Thoughts about the markets, automated trading algorithms, artificial intelligence, and lots of other stuff

  • What Happens to the Best Old Traders?

    I visited the trading floor of the CME this week with Bobby Schwartz.

     

    141223 HMG and RTS on CME Floor

     

    Notice his badge number. He used to be one of the largest volume traders on the exchange.

    While there, Bobby quickly slipped into his old rhythm, and I had a chance to experience his old persona.  He showed me the hand signals he used on the floor. It was complex, fast-moving, and cool to see.

    On one hand, the mastery was undeniable. On the other hand, it's a reminder how fast things change. It doesn't matter how good you are, or what your edge was … times change, markets change, and so does what a trader must do to make money consistently.

    Bobby is a great example of that. He now runs one of the largest IBs and has shown, many times, that adapting quickly is the way to survive – and thrive. 

  • What Happens to the Best Old Traders?

    I visited the trading floor of the CME this week with Bobby Schwartz.

     

    141223 HMG and RTS on CME Floor

     

    Notice his badge number. He used to be one of the largest volume traders on the exchange.

    While there, Bobby quickly slipped into his old rhythm, and I had a chance to experience his old persona.  He showed me the hand signals he used on the floor. It was complex, fast-moving, and cool to see.

    On one hand, the mastery was undeniable. On the other hand, it's a reminder how fast things change. It doesn't matter how good you are, or what your edge was … times change, markets change, and so does what a trader must do to make money consistently.

    Bobby is a great example of that. He now runs one of the largest IBs and has shown, many times, that adapting quickly is the way to survive – and thrive. 

  • There’s Usually Some Pain to Endure On the Road to Good Market Returns

    No matter how you look at it, big stock market sell-offs happen regularly.

    For example, we've seen two violent sell-offs in the second half of 2014. The first came when the S&P 500 quickly tumbled 9.8% from its then all-time high of 2,019 on Sept. 19 to as low as 1,820 on Oct. 15. The second came when the S&P plunged 5.1% from 2,079 ion Dec. 5 to 1,972 on Dec. 16.

    Buy and Hold investors must stomach significant drawdowns to get their returns — even in 'good' years.

    This chart shows S&P 500 intra-year declines compared with calendar year returns. The bars represent year-end returns since 1980, while the purple dots mark each year's market low.

     

    141228 intra-year-market-declines

    Business Insider via JP Morgan Asset Management.

     

    Basically, you have to understand that 10-15% pull-backs are normal (perhaps even healthy) for the market.

    For reference, here are market correction averages and their historic frequency. Since 1900, we've seen:

    • 5% market corrections: 3x per year.
    • 10% market corrections: Once per year.
    • 20% market corrections: Once every 3.5 years.
    Interesting.
     
    And yet, the S&P often recovered those losses and then some.

    Importantly, these big sell-offs often occur during years when the markets head higher. 

    Despite average intra-year drops of 14.2%, annual returns have been positive in 26 of 34 years.

    Bottom line: Sell-Offs happen. And sometimes they're big … But they're normal.  So, stay calm and carry on.

    Best wishes for a Happy New Year!

  • There’s Usually Some Pain to Endure On the Road to Good Market Returns

    No matter how you look at it, big stock market sell-offs happen regularly.

    For example, we've seen two violent sell-offs in the second half of 2014. The first came when the S&P 500 quickly tumbled 9.8% from its then all-time high of 2,019 on Sept. 19 to as low as 1,820 on Oct. 15. The second came when the S&P plunged 5.1% from 2,079 ion Dec. 5 to 1,972 on Dec. 16.

    Buy and Hold investors must stomach significant drawdowns to get their returns — even in 'good' years.

    This chart shows S&P 500 intra-year declines compared with calendar year returns. The bars represent year-end returns since 1980, while the purple dots mark each year's market low.

     

    141228 intra-year-market-declines

    Business Insider via JP Morgan Asset Management.

     

    Basically, you have to understand that 10-15% pull-backs are normal (perhaps even healthy) for the market.

    For reference, here are market correction averages and their historic frequency. Since 1900, we've seen:

    • 5% market corrections: 3x per year.
    • 10% market corrections: Once per year.
    • 20% market corrections: Once every 3.5 years.
    Interesting.
     
    And yet, the S&P often recovered those losses and then some.

    Importantly, these big sell-offs often occur during years when the markets head higher. 

    Despite average intra-year drops of 14.2%, annual returns have been positive in 26 of 34 years.

    Bottom line: Sell-Offs happen. And sometimes they're big … But they're normal.  So, stay calm and carry on.

    Best wishes for a Happy New Year!

  • Here Are Some Links For Your Weekend Reading

    Here is a picture of Obama rocking a tiara like the leader of the free world should.
     
     
    141228 Obama Wearing a Tiara
    (h/t JB via ABC News)

    The president understood that he was broke a cardinal presidential rule.  "Here’s the general rule," Obama explained: "You don’t put stuff on your head if you’re president.  That’s politics 101. You never look good wearing something on your head."

    Chief White House photographer Pete Souza posted a photo to Instagram showing the president donning a tiara alongside a group of Girl Scouts from Tulsa, Oklahoma.

    Some things you find on the internet actually happened.

    Here are some of the posts that caught my eye. Hope you find something interesting.

     

    Lighter Links:

     

    Trading Links:

  • Here Are Some Links For Your Weekend Reading

    Here is a picture of Obama rocking a tiara like the leader of the free world should.
     
     
    141228 Obama Wearing a Tiara
    (h/t JB via ABC News)

    The president understood that he was broke a cardinal presidential rule.  "Here’s the general rule," Obama explained: "You don’t put stuff on your head if you’re president.  That’s politics 101. You never look good wearing something on your head."

    Chief White House photographer Pete Souza posted a photo to Instagram showing the president donning a tiara alongside a group of Girl Scouts from Tulsa, Oklahoma.

    Some things you find on the internet actually happened.

    Here are some of the posts that caught my eye. Hope you find something interesting.

     

    Lighter Links:

     

    Trading Links:

  • Look for Excellence Wherever You Can Find It – There Is Some Here [Video]

    I love stuff like this. 

    To juggle five balls at once is quite a difficult task. To do it on your back is even harder. Then to incorporate your legs and feet into the juggling … well, that would seem impossible.

     

    video platformvideo managementvideo solutionsvideo player  

    Like with anything, though, doing it proves it's possible.
     
    Look for excellence wherever you can find it … and study it.

    What do you think makes it possible?

  • Look for Excellence Wherever You Can Find It – There Is Some Here [Video]

    I love stuff like this. 

    To juggle five balls at once is quite a difficult task. To do it on your back is even harder. Then to incorporate your legs and feet into the juggling … well, that would seem impossible.

     

    video platformvideo managementvideo solutionsvideo player  

    Like with anything, though, doing it proves it's possible.
     
    Look for excellence wherever you can find it … and study it.

    What do you think makes it possible?

  • The End of the Population Pyramid

    The shape of the world's demography is changing.

    The traditional way of visualizing and explaining the age structure of a society has been a pyramid.

    If you draw a chart with each age group represented by a bar, and each bar ranged one above the other—youngest at the bottom, oldest at the top—a pyramid is the shape you would get.

    This was true because, with shorter lifespans and higher mortality rates, there were always more young people than old people.

    Now the shape of the global population is changing.

     

    141221 Population Pyramid

     

    Between 1970 and 2015 the dominating influence on the global population was the fertility rate (the number of children a woman would typically bear during her lifetime). It fell dramatically over the period, meaning that the world shifted from having larger to smaller families. 

    Between 2015 and 2060 the biggest influence upon the population will be aging. Fertility rates are slowing, and  now almost everyone is living longer than their parents—dramatically so in developing countries. 

    The result will be a larger, and growing, older population.  This will drive massive infrastructure projects and business opportunities.

     

    141221 Population Pyramid Video

    via The Economist.

    Read the full article from The World In 2015.

  • The End of the Population Pyramid

    The shape of the world's demography is changing.

    The traditional way of visualizing and explaining the age structure of a society has been a pyramid.

    If you draw a chart with each age group represented by a bar, and each bar ranged one above the other—youngest at the bottom, oldest at the top—a pyramid is the shape you would get.

    This was true because, with shorter lifespans and higher mortality rates, there were always more young people than old people.

    Now the shape of the global population is changing.

     

    141221 Population Pyramid

     

    Between 1970 and 2015 the dominating influence on the global population was the fertility rate (the number of children a woman would typically bear during her lifetime). It fell dramatically over the period, meaning that the world shifted from having larger to smaller families. 

    Between 2015 and 2060 the biggest influence upon the population will be aging. Fertility rates are slowing, and  now almost everyone is living longer than their parents—dramatically so in developing countries. 

    The result will be a larger, and growing, older population.  This will drive massive infrastructure projects and business opportunities.

     

    141221 Population Pyramid Video

    via The Economist.

    Read the full article from The World In 2015.