Unfortunately, the site SharesGuru, is long gone. Probably retrievable but, even though it is a wet slow day here in Sydney, I don’t really need to try too hard. And then, I found, today, in SharesCafe, the inheritor of ShareScene, a thread along a similar line, and with the 100 strategies outlined. And by no less than @Ann (I think), though called Anne there, but whose posts seem similar in content and style.
These 100 Strategies are from Taming the Lion, the book written by Richard Farleigh and published in 2006(?). They look like chapter headings and some of the points carry no information (the 100 rules were better).
Anne correctly goes on to say:
Anyway, here they are:
Markets
1.0 The different markets have many useful similarities.
1.1 Fear the market.
1.2 Markets are more efficient than generally acknowledged.
1.3 Market opportunities are disappearing.
1.4 The markets can overwhelm government intervention.
1.5 The market is strengthened by speculation.
1.6 Respect the market not the experts.
1.7 Most professionals are not outguessing the market.
1.8 Listen and read very critically.
1.9 Understand recent history.
Comparative Advantages
2.0 To outperform the market you need a comparative advantage.
2.1 Everybody is a hero in a bull market!
2.2 Never stray from your comparative advantages.
2.3 A small percentage advantage is enough to outperform the market.
2.4 Test the advantage over time and make changes slowly.
2.5 Financial markets advantage #1: Information.
2.6 Financial markets advantage #2: Original analysis.
2.7 Financial markets advantage #3: Brokers and bankers have extra information and free insurance.
2.8 Financial markets advantage #4: Understanding market behaviour.
2.9 The Rules are based on six types of market behaviour:
- There remain patterns and anomalies in the markets.
- Markets are slow to react to structural influences.
- Small companies offer more opportunities.
- Markets go further than generally expected.
- Markets move in underlying trends.
- A view on the fundamentals can be combined with price movements to manage trading positions.
Risk
3.0 Manage and embrace risk.
3.1 Good ideas can lose money.
3.2 Asymmetry has fooled a lot of investors.
3.3 Wild swings and losses are uncomfortable, but they may offer the best rewards.
3.4 Diversify.
3.5 Assess risk – and then double it.
3.6 Risk adjust results after the trade.
3.7 Qualities of the successful trader.
3.8 Trading pressure increases with amount at risk.
3.9 The trader’s dilemma – the stop loss?
Patterns And Anomalies
4.0 Look for patterns and anomalies.
4.1 Choose the right markets.
4.2 The share market dilemma.
4.3 Crisis situations almost always provide an opportunity.
4.4 Short term interest rates will tend toward the inflation rate plus the conomic growth rate.
4.5 Government bond markets for the major economies are not prone to crashes.
4.6 Currencies: two economies and fact or fashion?
4.7 Some markets are driven by supply.
4.8 Property prices often lag stock prices.
4.9 Chartists are the astrologers of the markets.
Big Ideas
5.0 Markets are slow to react to structural influences.
5.1 Look for the next Big Thing.
5.2 Ignore obscure theories and observations.
5.3 Only invest in the broad markets when they are in line with the prevailing economic environment.
5.4 Be methodical – use a checklist to quantify and add rigour to a view.
5.5 Buy stocks when economic growth is strong and inflation is weak.
5.6 Buy bonds when inflation and economic growth are both weak.
5.7 Buy commodities when inflation and economic growth are both strong.
5.8 Few assets benefit when inflation is strong and economic growth is weak.
5.9 You are unlikely to out-analyse the analysts.
Small Companies
6.0 Small companies offer more opportunities than large companies.
6.1 The quality of a company’s management is by far the most crucial factor in determining its success.
6.2 Determining the fair valuation is more difficult with small companies.
6.3 Clearly identify the comparative advantages.
6.4 Be sure the business is sustainable.
6.5 Good products don’t always sell.
6.6 Growth puts strains on small companies.
6.7 Be sure of a route to exit and adequate cash resources.
6.8 Shareholders can help unlisted companies.
6.9 Be pragmatic with due diligence.
Price Behaviour
7.0 Prices go further than expected.
7.1 Forget the old price.
7.2 People often misjudge probability and logic.
7.3 A price is an average of possibilities.
7.4 The probability can be asymmetric.
7.5 Be nervous when a market doesn’t rally on good news.
7.6 Don’t day-trade!
7.7 Avoid trading in options if you do not understand their pricing.
7.8 Back your hunches with at least a small investment.
7.9 Features of good trading models.
The Understanding and Use Of Trends In Prices
8.0 There is statistical proof that market prices trend.
8.1 Trends operate across commodities, currencies, interest rates, stocks and property.
8.2 Trends have been in operation for a long time.
8.3 It is not true that markets usually over-react.
8.4 Trends are resistant despite being well known.
6.5 Trends represent the gradual dispersal of information.
8.6 Price reaction is delayed by inertia and scepticism.
8.7 A rising price attracts buyers.
8.8 Economic cycles breed market cycles.
8.9 News against the trend is often ignored .
Market Timing
9.0 Combine fundamentals with price action.
9.1 Ignore the noise in price movements.
9.2 Don’t be a hero – do not buy falling markets.
9.3 Trade with the trend – wait for the trend before you enter the market.
9.4 Add to winning trades, not losing trades.
9.5 It is safe to be with the consensus.
9.6 Do not use price targets or time limits.
9.7 If the fundamentals have changed, adjust the position accordingly.
9.8 You will not get the high or the low.
9.9 A powerful model shows probability is on your side.
Avoiding Temptation
10.0 Know when to stay out of the market.
10.1 Identify what is difficult about the existing environment. It may change.
10.2 Monitoring trends may alert you to opportunities you wouldn’t normally find.
10.3 With success, bank some profits.
10.4 Negotiation is an art.
10.5 The evolution of the con-artist.
10.6 Wealth preservation is not simple.
10.7 Be skeptical of sophisticated retail products.
10.8 Management and brokerage fees should be minimal in a passive portfolio.
10.9 Follow these rules and be part of the hedge fund Revolution.
…. and what did Anne learn? (her words below)
1. Before entering a trade, ask myself “what proven strategy am I using here to justify this trade, or am I just buying on a whim?”
2. the better analogy for share trading is a game of backgammon, rather than a game of chess. I have heard of the chess analogy before – where clever market players think two, three , four steps ahead of the market ,etc, but I agree with Farleigh that the backgammon analogy works better. It takes into account the rather large element of randomness in the market that we don’t have much control over, no matter how much research we do. **** happens, just like the time I had identified Amrad to be as close to perfect a short-term trade as you could wish for – the fundamentals, technicals and sentiment issues were lovely – and then out of the blue one of their joint partners announced that the fertility drug Amrad had developed was a dud.
Thud went the share price, taking all of my condifence with it.
Farleigh said that in Backgammon, you need skill to play, but you also have to handle the rolls of the dice – and they are random. Chance could have it that the worst player could beat the best player in a game if the rolls of the dice were uncannily lucky for the bad player and uncannily unlucky for the good player, but over time the rolls of dice become fairer and the skilled player ends up winning.
Farleigh said that when he followed the chess analogy, he would beat himself up mercilessly for trades that went wrong and analyse and re-analyse where he went wrong in his thinking. Any bad trade was bad and somehow his fault. But by adopting the backgammon analogy, he said life picked up for him in the emotional stakes, as now he accepts that lots of trades will be losers – and its not his fault and it’s not the fault of his strategy (whatever that strategy is!).
3. I also liked his description of a market crisis which triggers panic selling. In a normal market, a sudden unjustified sell-off in a share, or whatever, usually brings out the bargain hunters, but not in a crisis. In a crisis all good sense is lost; people are dumping everything – the good and the bad. Fund managers are instructing their team to sell everything, even though the team beg and plead not to have to sell at such dumb prices; and the people who were clever enough to get out early and are now cashed up on the sidelines ready to re-enter won’t re-enter because they are also terrified by the panic.
i read this and am now even more determined than ever to be one of the people who read the signs early and manage to dump their shares – good and bad – before the rot sets in. Then I want to calmly waltz in and pick up all the bargains once the market bottoms! Why not?
4. Here is a genuine strategy that he did share with me: short term interest rates should equal the sum of the inflation rate and the economic growth rate. If the two are badly out of kilter, then there’s a trading opportunity ( in the bond market!)
5. Markets take time to fully price in a major event that calls for a price re-rating. The strategy here is to learn to recognise major events, access what that event might be worth to the share price, buy if the share price hasn’t got there yet and wait until it does.
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