Articles

Though the efficient market hypothesis as a whole theorizes that the market is generally efficient, the theory is offered in three different versions: weak, semi-strong and strong. The basic efficient market hypothesis posits that the market cannot be beaten because it incorporates all important determinative information into current share prices. Therefore, stocks trade at the fairest value, meaning that they can't be purchased undervalued or sold overvalued. The theory determines that the only opportunity investors have to gain higher returns on their investments is through purely speculative investments that pose substantial risk. Weak Form The three versions of the efficient market hypothesis are varying degrees of the same basic...

Many books offering investing advice discuss how investor psychology plays a key role in determining an individual’s success in building and maintaining a strong portfolio. Investors need to be aware of their own personality traits and how those qualities could affect their decision-making process. Successful investors take advantage of their positive traits that lead to advantageous investing decisions, and either control or eliminate negative attitudes that cause bad investment decisions. A bad decision about when to sell a stock can cause a significant loss. Bad Habits and Big Mistakes While some bad habits can lead to flawed decisions about buying stocks, other bad habits lead to mistakes in selling or not selling investments. Many...

Compare the average investor’s returns around the world to the average Wall Street firm’s returns. I think we would all agree that the average Wall Street firm is making the lion’s share of the money, while the average investor hardly ever comes close to achieving their financial goals. Next, think about what the average investor does in the markets; they “buy stock”. Now, think about Wall Street’s primary business; they “sell stock”. Hmm… One group is selling and producing very high returns each year, and the other, who is buying, struggles financially. And, this is happening in a market that typically goes up. Understand that I am not at all suggesting the average investor should stop buying stocks and start selling. What I am...

Is trading just a game of cat and mouse? Do we smaller traders - the mice - get noticed nibbling the cheese (profits) on the mouse traps set by the cats (the major player)? A Game of Cat and Mouse In my decades of trading, I've learned many lessons about the market. The chief of these lessons is that I don't know anything about the market; at least, in comparison to the market makers on Wall Street. Think about it. The traders at firms like Goldman Sachs, Merrill Lynch and the like pull down salaries of several million dollars each year. I refuse to believe that they are so richly compensated because they don't know anything. They know a lot! It's their job! As a result, like many individual investors, I engage daily in a game...

What do we do now? The "Bubble" burst, Single Stock Futures, Pairs Trading, Automation, New Platforms and Access. Professional traders are adapting to the new climate. I'm often asked what traits are common in a successful stock trader, and although there are many, the single thing that I find binds us all together is "adaptability"...plain and simple. We all thrived through the euphoria of the DOTCOM phase, and the NASDAQ meteoric rise through common sense into obscenity. Many a genius was behind a computer when the "buy and hold" mentality permeated the shell of proprietary trading. Swing trading was born from the attitude that "it's gonna go back up, wait and see!" TV and Online Brokers found gigantic audiences in the new...