Don't mistake this site for a chat room

I had a number of questions and comments from my last post (see Wall Street: Where the Wild Things are) when I wrote that my trading account, while still bullish, had taken "partial profits earlier this week as part of his risk control discipline when readings became short-term overbought". The comments ranged from "where can I find a record of where your decisions to take partial profits" (answer: you can't) to "why did you not tell us when you made that trade?"/


Why this is not investment advice
I would like to address the issue of my disclosure policy in connection with my holdings and accounts. The disclaimer page of Humble Student of the Markets state:

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.

What does this mean, beyond the usual legalese? Why is the content "not investment advice"?

What many investors don't realize that the process of constructing a portfolio involves three major decisions:

1. What do you buy and sell?
2. How much do you buy and sell?
3. How do you diversify your investments?

Much of the content on this site revolves around question 1. I know nothing about you. I don't know what your return objectives are. I don't know your tax situation, or even your tax jurisdiction. I don't even know how much risk you can tolerate. With respect to the first question, I therefore don't know if any investment or instrument discussed is appropriate for you. Since I know nothing about you, I would not even try to answer the last two questions.

That's why nothing on this site is investment advice.

If I was your fund manager, we would have discussed your investment situation, and I would know enough about you to create an Investment Policy Statement (IPS). We don't have that kind of relationship.

That's why nothing on this site is investment advice.

If I were the manager of a fund that you bought into, there would be disclosure documents about the sorts of investment instruments that the fund can buy, and the risk levels that the fund is expected to undertake. We don't have that kind of relationship either.

That's why nothing on this site is investment advice.


Disclosure of conflict
At the same time, I write about my investment views on the site, and I will express bullish or bearish opinions on the market, sectors, or specific instruments. I believed that it was appropriate to disclose any possible conflicts that I may have because of my own investment positions.

That's where the "trading alerts" come in.

Whenever I initiate a new trading position, subscribers get an email alert of those changes for conflict disclosure purposes. However, subscribers will not receive notification of changes in position sizing because any conflict has already been disclosed.

Here is the part that created the misunderstanding. I know nothing about you. I don't know if my trading positions are appropriate for you. My tax situation is not your tax situation. My pain threshold is different from your pain threshold. In the absence of any such discussions, changes in my own position sizing is not necessarily relevant to your situation, and therefore it would be misleading for me to disclose those trades.


Not a chat room
There are a number of other websites that offer real-time chat room services. This is not one of them. There are a number of key differences between Humble Student of the Markets and a chat room.

First, the holding time horizon of "my inner trader", which represents my trading account, is longer than most chat room day trading or swing trading services. I publish and update the idealized track record returns of my inner trader on a weekly basis based on trades using signals from the subscriber trader alerts. The average holding period is 18.0 trading days.

I disclose the track record of "my inner trader", which is contrary to the practice of many other trading services.

As the average holding period of these trades is relative long, there is little urgency to making the trades on the day of the signal. In fact, my analysis shows that the returns from waiting 1, 3, and 5 days after the signal are better than the base case where the trades are executed on the day of the signal.

For another perspective, here are the relative returns of a hypothetical account that traded five days after the signal day. My conclusion from this analysis indicates that my trade timing isn't perfect, and it is arguably early.

One last point about chat rooms. The going rate for a chat room subscription, where you get access to real-time signals, is about USD 200 per month, or over USD 2000 per year. That pricing structure is an order of magnitude higher from Humble Student of the Markets (see our pricing page).

In conclusion, readers who are looking for high frequency trading advice should look elsewhere (one useful site to take a look at is LaDuc Trading, where Samantha LaDuc takes the bold step of actually disclosing her trading record). At Humble Student of the Markets, my primary objective is to write about investments. A secondary objective is trading, but even then, the time horizon of my trades is longer than many day and swing trading services.

Teaching my readers how to fish

In the past week, I had discussions with several different people about the operating philosophy of Humble Student of the Markets, The objective of the website can be summarized by a variation of an old adage:

Give a man a fish, he'll eat for a day.
Teach a man how to fish...he'll want to get a boat.

I don`t want to just give my readers a fish for the day, I would rather help them build their own boat.


Why my boat is different from yours
Think of a building a boat as like building a portfolio. The portfolio management process consists of the following steps:

1. Deciding on what to buy and sell;
2. Deciding on how much to buy and sell; and
3. Deciding on how to execute the trade.

While we discuss step 1 endlessly in these pages and elsewhere, the other steps are equally important. Step 2 is also a reason why what I write in these pages is not investment advice, namely I know nothing about you:

• I know nothing about your cash flow, or spending needs;
• I know nothing about your return objectives;
• I know nothing about how much risk you are willing to take, or your pain threshold;
• I know nothing about your tax situation, or even what tax jurisdictions you live in; 
• And so on...

If I know nothing about any of those things, how could I possibly know if anything I write is appropriate for you? I was asked recently why I don't post my portfolios and their performance. While posting my trades represent a disclosure of any possible conflicts in my writing, my own portfolios are a function of my own cash flow needs, my return objectives, my own pain thresholds, etc. How could any portfolio that I post be appropriate to anyone else? Your mileage will vary.

Don't look for a fish

Here is an example of what I am talking about. I had been recently bullish on stocks and both my investment account (inner investor) and trading account (inner trader) got long. My trading account sold and got stopped out of its long position as a result of my risk control discipline, which is a function my risk profile and pain threshold. Subsequent market action indicates that my inner trader got faked out and the market rallied. In that case, it appears that my inner trader was wrong by getting stopped out of his position, while my inner investor was right.

This incident also illustrates the point of the do's and don'ts of reading the content on this website. Anyone blindly following my trades is in effect looking for a fish. But there is no fish. The markets are not easy. You have to build a boat that's right for you.

I have two boats (used by my inner investor and inner trader). Taking a ride on either of mine by blindly following my trades means adopting my investment objectives and risk profile, which you know nothing about.


My two boats

The chart below shows an example of how my inner trader thinks about the stock market. He isn't always right, but he has been more right than wrong. His portfolio turnover averages 200% per month, which is not appropriate for everyone.

By contrast, here is an example of how my inner investor thinks about the market. The time horizon is longer. Turnover is much lower, but drawdown risk and pain threshold is higher.

For full details, see:

• Why I am bearish (and what would change my mind) May 2015
• Relax, have a glass of wine August 2015
• Why this is not the start of a bear market September 2015
• The reason why the bulls should be cautious about a January hangover December 2015
• Why this is a correction and not a bear market January 2016

Neither of those boats may be right for you. The purpose of Humble Student of the Markets is not to give anyone detailed trading advice, including the specific timing of trades. I can only make suggestions, but you have to decide if those suggestions are right for you.

I am not here to give you a fish. I am here to teach you how to fish and help you build your own boat. That way, you can eat for a lifetime.

New site is unstable

The new site is down because of a failed software update. We will have it up as soon as possible. Please check back at this page for status updates.

Site is back up but unstable. If anyone has any problems, please email me at cam at humblestudentofthemarkets dot com.

As a result of these difficulties, we are extending the deadline for taking new subscribers from midnight tonight (Pacific Time) to midnight Monday January 18, 2016.

Where my inner investor is bottom fishing

I thought that, as a change of pace, I would write about where my inner investor is finding opportunities, instead of focusing on the daily gyrations of the stock market and whether it has found a short-term bottom, which is a topic I will cover in a post this weekend.

The art of bottom fishing requires a strong constitution, which is suitable for people like my inner investor who has a longer time horizon. You have to go into the exercise thinking that you don't care that you catch the exact bottom, but with a mindset that Mr. Market has put a sale price on an investment. You may buy X at $10, see it fall to $7, but be ultimately rewarded in several years when it rises to $20, $30 or $40 (note that these are just examples and not return forecasts).

With that framework in mind, here are a couple of opportunities identified by my inner investor.

The full post is at our new site here.



Site Notice
Please be reminded that the new site is closing to new subscribers as of midnight (Pacific Time) this Friday, January 15, 2016. This is because I would like to better control the rapid growth of our community.

Here is a sample of some of my recent posts:

Two weeks ago, I wrote The reason why the bulls should be cautious about a January hangover. To be sure, I never expected the kind of downdraft that the market is experiencing, but I was directionally correct. What's more, my big picture calls were pretty good last year (and they contrarian enough that I got a ton of hate mail):

• Why I am bearish (and what would change my mind) May 2015 (red arrow below)
• Relax, have a glass of wine August 2015 (blue arrow below)
• Why this is not the start of a bear market September 2015 (purple arrow below)

I know that many readers have been following me for a long time. I would like to give them the opportunity to get the best start on 2016. Come over to the new site and take a look.

The subscription page is here (US$199.99 for one year, US$19.99 for one month, US$4.99 for a 24-hour day pass). Even if you are not ready to subscribe, you can always sign up for email notification of free posts as they are free and available to the public two weeks after publication.

We would love to have you join our community.

Not prone to victory laps, but...

I was brought up to be modest and I am not prone to taking victory laps, but I was reminded of my post from two weeks ago, The reason why the bulls should be cautious about a January hangover. To be sure, I never expected the kind of downdraft that the market is experiencing, but I was directionally correct.

What's more, my big picture calls were pretty good last year (and they contrarian enough that I got a ton of hate mail):

• Why I am bearish (and what would change my mind) May 2015 (red arrow below)
• Relax, have a glass of wine August 2015 (blue arrow below)
• Why this is not the start of a bear market September 2015 (purple arrow below)

That brings up the point that the new site is closing to new subscribers except for 24-hour day passes as of midnight (Pacific Time) this Friday, January 15, 2016 because I would like to better control the rapid growth of our community.

I know that many readers have been following me for a long time. I would like to give them the opportunity to get the best start on 2016. Come over and take a look.

The subscription page is here (US$199.99 for one year, US$19.99 for one month, US$4.99 for a 24-hour day pass). Even if you are not ready to subscribe, you can always sign up for email notification of free posts as they are available two weeks after publication.

We would love to have you join our community.

Welcome to our new home

Welcome to the new home of Humble Student of the Markets. We are experiencing some glitches with our payment system and we are unable to process new subscribers right now. We will have that fixed ASAP. In the meantime, all content is free and here are my pledges for the new site:

More at our new site here.

Humble Student turns seven

Seven years ago today, Humble Student of the Markets began. My first blog post was about how hedge fund returns are correlated to the stock market (see What exactly are hedge funds hedging?).

It seem some things never change, hedge funds returns are, in aggregate, still correlated to the equity market.