Fantastic Quotes from Berkshire's Letters

I picked up the following book from a neighborhood Goodwill a few days ago. The book is titled - The Essays of Warren Buffett: Lessons from Corporate America- by Warren Buffett and Lawrence Cunningham. I flipped through the first few pages while I was there and decided that it is a book I very much would like to read. The copy I have is the very first revised edition published in 1997 so it preceded the financial meltdown of 2008. The latest 4th edition is available on Amazon and from the reviews I gathered it covered Subprime crisis and financial meltdown of 2008. You can read the reviews or get a copy here 4th edition here on Amazon . I highly recommend you get a copy. I am only 1/5th through the book and I already know this is a book I would read and re-read many times (just so that I do not forget all the good advice when I invest and trade my own money and we humans have short memories and impulsive). I would definitely equate this book to my old time favorite - "Reminiscences of a Stock Operator" in quality/entertainment. Here is the link to a copy on Amazon if you wish to get one.

The most important thing this book has done for me is to remind me of what risk is when it comes to putting my hard earned money in shares of companies run by people you don't know, risks one should not be taking most of the time. I wish I had come across this book 20 years ago but it is better late than never.

1. Valuation is counting cash, not hopes and dreams. Page 22 of my copy of the book if you want to read the context

2.The challenge here is for us to generate ideas as rapidly as we can generate cash. In this respect, a depressed stock market is likely to present us with significant opportunities. Page 30
3. Indeed, we think very few large businesses have a chance of compounding intrinsic value at 15% per annum over an extended period of time. Page 29

4. The financial calculus that Charlie and I employ would never permit our trading a goodnight's sleep for a shot of a few extra percentage points of returns. I've never believed in risking what my family and friends have and need in order to pursue what they don't have and don't need. Page 32

5. The intellect should be the servant of the heart, but not its slave - Comte. Page 46

This book and its latest edition is a MUST READ. I would strong recommend whether you invest your money yourself, work with an adviser, have an interest in the stock market and value investing or just want a sensible good read from one of the greatest investors of this century

Reading The Tape, Jesse Livermore and Nassim Taleb

I am a momentum trader and I watch the tape like a hawk. To me the most important skill a trader can have is to be able to read the tape as there in lies the collective greed and fear of the masses. Knowing the tape intimately also helps to identify tricks such as a small cap or penny stock pump and dump. This is especially important in today's "Man Vs Machine" computer algorithum driven markets.

In my opinion, profitable trading is not so much that you the trader get the price of a stock right, but rather it is the ability to anticipate correctly what the masses will do and be ahead of the crowd, whether that is to buy into or to sell out of a position.

I trade stocks and sell covered calls and puts. Some days I am just scalping a stock if I can see which way the momentum is. Other days I swing trade and hold on to a position for a few days or weeks if an opportunity presents itself. Otherwise I am just as happy to be in cash until the risk rewards is good enough for me to risk my chips. I don't have fancy software nor can I afford Bloomberg terminals. In the picture below, you can see my set up - A six year old 14 inch Acer laptop tethered to a 18.5 inch monitor, and a 12 inch Lenovo Thinkpad (which is also my "mobile" trading station when I am on the road). I use TOS (Ameritrade's ThinkOrSwim) platform and also Fidelity Active Trader although less on the latter. It is a very basic setup, nothing fancy, but it works and I trade profitably for a living from 5am to 2 or 3pm PST. I love being on the west coast, as I am done by 1 or 2pm most days and have the whole day ahead of me still to do everything else.

One of my favorite trading books is "Reminiscences of a Stock Operator" by Edwin Lefèvre - a book about a legendary stock operator by the name of Jesse Livermore. You can read more about the book and Jesse Livermore Here on Wikipedia. It is a book I read and re-read many times. The tales in the book as related by the writer taught me more about the psychology of trading than any other trading books I have read. The greed and fear of the masses is what makes an irrational market stay irrational for a long time, much like what we have today - a market that is far removed from fundamentals and the real economy on Main Street.

If you are serious about making a living trading the market. You have to get yourself a copy of the Jesse Livermore book and read it from cover to cover. You won't be disappointed.

The other book I highly recommend is "Antifragile: Things That Gain from Disorder" - by Nassim Nicolas Taleb. It is an easy (or rather easier) read than many of Taleb's books. If you are adventurous and up to the challenge, I would suggest also picking up a copy of "The Black Swan -The Impact of the Highly Improbable" another book by the same author. Both books are about "fat tails" and unexpected event risks. The first book has a more personal tone with the author's real life stories, the latter on the other hand has lots of technical charts and analysis.

These books are indispensable to me. It is funny that I enjoy reading them more than books of any other genre (except for photography), but that is me I guess.

Trade with caution. Have a profitable trading week.