Ask a trader what is the most important aspect of trading and far to often they answer "profit".

WRONG.

If all we focus on is profit, then the question is how much is enough? What about the losers? Suddenly we've got greed and fear rather then trading.

What a trader needs to focus on is trading well, a good trade is not defined by profit or loss. It is defined by discipline, discipline to a predetermined set of rules that include; entry, exit and risk.

Profit id a by-product of successful trading. Trade to trade well.

Ask a trader what is the most important aspect of trading and far to often they answer "profit".

WRONG.

If all we focus on is profit, then the question is how much is enough? What about the losers? Suddenly we've got greed and fear rather then trading.

What a trader needs to focus on is trading well, a good trade is not defined by profit or loss. It is defined by discipline, discipline to a predetermined set of rules that include; entry, exit and risk.

Profit id a by-product of successful trading. Trade to trade well.

Ask a trader what is the most important aspect of trading and far to often they answer "profit".

WRONG.

If all we focus on is profit, then the question is how much is enough? What about the losers? Suddenly we've got greed and fear rather then trading.

What a trader needs to focus on is trading well, a good trade is not defined by profit or loss. It is defined by discipline, discipline to a predetermined set of rules that include; entry, exit and risk.

Profit id a by-product of successful trading. Trade to trade well.

results.antfarm.co.za/sarb/mpc_2010/

3PM start, no cut expected.

Frankly seeing as some of our local mines struggle to make money even when times are great (yes I mean gold mines with gold at record levels) and seeing as the challenges are not just Eskom, but also costs, strong Rand, safety, depth and more.

So why not give the government a couple of our gold mines, and we can call it evens?

Monday saw a break in the Seacom cable which carries internet traffic up the east coast of Africa to Europe (and repair is expected to take around a week). The effect of this break has been a number of service providers largely been unable to provide internet access to their clients as they rely exclusively on the Seacom cable.
 
Now the issue is why major ISP’s don’t have a backup plan, such as the Telkom owned Sat3 cable? But that's another story entirely. For now the question is -  what is your back up plan?

This is less of an issue for investors I would suspect, but for traders a backup plan is absolutely critical.

What happens when you power goes, or the internet fails or your PC dies? What if you are in a trade when this happens? Do you have a backup plan to monitor the trade and/or exit if needed?

First rule is to have your brokers support number stored in your mobile phone AND written down somewhere because maybe it is your mobile phone that is dead?

Work out what could go wrong and work out a plan to deal with it in case it happens.

Monday saw a break in the Seacom cable which carries internet traffic up the east coast of Africa to Europe (and repair is expected to take around a week). The effect of this break has been a number of service providers largely been unable to provide internet access to their clients as they rely exclusively on the Seacom cable.
 
Now the issue is why major ISP’s don’t have a backup plan, such as the Telkom owned Sat3 cable? But that's another story entirely. For now the question is -  what is your back up plan?

This is less of an issue for investors I would suspect, but for traders a backup plan is absolutely critical.

What happens when you power goes, or the internet fails or your PC dies? What if you are in a trade when this happens? Do you have a backup plan to monitor the trade and/or exit if needed?

First rule is to have your brokers support number stored in your mobile phone AND written down somewhere because maybe it is your mobile phone that is dead?

Work out what could go wrong and work out a plan to deal with it in case it happens.

One of the biggest problems with trading is having fun. Yes I know we should love what we do otherwise it becomes dreary and we start to hate it and start looking for other options, or worse we stop caring while still doing it, albeit doing it badly.

The issue with trading is that we have to banish all emotions from our trading, so dreary is actually what we’re trying to achieve. The challenge then is to remain focused and on top of our trading, even when it is dreary (I will deal with this in a separate article).

The problem with emotions in trading, and as such having fun, stems from our response to money.

If we’re celebrating the winners we fall into a number of traps. Firstly we define winning trades by profit or loss whereas a winning trade must be defined by doing the right thing at the right time – in other words discipline to the rules that govern our trading.

Secondly if we’re doing a jig because we make money, what happens when we have a losing trade and are losing money? Suddenly the world seems a dark place and we doubt our ability, worse we can’t handle the emotions of losing money so we ignore stop losses in the vain hope that losers will become winners – and this always leads to tears.

So this is the real issue, our response to money. To be a successful trader we need to not care about money and this is perhaps the hardest part of trading.

Everything about us is programmed to care about money; it is how we define ourselves and is the easiest measure of success (the person with the most wins). And of course we largely do things, trading especially, to make more money.

So in order to be bored by trading we have to remove money, and associated emotions,  from the equation and the easiest way to do this is to trade with an amount that we truly don’t care about.

So assuming, as Mark Douglas says in Trading in the Zone, it takes 20 trades to determine if a system is going to work, we need to be able to afford to have 20 losers (sure even a broken system is unlikely to lose 20 times, but let’s assume it will). In other words in order to start trading a system we need to be prepared to lose 20 times our Rand risk per trade. Hence if we’re going to risk R1,000 per trade the potential loss we need to be comfortable with is R20,000. We then need to add the three silent expenses; trading fees; slippage and spreads which can add another R5,000 – R10,000 depending what we’re trading.

We need to view this R25,000 – R30,000 as the cost of starting a business, because this is what we’re doing when we start trading – we’re starting a business. And any start up business has start up costs and risks, risks that it all goes bust and we lose the start up capital.

Importantly this figure is only your money at risk, you’ll need more to actually trade with – I always say a trader ideally needs R100,000 to start trading.

So bottom line; you’re starting a new venture were your start up capital is at risk – do you care about that R25,000 – R30,000. If you do, then stop right now because otherwise the emotions will ensure your failure as a trader.

With this in place – not caring about the money, we can strive for the boredom that will ultimately ensure successful trading.
 

Simon

http://twitter.com.simonpb

I posted a comment on a chat forum a few weeks back asking why everybody always wants to be buying "cheap" shares? The answer is simple - as humans we always want to feel we got a bargain, no difference with investing.

But two thoughts where wandering around my head when I made the comment.

Firstly what of other investment strategies? Cheap is essentially a value investing strategy, and while that may be great for many it is hard as you generally have to buy when nobody else is buying and what of Momentum, discounting future cash flows etc. ?

Secondly, the issue I suspect is just that prices have risen and everybody is looking at what you could have bought a stock for in mid 2009 and regretting not having bought runs around saying - things aren't cheap I won't buy. It almost absolves them of doing anything.

But then this fixation with cheap falls into one of the biggest traps - price is not an indicator of cheap. In fact price tells you nothing except what others are selling and buy for.

So here's a simple method I have long used to help me find "cheap" stocks. Having identified a blue chip share on some basic fundamentals I now wait for it to be cheap and for that I turn to the PE ratio. The PE ratio tells me what value I am getting for my money, so it in a sense it'll help with cheap part.

I then get a long term chart of the PE ratio and figure out the low points over that time frame and look to buy around the average low point.

So for example below is the PE chart of Pick n Pay, we can clearly see that below 15 seems to be the magic number which gave you about 7 buying windows over the last twelve years - and everyone was a decent point for a long term buy and hold strategy for Pick n Pay.

For those wanting to be more aggressive one could then be selling above the 22 level - but that's another strategy entirely so we'll cover it another time.
 

http://twitter.com/simonpb

I posted a comment on a chat forum a few weeks back asking why everybody always wants to be buying "cheap" shares? The answer is simple - as humans we always want to feel we got a bargain, no difference with investing.

But two thoughts where wandering around my head when I made the comment.

Firstly what of other investment strategies? Cheap is essentially a value investing strategy, and while that may be great for many it is hard as you generally have to buy when nobody else is buying and what of Momentum, discounting future cash flows etc. ?

Secondly, the issue I suspect is just that prices have risen and everybody is looking at what you could have bought a stock for in mid 2009 and regretting not having bought runs around saying - things aren't cheap I won't buy. It almost absolves them of doing anything.

But then this fixation with cheap falls into one of the biggest traps - price is not an indicator of cheap. In fact price tells you nothing except what others are selling and buy for.

So here's a simple method I have long used to help me find "cheap" stocks. Having identified a blue chip share on some basic fundamentals I now wait for it to be cheap and for that I turn to the PE ratio. The PE ratio tells me what value I am getting for my money, so it in a sense it'll help with cheap part.

I then get a long term chart of the PE ratio and figure out the low points over that time frame and look to buy around the average low point.

So for example below is the PE chart of Pick n Pay, we can clearly see that below 15 seems to be the magic number which gave you about 7 buying windows over the last twelve years - and everyone was a decent point for a long term buy and hold strategy for Pick n Pay.

For those wanting to be more aggressive one could then be selling above the 22 level - but that's another strategy entirely so we'll cover it another time.
 

http://twitter.com/simonpb

For most people starting out as a trader the key thing they are looking for is the system that they will trade. An sure the system is important, but ultimately is is but one part of the bigger picture, and that bigger picture is the process.

I am going to explore this further, but to start here are some examples of what could be included in the process;

• What is being traded?
• What time frame?
• What chart (online, stand alone etc.)?
• What product (equity, currency, index, commodity, etc.)?
• What instrument (derivative if any)?
• When are the charts checked (what time every day, during the day)?
• The trigger system?
• Affirmations; what and when?
• What times are trades entered?
• Risk management?
• Trading note that records your potential entries?
• What journal entires are being recorded?
• What constitutes success (benchmarking)?
• How often is the success measured?

In short the step-by-step process that one follows for every trade. If we write this process down and refine it then it becomes easy to follow and helps ones trading become unconscious - and that is the ultimate aim of trading.
 

For most people starting out as a trader the key thing they are looking for is the system that they will trade. An sure the system is important, but ultimately is is but one part of the bigger picture, and that bigger picture is the process.

I am going to explore this further, but to start here are some examples of what could be included in the process;

• What is being traded?
• What time frame?
• What chart (online, stand alone etc.)?
• What product (equity, currency, index, commodity, etc.)?
• What instrument (derivative if any)?
• When are the charts checked (what time every day, during the day)?
• The trigger system?
• Affirmations; what and when?
• What times are trades entered?
• Risk management?
• Trading note that records your potential entries?
• What journal entires are being recorded?
• What constitutes success (benchmarking)?
• How often is the success measured?

In short the step-by-step process that one follows for every trade. If we write this process down and refine it then it becomes easy to follow and helps ones trading become unconscious - and that is the ultimate aim of trading.
 

For most people starting out as a trader the key thing they are looking for is the system that they will trade. An sure the system is important, but ultimately is is but one part of the bigger picture, and that bigger picture is the process.

I am going to explore this further, but to start here are some examples of what could be included in the process;

• What is being traded?
• What time frame?
• What chart (online, stand alone etc.)?
• What product (equity, currency, index, commodity, etc.)?
• What instrument (derivative if any)?
• When are the charts checked (what time every day, during the day)?
• The trigger system?
• Affirmations; what and when?
• What times are trades entered?
• Risk management?
• Trading note that records your potential entries?
• What journal entires are being recorded?
• What constitutes success (benchmarking)?
• How often is the success measured?

In short the step-by-step process that one follows for every trade. If we write this process down and refine it then it becomes easy to follow and helps ones trading become unconscious - and that is the ultimate aim of trading.
 

The ValueHuntr website has put together a collection of previously unpublished papers from the master of value investing - Benjamin Graham. They cover the period 1930-1974 and have put together into one PDF document.

You'll find them here.
 

Conventional thinking says that the strong Rand is all bad news and that it is especially bad for our economy in general and the manufacturing sector in particular (ignoring for the moment the elephant in the room - can anybody do anything about the strong Rand?). But is this not perhaps just the easy thinking - believing things just because we believe them, not because we have interrogated and proved them to be true?

Are we perhaps not just lazy thinkers when it comes to the strong Rand?

This 'strong is bad' view is perfectly illustrated by an article in today's Sunday Time titled Rand is killing manufacturers - written by Guy Harris who  is the public affairs director of Bell Equipment and a member of Manufacturing Circle. In other words he is talking his book when calling for a Tobin tax and a 1.5% interest rate cut next week. Now just because he is talking his book doesn't make him wrong, it merely means we need extra interrogation of what he is saying.

That extra interrogation is provided by Adrian Saville from Cannon Asset Managers who recently wrote a piece titled Cents and Sensibility in which he says a weak Rand is of very little real benefit to our beleaguered manufacturing sector. Now here is a paper that has indepth research on the issue and brings facts to the table rather then rhetoric and lazy thinking.

So is it all stereotypical thinking that a strong Rand is bad? Certainly the case is not nearly as clear cut as many would have us believe?

NOTE: I will be interviewing Adrian Saville about his report on JSEDirect on Tuesday just after 7pm on Classic 102.7.

twitter.com/simonpb
twitter.com/jsedirect

 

Capitec announced a R1billion rights issue today (pitched at R125 take up price, 1 new share for every 10)). My gut says rights issues are bad, they the last route for raising money as you pay for the money forever as you've issued shares and those new shares holders have a profit right forever.

Further, looking at the last Capitec numbers - why? Why they raising money? The balance sheet is not under pressure, debt is not an issue? So why?

Well here's my 5c view.

 If your share price has done crazy stuff (+55% in 6 mnths, +111% in 12 mnths & +220% in 3 years), why not capitalise on it?

Maybe the directors agree that the price is crazy (I been commenting since R70 that the price was crazy), why not cash in on the crazy price with a rights issue pitched at R125?

So in short - maybe the directors look at the rights issue at current share price levels as very cheap money to grow the business?
 

The Johannesburg Stock Exchange invites you to their next Power Hour presentation. These series of presentations will educate you on the principles of investing and the latest issues in the South African economy. 

In their third presentation, Barry Bramley will give an overview on the generational theory - how the Gen-X's want to manage their money and the impact thereof. 

JSE POWER HOUR
DATE: Thursday, 24 March 2011 
TIME: 17h30 – 18h30 
VENUE: Johannesburg Stock Exchange, Auditorium, One Exchange Square, Gwen Lane, Sandown 
PARKING: Across the road at Village Walk 
RSVP: Please respond by Thursday, 17 March 2011 
FURTHER INFORMATION: Takalani Philip Nyelisani on Tel: (011) 520 7127 or takalanin@jse.co.za 

To RSVP please click here

The annual list of the world's richest people is up on Forbes. Carlos Slim stays at the top with $74b and he is pulling away from the rest of the pack with Gates worth $56b at #2 and Buffett with $50b at #3.

#100 on the list has $9b, so now we know what to aim for and  # 1000 has some $1.2b - not to tall an ask?

South Africa doesn't crack the top 100. But there are 4 in the top 1000 (not bad I spose?).

# 136 - Nicky Oppenheimer & family @ $7b
# 219 - Johann Rupert & family @ $4.8b
# 336 - Patrice Motsepe @ $3.3b
# 782 - Christoffel Wiese @ $1.6b

The big country winners (aside from the US with 31) are Russia with 16 and India with 7. Surprising on the downside is Germany 6, France 4 and UK 1!

twitter.com/SimonPB

 

With the US debt being downgraded to AA from AAA, it really is the end of the world as we know it. Ever since rating agencies starts in the first half of the 1900's the US has had a top notch rating and now it is gone. Something that existed for our entire life time (a triple A rating for the USA) is no more. The world of the USA as the global economic super power is over as that mantle gets handed over to China. Unfortunately the hand over phase is going to be protracted and messy rather than a nice clean ceremonial handover with no fuss or panic.

The deepest irony is that China is now even openly questioning the USA's debt issues!

So now what?
Well firstly the ratings agencies have a tarnished reputation since the crisis of 2008 which they helped fuel by giving junk top ratings - too my mind they played the role of Arthur Anderson in the Enron debacle - but got off largely scot free. In this down grade of the US they actually put the US debt $2trillion higher than it is, but when that was pointed out they commented it didn't change anything. That all said they still rule the roost and may investment firms are only allowed to invest in assets with certain ratings, so I suspects a number of firms who can only buy AAA debt are going to be scrambling come Monday.

Another big issue which Stuart Thompson address's here is what of the risk free rate. Whenever one need a risk free rate the US government bonds was the preferred option - but no more. This has potentially huge options for option prices and the like who now have to rework their numbers with a new risk free rate. And where do they get that new rate from? What is truly risk free in the current environment?

So does this mean the end of the global economy?
In short no. The recovery was always fragile and going to take a long time for full recovery and this is just another point proving just how fragile. Planet earth has massive sovereign debt and hardly any first world growth, that's ugly and means the recovery remains fragile for a while still. As for double dip,  I don't think so but it's certainly not impossible.

So should we panic?
Well no, if you're going to panic, panic early - now is too late. Sure equities are going to get hit hard, but any investor has to have a time line of at least 3-5 years for any investment so while the ride will be wild this is not the end. As for gold, well in the darkest days of 2008 gold did nothing for the simple reason that nobody had money to buy gold and that is likely to play out again in the short term.

So what of Monday?
Well the good news is that the sun will rise but other than that Monday is going to be seriously ugly. The downgrade came out after the US market closed on Friday and while there was a rumour running around before the close markets largely ignored it. Locally Monday could well be +1,000 points down, in fact even 2,000 points is not impossible and if I was a betting man I would suggest closer to 2,000 than 1,000. That makes for around 6% down? So as I said, it is going to be ugly. But as I also said, this is no time to panic.

The big picture is the changing of the guard from the USA to China as earths economic super power was always going to be messy and we now full throttle in that process. Poetically the Chinese curse goes - may you live in interesting times.

It's the end of the world as we know it - released as a single by REM in 1987 (from their album New Adventures in Hi-Fi  actually from Document) reaching a very modest 69 in the US charts and 39 in the UK.

twitter.com/SimonPB

simonbrown.co.za