I left this comment on 7million7years.com and thought I might expound on it.
The term "market timing" reminds me of double dutch. With the jumper waiting on the outside of the ropes, waiting until they believe they have the rhythm of the ropes, and can predict them.
I tried this a few times in grade school and got whacked in the face.
This is the type of trading you don't want to participate in. It may turn out well a few times, but for the long term, you will inevitably lose money.
While double dutch is the sport I liken "market timing" to, consistent, successful investing is more like surfing. The surfer waits patiently for the perfect wave, there is no rhythm or signal to tell him the wave is coming, it just arrives (there is a rhythm to ocean waves, but to catch the perfect wave takes patience). He can either take advantage of it without hesitation, or let it pass him by.
When observing a market inefficiency, I know its time to invest, and the opportunity won't be around for long. This has nothing to do with "timing" and more to do with fundamentals and anticipating the emotions of the market.
Thursday, February 19, 2009
Friday, February 6, 2009
Trading and Black Jack
If you've ever played Black Jack, you know what the term "double down" means. This option is available for every hand you play, but should only be taken advantage of when the odds are in your favor. To utilize this option, you tell the dealer, "I would like to double down". At this point you would put the maximum amount of chips next to your original bet, which can be up to 100% of your original bet, the dealer would then give you one more card, and one more card only.
If you could apply the rules of the New York Stock Exchange to Black Jack, you would be able to see your hand and the dealers hand before you ever had to bet anything, and if the odds were in your favor, you could wager all your money, and even borrow up to your chip count from the casino!
Good practice for investing in stocks, much like Black Jack, is to wait for the most opportune time (when the odds are in your favor) and get as much of your money in as you can! Unfortunately at the casino, you have to bet a least the table minimum (the minimum amount of money you can bet per hand) just to see your cards, then evaluate if the odds are in your favor and whether this hand is qualified for the "double down" option.
The great thing about investing in stock, is you get to see the "cards" (company accounting records, conference calls, price to earnings) before you ever commit any cash. You determine if the odds are in your favor and how much of your bank role you think this opportunity demands.
The tough part is determining when the best risk to reward ratio is in place for that hand....... I mean investment.
If you could apply the rules of the New York Stock Exchange to Black Jack, you would be able to see your hand and the dealers hand before you ever had to bet anything, and if the odds were in your favor, you could wager all your money, and even borrow up to your chip count from the casino!
Good practice for investing in stocks, much like Black Jack, is to wait for the most opportune time (when the odds are in your favor) and get as much of your money in as you can! Unfortunately at the casino, you have to bet a least the table minimum (the minimum amount of money you can bet per hand) just to see your cards, then evaluate if the odds are in your favor and whether this hand is qualified for the "double down" option.
The great thing about investing in stock, is you get to see the "cards" (company accounting records, conference calls, price to earnings) before you ever commit any cash. You determine if the odds are in your favor and how much of your bank role you think this opportunity demands.
The tough part is determining when the best risk to reward ratio is in place for that hand....... I mean investment.
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