading book that you won’t want to miss.

And in this book review, I’ll tell you everything you need to know about this unique book. To give you a bit of perspective before we get started, you should know this book was actually originally published in 1910. The recent edition I’m reviewing was re-published in 2011, but without any changes to the original version.

One of the reason’s I wanted to read this book is because it provides a unique historical perspective on Wall Street, and speculative trading and investing. I really enjoyed the book and am excited to tell you about it. So let’s get down to business.

Studies in Tape Reading Book Summary:

Studies in Tape Reading is a wonderful book. The author, Richard Wyckoff was himself a very successful speculator. And as he became wealthy, his attention turned to educating other aspiring traders. He was the editor of Wall Street Magazine  and Stock Market Techniques. So you get the explicit sense that the author was in touch with the stock trading strategies of his day.

Studies in Tape Reading offers a very unique perspective. The book is essentially a collection of magazine columns that share tips, tactics and techniques for improving tape reading, and trading. While we obviously don’t have ticker tape machines today, the basic concepts are the same. The book is only about 175 pages and very easy to read, so it’s not too intimidating if you’re just getting started with the stock market.

Additionally, it’s incredibly insightful to read advice from 1910 that says essentially the same thing you read today: cut your losses, let your winners run, go with the trend and try your best not to be overly emotional. The book explains trading and successful speculation is a business that can be learned if only one has the right knowledge, discipline and tenacity.

And that leads me to my favourite part about this classic trading book.

The Best Part of Studies in Tape Reading:

While I enjoyed the entire book, there’s one special part of Studies in Tape Reading that I can’t help but really appreciate. And basically, it boils down to this: There have never been any short cuts on Wall Street.

It really struck me when reading this book, that even over 100 years ago, traders and speculators were constantly scheming to beat the market. They were worried about the tape being manipulated. There were tips, scams and anxiety, just like you see in today’s markets.

So I can’t hammer home this point enough: There are no secrets or short cuts in the stock market. That’s because the markets are made up of human beings, and human nature and psychology doesn’t really change. At the end of the day, we still experience fear and greed just like our ancestors did over 100 years ago.

I think this realization had a big impact on me. People have been trying to find new ways to beat the market for centuries. But at the end of the day, it comes to consistently executing a profitable strategy. And the basic tenets of going with the trend and keeping losses small are still essential to long term success.

So by now you might be wondering, is there anything I didn’t like about this book?

One Cautionary Note on Studies in Tape Reading:

Well, overall, I really enjoyed reading Studies in Tape Reading. It’s a unique book that provides a glimpse into the thinking of Wall Street speculators over 100 years ago. For this reason alone, I think the book is worth buying. But there is something you should be warned of.

Obviously, the book is a little bit dated. It pretty much only refers to traders as men. And some of the language is a little bit old-fashioned. Additionally, there are some spots where the author shows a series of transactions from the tape. Whiel thesis very interesting, I hadn’t read a ticker tape before, so this took a little bit of getting used to. That said, I enjoyed the novelty of it and wouldn’t avoid the book for these quaint little features. Make sense?

Now, with that in mind, let’s bring this book review to a close.

Studies in Tape Reading – The Final Word:

Studies in Tape Reading is a wonderful book that shows how people have been trying to make mont in markets for over 100 years. For this reason alone, I recommend that you pick up a copy of Studies in Tape Reading on Amazon and read it for yourself.

However, if you’re still looking for a little more information, then you’re encouraged to watch the video book review brow to get even more insight into this classic trading book.

Studies in Tape Reading – Video Book Review:

fresh air

A Breath of Fresh Air

I like living in a busy urban centre. It’s convenient, it’s diverse and it’s a lot of fun. But every once in a while, particularly during the warmer months of the year, it’s nice to get away. You need a breath of fresh air.

I was out of the city for probably less than 24 hours. But it was a nice reprieve. And it whet my appetite for upcoming weekends throughout the summer. It’s refreshing. Lately Dr. Brett Steenbarger has been mentioning his recent trip to Norway. He goes on a trip like this once a year, to experience new things and new views.

I think this is great advice.

Especially if you’re a work-focused over achiever in a very competitive field like financial services. Don’t be afraid to unplug every once in a while. Embrace it and feel refreshed.

 

Panic Proof Investing Book Review

Panic Proof Investing Book ReviewPanic-Proof Investing by Tom Basso shares Lessons in Profitable Investing from a Market Wizard.

I first read about Tom Basso in Jack Schwagger’s Market Wizards. But since then, I sort of forgot about Tom. However…

He recently popped up on my radar again when listening to the Michael Covel podcast. Michael interviewed Tom, a few times, and I found his insights to be fascinating. In fact, there is a four hour interview with Tom that I listened to while running a half-marathon a few months ago.

So when I learned that Tom had a book, Panic Proof Investing, I wanted to check it out. Now keep reading this book review to learn everything you’ll need t know about this unique investing and trading book. Now let’s get into it.

Panic Proof Investing Book Summary:

Panic-Proof Investing is a great book. It’s just under 150 pages and is very easy to read. Even if you don’t know too much about trading or investing, this would be a great primer to help bring you up to speed.

But that doesn’t mean the book is for amateurs, either. Don’t let Tom’s way of making things sounds quant fool you: Panic Proof Investing offers timeless advice from a Market Wizards. It could be a reference book that you re-read on an annual basis. I think that’s how I’m going to treat it.

The point I’m making is, no matter how experienced an investor or trader you are, the stories and lessons in Panic Proof Investing will be worth your time.

The book is structured wherein each chapter in the book is a different investing lesson. Most of the lessons are illustrated with a personal anecdote. Tom has been in the money management business for a long time, so you get the idea he’s seen most (if not all) of these lessons first-hand.

And whether you’re a trader or investor, or even just delegating your money management to someone else, this book will be of value to you. In fact, Tom makes the point that even if you don’t have an interest in investing you should at least learn how to find someone who will be a good stewart of your capital. And even then, you still have to deal with your own emotions as they relate to money, investing and YOUR net worth. Take responsibility.

There’s all kinds of insight like this throughout the book. But there’s one part of the book that’s especially thoughtful.

My Favourite Part of Panic Proof Investing:

While Panic Proof Investing is a well-written and easy to understand book, it has one additional feature that makes things even easier. At the end of the book, there’s a quick checklist that summarizes all of the lessons in a few pages.

This simple little addition makes the book much more valuable. I enjoy quickly skimming the lessons every now and then. Or I’ll read one a couple times each day to try and internalize it. The advice of Basso is worth listening to and these digestible nuggets are one of my favourite ways to keep the concepts he suggests top of mind.

Now, usually I try to find something to criticize about the book I’m reviewing. But in this case, I really can’t find any faults. I appreciated Tom’s perspective, and will look forward to reading this book again.

The one thing I will say is that you should NOT buy this book if you are looking for a specific trading system invented by Tom Basso. The principles shared here are much more valuable. With that in mind, let’s wrap this up, shall we?

Panic Proof Investing – The Final Word:

Tom Basso’s Panic Proof Investing is a great tread. He shares timeless market wisdom that can be of value to any trader or investor. So for that reason alone, I’d recommend you pick up a copy of Panic-Proof Investing on Amazon for yourself.

Of course, if you still want more information about this book, you’re welcome to watch the video book review below, to help you decide if Panic Proof Investing is the right book for you.

Panic Proof Investing – Video Book Review

Trend Following with Managed Futures Book Review

Trend Following with Managed Futures Book ReviewTrend Following with Managed Futures by Alex Greyserman and Kathryn Kaminski is all about the search for crisis alpha.

After reading Michael Covel’s Trend Following, I was definitely intrigued by this tactical and technical investment strategy. So I wanted to dive deeper. While I’m primarily an equity investor, I wanted to learn more about futures trading and trend following.

So in this book review, I’ll give you a summary of Trend Following with Managed Futures. By the time you’re done reading, you’ll know everything you need to decide if this is the right trading book for you.

Trend Following with Managed Futures Summary:

Trend Following with Managed Futures starts with an 800 year history of trend following. That’s right, 800 years! The authors collect data on commodity and financial markets going well back in time to help establish that not only has trend following been around for centuries, but that’ it’s also performed well during this entire time. Compelling, right?

After the fascinating history lessons, the authors talk briefly about the futures markets in general before digging deeper into trend following itself. Next there are a few chapters that look at the different facets of trend following trading strategies. I think the authors did a good job breaking down the different parts of this trading strategy, and how they contribute to your returns.

Notably, one part of the trend following performance puzzle is what the authors call crisis alpha. This essentially means that trend following has historically outperformed during times of market crisis. This may be appealing because trend following can act as a hedge compared to the other strategies you could be running in your portfolio.

From there, the book spends some time looking at the risks of trend following compared to other alternative trading strategies. In most cases, trend following stacks up well as a low-risk approach to earning steady returns. Finally, Trend Following with Managed Futures looks at how trend following fits into bigger institutional portfolios and different strategies for allocating money to a trend following manager.

Overall, this is a very in-depth look at trend following in the managed futures space. And even if you’re only trading stocks and/or options, trend following strategy can still be incorporated to your approach.

Now let me share my favourite things about this book.

The Best Parts of Trend Following with Managed Futures:

There were two things that I really liked about Trend Following with Managed Futures

The book touched a lot on behavioural finance. Since I recently read Thinking Fast and Slow, which is a wonderful behavioural economics book, I really appreciated seeing how trend following strategies are designed to work against our cognitive biases and position us for success.

This was neat to see in practice. I was also encouraged to see the authors, both successful academics, talking about the merits of behavioural finance and it’s real-world implications.

Another thing I really liked about Trend Following with Managed Futures was the discussion of convergent vs. divergent risk taking. This wasn’t a topic I was previously familiar with. But it’s a powerful one. In short…

Convergent strategies believe the market is efficient and things will revert to the mean. Value investing strategies are convergent risk-taking, as are mean reversion and arbitrage trades. Convergent strategies are correlated with short volatility.

On the other hand, divergent risk taking strategies believe the markets are periodically inefficient and you can capture massive market moves every once in a while. Divergent strategies are long volatility. And as you might have guessed, trend following is a divergent strategy.

If you haven’t learned about these different kinds of risk taking, I really encourage you to learn more about them (either in this book or with a quick Google search) because it added an important element to my understanding of investment strategies.

Now, before I get too carried away, there’s one caveat I’d like to mention…

Trend Following with Managed Futures – A Word of Warning:

One thing I do want to point out is that while Trend Following with Managed Futures is incredibly educational, it’s not a book written for the retail investor. In fact…

Trend Following with Managed Futures is actually written for institutional investors. So if you’re just looking for a lazy summer read, then this might not be it. While the book is incredibly informative, at times it felt a bit dense.

The book is packed with graphs and formulas that relate trend following to academic finance, which the institutional audience surely would appreciate. But you might not care so much about  how Sharpe ratios change over time and across asset classes compared to other hedge fund strategies. For retail investors looking to get up to speed I’d first recommend Covel’s book, Trend Following.

In the end though, Trend Following with Managed Futures is definitely a rigorous analysis of trend following, and in the end the book gives this investment strategy a passing grade.

So let’s wrap this book review up.

Trend Following with Managed Futures – The Final Word:

Trend Following with Managed Futures was a great read. It really pulls the curtain back on trend following. And if you’re seriously interested in learning more about this investment approach then I encourage your o buy a copy of Trend Following with Managed Futures

Of course, if you’re still looking for more information then I encourage you to watch the video book review below to learn more about this investing book.

Trend Following with Managed Futures – Video Book Review:

millennial money investing strategy

How Millennial Money Changed My Investing Strategy

Have you read the book Millennial Money by Patrick O’Shaughnessy? I did. And you can read my detailed Millennial Money Book Review right here. But I need to be honest with you…

Even though I liked this book when I read it, it’s not until almost a year after reading this book that I really started to appreciate the value of it. I’m honestly a little bit surprised at the impact it’s had on my investing strategy.

Allow me to explain.

Why Millennial Money Changed My Investing Strategy:

Prior to reading Millennial Money, I was first and foremost a value investor. I really enjoyed looking for 50-cent dollars. And I had fun digging deep into companies to try and find inefficient others had missed.

But that’s hard work. It’s time consuming, and at the end of the day, if you’re buying stocks in downtrend it’s hard to make money. It takes time. And there’s not a clear way to manage risk beyond basic position sizing.

Then Millennial Money provided some data to back this up. Near the end of the book, the author dives into some specific strategies that have historically outperformed their benchmarks.

And in pretty much all cases, it seemed that adding a momentum tilt to your stock selection, improved performance.

Do you follow?

That means the truth is, like it or not, stocks in motion tend to stay in motion. And you’re better to wait for a turn than try to pick a bottom. At least, that’s what the data seemed to show.

A little more research confirmed the idea, or at least, suggested that it couldn’t hurt to try it. So over the last 15 months or so I’ve been tweaking, experimenting and trying to optimize with simple rules-based momentum filters.

But I know what you’re thinking.

Are we watching a value investor embracing technical analysis? Isn’t this against the rules?

Well, first and foremost, I’m a scientist. And it’s irrational to ignore the data. Especially when it contradicts your hypothesis.

Besides…

Even if picking undervalued stocks makes me feel smart, doing it without any regard for momentum or price trend is arrogant and seems to lead to worse performance. I can’t ignore this fact. It’s irresponsible.

So here we are: in the church of technical analysis, apparently. Crazy, isn’t it?

But let me be clear: I’m not using indicators, voodoo or any other predictive methods to try and time the market. I’m only using price, with a side-dish of volatility to help manage risk.

And now that I’ve been doing this for some time, I’m happy to share the results.

The benefits of Millennial Investing:

To be clear, I haven’t used the Millennial Money criteria verbatim. But I’ve applied the spirit of the approach. Specifically: (1) I’m using price momentum as a filter, and (2) I’m rebalancing (buying and selling) based on explicit criteria rather than any discretion

You probably wouldn’t believe it…

But those two simple criteria have made my life much better. First and foremost, these two tenets have helped me avoid serious losing trades. In a time when energy was cratering and small caps were collapsing, this alone is worth adopting an approach like this (for me personally at least).

Along the same lines, when you have a rules-based approach to buying and selling, you spend much less time worrying about trading decisions and whether or not to bail on a stock. It’s like being your own personal ETF. Cool, right?

The flip side of the above is that you can actively manage your money, without worrying all the time. You’ll probably end up spending less time thinking about the markets. And the time you do spend will be used more productively on big picture system development, risk management or business development.

What’s not to love about that?

And by the way, in my small experiment over the lear year and a bit, the performance results have been better. So it’s not just peace-of-mind I’m after. The bottom-line results are real.

The truth is, as any behavioural economist will tell you, our brains aren’t well-wired for stock trading. We are impulsive, irrational and do the worst thing at the worst possible time.

While that’s easy theory to espouse, I think for me personally, putting this concept to practical test, I’m happy with the results. And it’s something I’ll continue to expand across my portfolios.

But I’m not losing sight of my value and quality foundation either. My universe of stock investment opportunities is still limited to only those which I deem to be worthy. Now, I’m just systematically picking the ones out of that pool with the best chance of continuing to appreciate in price.

So now it’s time to flip the script and ask you a question. Do you think you could use a rules-based approach to improve your investing and trading?

Either way, you might want to check out Millennial Money.

Investing and Trading in Sprints

Trading and Investing in Sprints

Recently, I wrote about how investors and traders alike could benefit from adapting a more agile mindset. Specifically…

By leaning to embrace uncertainty, and develop mechanisms to adapt, you can improve your performance, with less effort and less worry. Sounds pretty good, right?

Well, today I wanted to take that line of thinking one step further. Specifically, I want to talk about trading with and investing with a sprint methodology. Allow me to explain.

Trading in Sprints Explained:

In agile development, tasks are conquered in iterations called “sprints.” The basic idea is that you set a 2-4 week goal and work with your team to achieve that goal. These work intervals are called sprints.

At the end of the 2-4 week sprint, you review your progress, adapt to feedback from the market and plan your goal for the next sprint. Do you see where I’m going with this?

The Advantage of Trading in Sample Sizes:

In the amazing book, Trading in the Zone, author Mark Douglas talks about the idea of trading in sample sizes. He recommends that traders stick to a methodology for at least 20 trades before making any tweaks.

The idea here is that trading and investing happen in a very uncertain and random environment. Just by pure chance alone, you’re likely to have a broad distribution between winners and losers, as well as the magnitude of each.

So make your trades or investments in sets of 20 trades (or sprints of 20 trades) instead of judging each trade by it’s own merit. You simple need a sample size of trades to reflect a given methodology. After 20 trades, you should have a more robust idea of whether or not you’re going to be profitable.

Make sense?

The key difference between trading and agile sprints, is that in trading and investing you need to think of “Event-based-sprints” vs. “time-based-sprints.” Instead of watching your results over 2 week periods, watch your results over 20 trade periods.

So what do you think? Could you see yourself trading in sample sizes to try and isolate your edge in the markets?

Trading 52 week highs and lows

Trading 52 Week Highs and 52 Week Lows

Would you rather buy a 52 week high, or a 52 week low?

Stocks trading at these extremes are often in the headlines. But not always for good reasons. And depending on who you ask, you’ll get different answers as to whether you should invest in 52 week lows, or follow the crowd and pile in to 52 week highs.

Before I give you my opinion, here are two places you can find socks trading at 52 week highs and lows:

Personally, I see both sides of the equation. As a value guy, I don’t want to overpay for a company. But I also understand that you can only make money in stocks if they’re going up. And picking bottom is easier said than done.

Ultimately, it’s up to you! So…

What do you think? Would you rather try to pick the bottom, and focus on getting value? Or do you prefer to chase capital gains right now by putting momentum at your back?

I’m not sure that one way is particularly better than the other. It probably depends on your personality.

What style appeals to you?