Wednesday, January 19, 2011

The Kirk Report

The Kirk Report

Lessons From 2010

Posted: 19 Jan 2011 06:09 AM PST

Lessons From 2010

At the end of every year, I ask members of The Kirk Report to offer their feedback not only about the site itself but also to share some personal perspectives. For example, in the annual membership survey I asked the following question:

“What would you say is the most important thing you've learned about investing and/or trading in 2010?”

Here are some of the more noteworthy responses I received:


~ On Risk Management ~

  • Trading management is just as important as stock selection.

  • Think about the risk versus reward before taking any position.

  • When you’re caught up in the moment take a step back and think.

  • Capital protection is always the top priority.

  • Cutting losses is the holy grail.

  • Don’t play chicken using mental stops. Set hard stops and manage the risk.

  • Avoid large losses always. Keep loses small and you can survive anything.

  • There will always be another great investment.

  • Don’t overpay or be afraid to sell.

  • No edge means no trade.

  • Sitting on your hands can often be the best trade.

  • Don’t participate in the market, just to participate. Make sure the conditions are favorable to your method of trading.

  • Only losers add to losers.

  • I used to be an all in and all out trader, but scaling methods have improved my performance.

  • The trick is to get on board and stay on board until the trade fails.

  • Limit the number of trades you make every day forces you to be choosy and place better stops.

  • When you are up the most is when you are most likely to break your rules.

  • When having trouble dealing with the market, reduce your position size and raise cash.

  • Proper position sizing is key to risk management.

  • There are no risk free trades or investments.

  • The stocks and sectors that are considered safe are usually anything but safe.

  • Without taking risk, there is no reward.


~ On Strategy ~

  • Keep it simple. Simple works.

  • Trade what you see not what you think.

  • Learn to think for yourself. Trust your gut.

  • A good trading system must fit both my strengths and time limitations.

  • Focus on things that help you make money in investing/trading; tune-out all the noise about day-to-day news & opinions.

  • Follow the price trends rather than the pundits.

  • Less is more. Learn one “bread and butter” strategy and trade the hell out of it.

  • Be calm, have a plan, and ride it out through the rough times.

  • Be flexible & sensitive to what the market is doing rather than trying to tell the market what to do.

  • The importance of not having and trading a biased opinion.

  • Execute the plan – don’t just “think” about it.

  • Trying to pick tops is a sucker’s game.

  • Price action is king, volumes, divergences, oscillators all come after.

  • I now consider various scenarios, not just one, and assign percentage probabilities which has made all the difference.

  • You must fight the feeling that you have a good idea of which way the market is headed.

  • Don’t overload on technical indicators. Price is the only thing that pays.

  • When you become an expert of one basic simple trade, results can be truly outstanding.

  • Let your setups come to you – do not chase. There will always be another day, another setup.

  • Stay in the course until evidence proves the other way around.

  • Don’t overtrade. It is the sitting that makes the difference.

  • Playing both the long and short side of the market is important than just sticking with a long strategy.

  • Your analysis must involve multiple time periods.

  • The more time spent at the keyboard, the luckier I get.

  • The importance of having a system and sticking to it especially when your emotions are working against you.

  • Inaction due to fear of the unknown is the worst thing one can do.

  • You only need to be correct on one or two themes per year and overweight them to have acceptable performance.

  • Employ a two-week watch system in place before adding any new position.

  • Using stock screens for idea generation is far more effective than listening to other opinions.

  • Buy good companies when their stocks are distressed due to perceptions of bad news.

  • Keep your universe of stocks to review small. Only work on a limited number of instruments until you have mastered your strategy.

  • Follow trends, not all investments follow a random walk.

  • Having a plan, even a flawed one, is key to survival.

  • Trading is like painting – all the hard work is in the prep if you want to do a good job.


~ On Understanding Yourself ~

  • Understanding yourself is as important as understanding the markets.

  • Stick with what you know and are good at and leave the rest.

  • There are many ways to trade, find what works for you.

  • I am not smarter than the market.

  • To succeed, you must be mentally strong.

  • Learning to letting profits run is has proven far more difficult than I realize.

  • The emotional part of trading can be a deal breaker.

  • To be honest, I am a terrible trader. But that’s is because I don’t work hard enough.

  • Patience is a virtue in lazy portfolio investing.


~ On Development ~

  • To be honest, I’ve learned just how much I don’t know.

  • It’s up to me and no one else to make it all happen.

  • There is no “silver bullet” with success in the stock market – just a lot of hard work and determination.

  • The results don’t come without the work.

  • It is not a hobby to trade, it is a job.

  • It is much harder to trade than I imagined it to be.

  • Early success is no guarantee of future success.

  • Lose the ego.

  • It is tough not to get discouraged.

  • Watching the market too much is detrimental to my performance.

  • You have to find your own niche and be good at it. Practice!

  • You have to be on top of your game all the time to trade well.

  • For good or for ill, the importance of making my own decisions.

  • Paper trading and building confidence can be a useful tool in development.

  • Tips are for waiters; make your own decisions based on facts not on others opinions.

  • There are a lot of people who are perceived as knowledgeable about the stock market, but actually don’t really understand what they are talking about.

  • The professional traders who seem to succeed all had good mentors. I don’t have one and I need one.

  • My emotions are my worst enemy. My discipline wanes because I get burnt out and lose my interest.

  • Like Socrates, I’m ignorant and finding it hard to progress beyond ignorance.

  • Constant practice ultimately increases development more than any other thing.


~ On The Markets ~

  • Anything can and will happen in the markets.

  • The stock market does not follow conventional wisdom.

  • Do not underestimate the risk appetite of the stock market investor.

  • Traders think quite differently than investors.

  • In the new normal, market moves often last much longer and are much stronger than most expect.

  • Predictions are absolutely meaningless, don’t waste your time or energy. It’s only about whether you are making or losing money. Trade like a robot.

  • The market is never wrong. My opinions however, often are.

  • The trend is your friend, but also can be your enemy. Know the difference.

  • There are continual opportunities in the market.

  • There is way too much information and very little good information.

  • Don’t fight the Fed.

  • The government now plays a much bigger role in the market than I thought they ever could.

  • As J.M. Keynes said “The market can be irrational longer than you can be solvent.”

  • The stock market is a casino and the it is controlled by the big traders and small traders can get killed.

  • The importance and influence of the algos on the market.

  • The value of seasonality as a factor in making investment and trading decisions.

  • Momentum is a powerful thing. Fight it at your own peril.

There are some very powerful lessons and I hope you enjoyed reviewing them!