Category Archives: daily speculations

Daily Speculations – Jason Shapiro’s journey

A long flight gives Jason Shapiro the time to do some thinking about his journey as a trader:

I have been involved in investing and trading the global markets for 18 years now. I’ve really never done anything else, never wanted to do anything else, and through thick and thin, which included more than one trip to the welfare line and some really cool sports cars, never tried to do anything else. For at least seven of those 18 years the money I have been trading has been 100% my own, and for many of those years nearly all the money I had. This has given me a different approach from most, since trading other people’s money while earning a 2% management fee or while taking in a nice salary while you hope something good happens can give a level of comfort I was not blessed with coming out of the gate. Whenever someone asks me how to learn to trade my response is that it’s easy to learn — take every dollar you have, put it in a brokerage account, put it all on the line, and I promise you will learn very quickly how it works. I don’t mean to be glib. It’s just that this is exactly how I did it so I know of no other way.

From Daily Speculations, my favourite web site … okay, second to Google.


Knowing when to give up


Over at Daily Speculations Victor Niederhoffer offered some words of wisdom on knowing one’s limits:

‘One of the best things that I’ve done in my own speculative career is to realize that I am a loser in various niches and to exit those forever.

I retired relatively gracefully from squash after losing for only a year or two. I did the same with fixed income, and after a loss with foreign currencies.’

‘I shudder at how active and how good one has to be at something just to try to stay above water. I would urge all who trade the markets to periodically stop and think whether they have an edge. They should decide if they’ve made money, taking into consideration all their bad luck and the rule of ever-changing cycles.

The market loves to let you make money on small capital (like they did with the trend followers and so many hedge funds) just so you invest humongous amounts on ‘the system that can’t fail’, only to take you for billions later on.’

In the comments section of the post, Alan Millhone quotes Clint Eastwood, ‘Man’s got to know his limitations.’

This got me thinking about that moment when people decide to give up and move on to new endeavours. I think it’s important to think about quitting before the event because it puts you in greater control of the final decision to exit.

In the sporting world, UK tennis player Greg Rusedski decided to retire a few months ago. Discussing his decision on a UK chat show, Rusedski expressed great humility in appreciating that he no longer had what it takes to compete at the highest level and that he just didn’t seem to want it as much anymore. The likes of Agassi and Ivanisevic are proof that players can continue to play well into their middle years but players need to have the internal drive, and flame of ambition burns at different rates for different people.

Elsewhere, another recent high profile retirement came from the world of ballet, with 38- year old Darcey Bussell exiting the stage when she was at the peak of her career. This left a lot of fans puzzled, even angry, but Bussell stuck to her decision to bow out. She commented that it was increasingly difficult to maintain the strength to get through three hour ballets, and that her priorities were shifting toward her two children. Bussell also said, ‘I think I have seen so many dancers not retire when they should have’, ‘I don’t want to start fizzling out and people wanting me to retire’ and, ‘As long as I feel good about it I have no regrets… and I’m very happy.’

When to exit a niche or life endeavour is a difficult decision to make but surely it must be better to leave on one’s own terms, rather than staying in the game well past one’s prime and potentially becoming an example of ‘how not to do it’. In trading, it probably doesn’t make sense to exit a niche until we experience a string of losses, evidence that we have truly lost our edge. In that sense, the signal to retire can be quite clear.

Returning to my own trading, I have a point of ruin at £9000 but on top of that I have decided that I will exit the game if I lose money ten weeks in a row. That would be ample evidence that it is time to move on.

Recommended reading at Daily Speculations

There is always something worthy of note over at Daily Speculations. This week, Victor Niederhoffer makes an interesting observation on homebuilding and the wider market.

In another piece titled ‘Consumer Punks’, Vic reminds us to be aware of the chronic pessimists:

“It seems somewhat petty on my part to constantly point out the fallacies in the chronic pessimists’ (the Abelprecbuffgrosoros’) arguments. Eventually they will be right, and I have no idea if the current market is more bullish or more bearish than at any time, and I certainly don’t find this a more than usually good time to establish positions … but the point I wish to make is that there is no reason to think that the reasons for bearishness are greater today than at any other time in the last 100 years.”

“One thing that I can say for sure is that all the chronic pessimists I know of that actually trade, (in contrast to the weekly financial columnist) and who must take responsibility for their calls, are scratching the backs of solvent members from their perches and living quarters in the vicinity of the Trinity Church graveyard. Such will continue in my opinion into the indefinite future, because of the creative power of the individual when placed in a system with proper incentives and the protection of property rights.” (This refers to the long-term upward drift of the equity market).

“The question is, however, that whenever the ratio goes the other way, like P/E, now the lowest in 20 years, or oil, down 5% over the past year, or now the dollar up against the yen over the past year: why then do you never hear about the relation that was formerly bearish and is now being bullish?”

I’ve only been a watcher of the markets over the past fifteen years or so, but I agree completely with Vic’s view. During my time, regardless of the widers state of affairs, the pessimists have never struggled to concoct stories of doom.

PS – Vic’s articles from (2000-2001) have been archived in pdf form and can be viewed here.

Insights from Daily Speculations

I’d like to share two interesting pieces from Daily Speculations.

In the first piece, Jim Sogi looks at the story of the Whaleship Essex:


In the Heart of the Sea, The Tragedy of the Whale Ship Essex, by Nathaniel Philbrick, is a heartbreaking account of the attack by a sperm whale against the Essex, its sinking, and the devastating 87 days at sea in small whale boats and the suffering and struggle of the diminishing crew. As with many tragedies, though perhaps precipitated by some random event, a series of miscalculations, errors of judgement, both before and after led to creating a much worse situation.

In the case of the Essex, it was an older ship and the owners may have skimped on some repairs leaving it weakened structurally allowing the whale to stove its sides. The new young captain through bad sailing allowed a knockdown near the beginning of the voyage leaving them short of whaleboats. They were unprepared for a sinking.

After the sinking, rather than head for the Society Islands a few hundred miles away as the Captain first decided, he succumbed to the opinion of the mate and crew to go up wind, thousands of miles to South America. This example of poor leadership resulted in suffering and death. The horrific plight of the starving sailors on the small boats and who survived and who died and why in the social order gives much food for thought. It is notable that Captain Pollard eventually sunk a second ship by crashing it on a reef. Was it random? Bad luck? Or something else at work. The story reminds me of the feelings of a trader stuck in a bad trade or drawdown, starving for days and weeks and months on end but eventually making it back. Some even go on to live out their lives, but for some reason, the characters in this book seem to attract the plague of the fates. In this case, were correlation and causation related? That is an important question.

This got me thinking about the importance of preparation and caution when trading. Bad things will happen, of this there is no doubt, but preparedness can play a decisive role in determining the extent of the damage. Furthermore, this story also provides a lesson in how the rational decision making process can fall apart in times of crisis and pressure, when people’s backs are really against the wall. I’ve experienced this feeling in trading: during these times of confusion, my rational compass has stopped working and I’ve succumbed to a kind of madness of not just taking desperate measures, but of acting without thinking. I’ve been lucky to survive this experience, but it sure felt like a final pre-death frenzy. In appreciating the extent to which our thinking becomes clouded in times of crisis, so we realise the importance of guarding against these times in the first place.

The second piece on Daily Speculations concerns the role of fun in sports. ‘No Fun at All‘ comes from Victor Niederhoffer:

There is a point of view out there that the best performance comes when you’re having fun. In my lifetime I have played in more than 10,000 refereed squash matches, and won at least 50 national tournaments, and I never had fun in any of my matches. When I tried to have fun, it was disastrous, and I shudder at what a horse’s ass I was on those occasions.

To someone who’s a serious competitor, the idea of having fun in a tournament is ridiculous. There’s so much work, and so many better athletes that you have to beat. So many officials working to do you in, and so much equipment to properly deploy. So much practice and preparation before and during the event. You might think that this is a matter of individual differences or different sports, and I grant that there are some so great that they can soar so high and so much better that it’s possible for them to have fun.

I believe that Sharif Khan and Hashim Khan had fun when they beat me, but they didn’t have that much fun when I beat them, on those much too rare occasions.

I do know it’s totally wrong to try to have fun in the market — it’s much too hard, and there are no naturals. The cycles are always changing.

One of the best things I’ve done in my operation is to make sure that no one has fun in my office. Every now and then, I catch someone who doesn’t get the joke, and I upbraid them. 

I try to suppress all exuberance, and when I hear of some former trader who loves to have fun by trading I know he’s a straw man waiting to be exposed, and I only wish I could short his fund. Normally I wouldn’t comment on a subject like this but I am sure that all frivolity should forever be knocked out of the speculative arena, especially when even an iota of other people’s money is involved. They should have their own fun with money you make for them through serious and scholarly discipline and improvement, with no fun whatsoever.

See the original article for additional contributions from others, including a chess grand master and a marathon runner.

More insights from Daily Speculations

Here are my recent favourites from from the wonderful Daily Speculations:

– In an entertaining piece posted today, Vic Niederhoffer explains recent market events in the context of the Night of the Living Dead. I applaud Vic’s relentless optimism. It’s a much needed antidote to the endless pessimism spewed forth by the doom-mongers and perpetuators of fear.

– In What I’ve Learned from Losses,  Scott Brooks stresses the integral importance of losing:

One of the tenets of my life is that I want to be known as the guy with the most losses. I want to be the guy that lost the most. My reason for this is simple: the guy with the most losses is also the guy with the most victories.

I recommend reading the full entry.

Steve Leslie finds an excellent quote by Vic Sperandeo (author of Methods of a Wall Street Master):

“The more the victim struggles the more the alligator gets. Imagine an alligator has you by the leg: it clamps your leg in its mouth and waits while you struggle. If you put one of your arms in the vicinity of its mouth while fighting to get your leg free, it lunges and then has your arm and leg in its clutches. The more you struggle, the more the alligator takes you in.

So if an alligator ever gets you by the leg, remember that your only chance to survive is to sacrifice the leg and drag yourself away. Translated to market terms, the principle is when you know you are wrong, close your position!”

Having been dragged down by the alligator several times in the past, I know I would do well to keep this in mind.

– Even though it sometimes feels like the world is against me, with my my stops being ruthlessly hunted down before the market turns in the other direction, I have to agree with Larry Williams

I do not believe there is a night crew, specialists, floor traders, et al., going out after my stops or my positions.

I think that is a sophomoric concept. If you are getting stopped out a lot it simply means your stops are too close and market randomness is doing it to you — not some cabal that meets in secret prior to the opening every day.

– Bruno Ombreux writes an excellent piece about his efforts at timing the market and how calling the exact top and the exact bottom of a market isn’t a guarantee of success:

…my market timing allowed me to sell at all the intermediate tops in 1997, in 1998, and in March 2000. It allowed me to avoid the bulk of the bear market in 2000-2002. I came back too early in August 2002, sold in September, came back at the exact bottom in March 2003!

… It is incredible that even though I caught most major tops and bottoms in 10 years, I only over-performed by 2%

First, I caught all the actual tops, but also about 10 of them which never turned out to be tops. The market continued higher and I missed part of the move. Second, even when the top was an actual top and I was flat, it created the problem of knowing when to get back in, which in most cases occurred a bit too late. Third, buying and selling too much is created a lot of friction in the form of commissions.

Based on this I decided to be always 100% long. I am not timing the market, styles, or anything any longer. I still hope to continue beating the market by a couple percent a year from stock-picking (probably more beta than alpha). I don’t care if the results are more volatile. This is largely compensated by a huge decrease in workload and worry. Freed time can be dedicated to more useful pursuits, ….

– And lastly, James Tar provides an excellent quote by Roger Federer on losing as a fact of life:

“That’s not the way it is. A guy put me away when he had to. He played a perfect match in the end. He didn’t give me any more chances. He served well. He didn’t give me any unforced errors and I was just playing too poorly in the end to come back. So the right guy won today. That’s just a fact.”

Wisdom from Daily Speculations


I’d like to share a couple of my favourite, recent posts from Daily Speculations. This site is so rich in content it hurts that I can’t find the time to go through it’s voluminous archives.

– The first post is by Haany Saad, who tells of his interesting journey of how he left accountancy (he was the youngest ever manager at Price Waterhouse) and liquidated his businesses to become a successful trader. Despite his clear success, Haany realised that all was not well with his approach and he went on a quest for the truth. Here are some snippets:

I was living alone and didn’t work for a long time. I survived on the capital from the businesses I liquidated. I read every book on technical analysis. I learned about every pattern. I programmed every indicator known to man and developed a system that weighted indicators by their success rate. Even then, unwittingly, I was trying to be scientific. I invested everything I had in the markets and was making more money that I dreamed possible for someone my age. I started living large. I once owned every model of the Rolex watch ever manufactured. No exaggeration. I owned a violin that was auctioned for the equivalent of five years of my audit manager salary without a blink. I still have my tax bills to prove it.

It always worried me that it came so easily.  Even then I guess I was smart enough to have my doubts. The more money I made, the more I wanted and the more I worried. I worried that my system might be flawed. The more I worried the more I studied.

I had charts everywhere in my bedroom. More quote machines and news feeds than a mid-sized fund operation would need.  Financial journals scattered all over my floors.  Books everywhere. I was a genius. If you wanted a picture of illusion de grandeur, I was it. I always felt I should enjoy it as best as I could, as it could be taken away from me without a warning.

… I didn’t like my game even though it was profitable. I didn’t have an edge. Making money doesn’t mean you have an edge. But, what’s an edge? How do I know I have one? I studied history. I read about wars. I tried to develop a philosophical framework of what edge really is. The more I read, the more I realized that whatever an edge is, I didn’t have it.

I really admire Haany because I don’t think that many trader’s would continue to search and question themselves after they have proven themselves successful. This kind of humble but enquiring attitude is surely invaluable in protecting a trader from becoming a victim of their own success and eventually handing back their profits to the market through hubris.

– The second piece is titled How to Survive a Rip Current by Steve Leslie. In this piece Steve advises traders on what to do when caught up in a financial rip tide:

… Similar events occur when speculators gets caught in a rip market. The natural inclination is to fight back and try to swim back to shore or, in this case, try to get even. They exhaust their capital by overtrading until eventually they drown in their losses.

The correct strategy when faced with a powerful force is to swim alongside the turbulence rather than engage it before re-entering, until you find the proper entry point and things have calmed down. This is taking the path of least resistance and it ultimately leads to a more harmonious and profitable conclusion.

I find this advice particularly relevant in these times of heightened uncertainty. Personally, I have already been dragged out by several rip-tides during my short trading career. On these occasions I have tended to struggle frantically, often adding to losing positions or widening my stop to illogical levels, with a large drawdown usually being the final result. On those rare occassions when I have managed to rescue myself through this approach of desperation , I know these trades fall under the dangerous ‘lucky bad bets’ category. These days, I am much more cautious on my entry, and when I get pulled away from the shores I don’t automatically ‘double-up’. Patience really is a great virtue when a market is in panic.

Black Tuesday – blogger’s thoughts

In a week of heightened volatility in the financial markets – when opportunity for profit came hand in hand with increased potential for loss – I thought it would be interesting to collect the thoughts from a handful of trading blogs:

A conflicted Tyro Trader opted for the cautious route:

‘I just wish I had the skills & confidence to trade more actively.’  He later commented ‘I’m telling myself that sitting on the sidelines is a sign of caution and experience, not cowardice.’

There is a fine line between courage and stupidity. I find the decision not to trade a difficult one to make, but the when I trade just because the market is moving, I feel I am handing over control of my destiny to the market; reflecting after the event, this type of speculation usually feels more like roulette than trading. I think Tyro made the right choice.

Jason at Estocastica made the same decision on Black Tuesday:

‘… I choose to stay on the sidelines today and did not make any trades.’

Uglytrader suffered a 7.7% loss with his automated system, but was glad for being emotionally removed from the decision making process:

‘One thing that is great about an ATS, though, is that your ego is not nearly as involved as with trading on your own. At least for me. The ATS lost money today, but whatever – I didn’t lose money. The computer did. Now if I had traded as poorly as the ATS today, it would have hurt a lot more. I guess I would feel more responsible or something. Sure, there are a lot of subtle advantages a human trader has over a computer today. But I see a lot of potential with using a program to trade. It more clearly separates the ego from one day’s results. It also is consistent – and this gives you a much more clear understanding of how the system works and how well it performs. And what to tweak.’

JC at NYSE Trader was also side-lined, not through choice but due to technical glitches. He gave his thoughts as he persevered through a tough trading patch, adapting his style along the way:

‘I’m shutdown and I can’t trade. This is the kind day I’ve been waiting for and I’m out on the sidelines.’

Later in the week:

‘After a rough and bloody week so far, all I wanted to do today was just end the day with some profits and to stop the bleeding. I had losing days on Monday, Tuesday and Wednesday of this week….the first time I’ve had back-to-back-to-back losing days since…well…since I started as a trainee almost two years ago. I don’t know what I would be thinking right now had I lost money again today (I’d probably throw in the towel and call it quits).

I understand that volatility has gone way up the last few trading days and that it’s probably not the best suited for the kind of trading I do. But I think what I failed to do this week was to adapt to these changes.Today I gave many of my trades plenty of room to move and I also gave them plenty of time to work themselves out (longer than I usually would give them). I also tried to keep most of my positions small, just until I can adjust to this volatility and just until I can get myself back on the right track.’

It looks like JC had to ask some pretty tough questions this week, but he is a professional and profitable trader and I believe he stands better a better chance of success than most. When he realised his previous approach was no longer delivering he adapted by giving the trades more breathing room. Importantly, he also reduced risk, feeling his way through the new environment. I believe this kind of adaptability is absolutely key to staying alive over the long-term because conditions change and approaches fall in and out of profitability. Simply assuming that what worked before will continue to work is deadly.

And what of my story? The currency markets certainly played a role in adding to the turmoil in the financial markets this week, with the high yielding currencies falling like stones versus the funding currencies. Previously, large moves like this would have drawn me in to the game as a trend follower, but this time around I tried stick to my trading script, taking the advice of Steve Leslie over at Daily Speculations, who said: ‘Be your own man. Make decisions based on your beliefs and your philosophy for better or for worse. If you had a good plan going into today, chances are it will be a good plan going forward’. He also said ‘Focus on what you have control of. Manage the trade; don’t let it manage you’, a phrase which really stuck with me through the week. So, even though I spent many hours glued to the screens, I didn’t allow myself to get suckered in and trade for the sake of trading. I just had to admit that I don’t really have a clear strategy for this type of event.

Readers are welcome to share their own trading experiences.