Saturday, May 8, 2010

The 1000 Point Market Drop - Two Really Great Videos

A couple of really great videos (Courtesy of Infectious Greed
and YouTube) which really depict the crash as it unfolded.

The first is one of shameless shill and all-around investment
Assclown Jim Cramer from CNBC.

How this guy (along with Dick Bove and Steve LIESman)
manages to keep his job I don't know. Suffice it to say if
you take Cramer's advice on anything at all you deserve
what you have coming.
Here's Jimbo:

The next is some "stocktrader guy" giving a "webinar" on
day trading.

He's pretty full of himself at the beginning, apparently
referring to a previous session where he was saying
the market was overbought.

But as the market begins its freefall, he goes complete
Dick Vitale or Walter Sobchak with self-congratulation.

Take a look:

Lessons for everyone out there:

1) Be careful about who you take trading or investment
advice from. In most cases, you're better off doing it
yourself if you can. If you can do your own research,
and it makes sense to you, go with it. Before you invest,
investigate - it's your money, therefore it's your
responsibility. If you don't know how to trade or
invest, take some classes and learn;

A fellow I know who has been hugely successful
over the last three years didn't know anything about
investments at all except that he was now laid off and
had a 401(K) distribution and an IRA to tide him over.

Embittered by his treatment by Corporate America
and distrustful of brokers and financial planners, he
decided to do it himself - after he taught himself what
he needed to know. So, he decided to get his securities
license - just to acquire the knowledge he felt he needed
to be successful managing his own money.

Today, as an independent proprietary trader, he's more
than replaced his last full-time income and added to
his trading capital besides. All this in a down market.
He was one of my instructors in the trading course I just
completed. And no, he's not some high-powered Harvard
guy; he's the typical worker that Corporate America is busy
"outsourcing" - his background is IT/Computer Science.

Moral: Learn how, do it yourself, get a comfort level,
and trust your judgment;

2) If you don't understand a stock, a bond, or other
security, stay away. Being still in learning mode, I
stick with two basic trading models that almost anyone
can understand with a five-minute explanation.
I don't do options, futures or indexes - not that I
don't know what they are, but I'm not yet
experienced or trained to work with them effectively.

This why Warren Buffet is so successful - you'll
notice he stays away from anything that isn't
traditional "plain vanilla" , that isn't superbly
managed, and that he can't get at a great price.

But, you might say, doesn't he use derivatives,
swaps, and other exotic things in his business?
Sure he does - to protect his real positions in the
real economy. Which is how they're supposed to be
used. Remember, twenty years ago he bailed out
a Wall Street casino - Salomon Bros - and he
propped up another -The Squid - after beating them
down for a below-market price and an above-market

As the world's second or third richest man, who
got that way by taking only the most conservative
of risks, I would say he knows what he's doing.

And all along, he's stayed with what he knows;

3) Trade or invest with the trend - not against it;

4) Use position sizing and risk limitations in terms
of position size to apportion your portfolio. If you
must use leverage, adjust your risk parameters
accordingly. The more leverage (borrowed money),
you use, the tighter your risk tolerance must be;

Bear in mind that Wall Street, before the crash, had
extensively used leverage to expand , not reduce,
the amount of risk they could take on;

5) Buy on rumor, sell on news. Buy when others are
fearful, sell when others are greedy;

And finally, enjoy yourself - trading and investing,
as a full time job, a supplement to retirement, or
just as a hobby can be very rewarding.

And to my mind, reward comes in one color - Green.

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