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What Do You Think You Know

The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.

Warren Buffett, annual letter to Berkshire Hathaway shareholders, February 2008.

One of the trading beliefs I cling to dogmatically is that I don’t know anything about markets and I know even less about the instruments I trade. I will happily and extreme confidence tell anywhere who asks me that I have no idea where markets are going. I will readily place a series of bets on where the market has been but where it will go is a mystery to me since what I think doesn’t matter. It is important to understand that only one-opinion matters and that is the markets opinion – my opinion doesn’t count nor does yours. All we can do is align ourselves with the markets opinion and then be wary of when the market changes its mind.

All too often traders or investors get caught up in their narrative. Somehow believing that their story is important and can in some way be communicated to the market.

Instead of finding this lack of ability distressing I actually find it liberating because I have found over  the years I do not have to know where the market is going. All I need to be able to do is avoid catastrophic errors and make money when I fortuitously align myself with the market. The reason I raise the point of not knowing is that it rids me of any existing belief regarding an instrument. This freedom brings with it clarity.

Consider the chart below of Qantas.

Screen Shot 2015-03-27 at 8.46.56 am

 

Qantas is currently the second best performing domestic stock I hold. In conversations with others who trade similar systems to mine it has emerged that many do not hold Qantas despite their system telling them to. The reason they didn’t take the trade is that they had a perception of what an airline stock should do and go up was not one of the perceptions they held. Intriguingly, last year the DJ US Arline Index was one of the best performing sectors in the US – a rally that was missed by many because investing airlines could never be a good thing.


Airline Index

Knowing nothing means expecting nothing and expecting nothing is generally a good thing.

Opportunity International


 

Why We’re All Overconfident

On the flip side if we were not overconfident we would still be living in caves….


 

At Kodak, Clinging To A Future Beyond Film

The story of Kodak fascinates me – the company that invented the digital camera 1975 was eventually sent broke by it.

What happens after a tech company is left for dead but the people left behind refuse to give up the fight? At Kodak the answer is to dig deep into a legacy of innovation in the photography business and see if its remaining talent in optics and chemistry can be turned into new money in other industries.

Once a household name as big in its day as Apple and Microsoft have been for later generations, Kodak was part of everyday life, its film — sold in a yellow box — recording births, vacations, weddings. And then Kodak became a cautionary tale about what happens when a tech company is slow to change. For Kodak, the advent of digital photography was ruinous. Today it has $2 billion in annual sales, compared with $19 billion in 1990 when consumer film was king. It now has 8,000 employees worldwide; it had 145,000 at its peak.

Since emerging from bankruptcy, the company has mostly served niche film markets — there are still a few die-hard directors who refuse to shoot digital — and provides equipment for printing newspapers, on packaging and the like. Much of its revenue comes from legacy businesses. For Kodak’s new chief executive, along with veterans like Mr. Taber, the key to survival is in its research legacy, thousands of patents and a coterie of scientists who are making new discoveries.

More here – The New York Times

Apparently They Have Asked Me Back…..Who Would have Guessed?

2015 Conference Brochure LR

Charts of Interest 20/03/15

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What $35 Million Buys You In California


 

General Advice Warning

The Trading Game Pty Ltd (ACN: 099 576 253) is an AFSL holder (Licence no: 468163). This information is correct at the time of publishing and may not be reproduced without formal permission. It is of a general nature and does not take into account your objectives, financial situation or needs. Before acting on any of the information you should consider its appropriateness, having regard to your own objectives, financial situation and needs.