Sunday, 16 December 2018

The Greatest Mistake Losing Traders Make

By Brett Steenbarger, Ph.D.

One of the greatest mistakes traders make is to allow their thought processes to get noisier as they lose money. They double down in their thinking about the market; they scan even harder for winning trades; they vent emotions about their losses. In short, they turn up the volume on their cognitive processes.

The core issue here is whether your trading is a performance skill like golf or a knowledge skill like mathematics. If I'm encountering difficulty with a math problem, I want to think harder and more creatively about finding the solution. Math requires explicit knowledge and problem solving. Golf, on the other hand, is more of an implicit learning skill where thinking more and harder frequently interferes with what the body knows. That creates the "yips".

If my trading is completely rule-governed and mathematical, a period of bad trading results probably means that market regimes have changed. In that case, I want to double down on my market analysis and see where patterns of trend, volatility, correlation, etc. have shifted. Analysis in that situation facilitates adaptation.

If my trading is intuitive and based upon pattern recognition, a period of bad trading results also could mean that market regimes have changed. Doubling down on analysis, however, facilitates paralysis; explicit processing interferes with implicit performance skill. Thinking harder about why your audience is not responding to the speech you're delivering will only interfere with your delivery and make the situation much worse.

My theory is that investment is an explicit performance domain. Trading is based on implicit learning and performance.

When traders encounter problems and shift into the cognitive mode of investors, they lose touch with their implicit, pattern-recognition skills. It's not simply that they overthink. They shift to the wrong information processing mode. In a literal, cognitive sense, they are out of their right minds.

Here's a great article for you: 

It's about teaching golf through implicit learning. The article cites a study in which two groups were taught putting skills. One group was given detailed instruction; the other group was given ample practice and left to figure out what to do on their own. When tested, the first group displayed greater knowledge of putting, but in subsequent performance, the first group did not outperform the second group. Indeed, in pressure situations, the group that was taught how to putt was more likely to choke than the group that learned through experience.

Why was that?

Under stress, the explicit learning group went back to their instruction and focused on what they should be doing. That shift to explicit thinking interfered with the performance skill and led to the choking. Amplifying the volume on their cognitive processes provided interference, not inspiration. The implicit learning group had no lessons to focus on and were more likely to rely on muscle memory, reducing the likelihood of choking.

The big takeaway from all this is that, if your trading is based on pattern recognition and a feel for markets, you want to become quieter when you encounter problems, not noisier. In finding the quiet beneath our 50,000 daily thoughts, we can apprehend the new patterns being displayed by markets and pick up a feel for them.

The worse you perform, the quieter you want to become. If you're a trader, not an investor, never let your thinking interfere with your information processing.

Quote for the day

“The most incomprehensible thing about the world is that it is at all comprehensible.”
- Albert Einstein

Saturday, 15 December 2018

Benjamin Graham’s Seven Criteria for Picking Value Stocks

Benjamin Graham Value Stock Criteria List:


Look for a quality rating that is average or better. You don’t need to find the best quality companies–average or better is fine. Benjamin Graham recommended using Standard & Poor’s rating system and required companies to have an S&P Earnings and Dividend Rating of B or better. The S&P rating system ranges from D to A+. Stick to stocks with ratings of B+ or better, just to be on the safe side.


Benjamin Graham advised buying companies with Total Debt to Current Asset ratios of less than 1.10. In value investing it is important at all times to invest in companies with a low debt load. Total Debt to Current Asset ratios can be found in data supplied by Standard & Poor’s, Value Line, and many other services.


Check the Current Ratio (current assets divided by current liabilities) to find companies with ratios over 1.50. This is a common ratio provided by many investment services.

Criteria four is simple: Find companies with positive earnings per share growth during the past five years with no earnings deficits. Earnings need to be higher in the most recent year than five years ago. Avoiding companies with earnings deficits during the past five years will help you stay clear of high-risk companies.


Invest in companies with price to earnings per share (P/E) ratios of 9.0 or less. Look for companies that are selling at bargain prices. Finding companies with low P/Es usually eliminates high growth companies, which should be evaluated using growth investing techniques.


Find companies with price to book value (P/BV) ratios less than 1.20. P/E ratios, mentioned in rule 5, can sometimes be misleading. P/BV ratios are calculated by dividing the current price by the most recent book value per share for a company. Book value provides a good indication of the underlying value of a company. Investing in stocks selling near or below their book value makes sense.


Invest in companies that are currently paying dividends. Investing in undervalued companies requires waiting for other investors to discover the bargains you have already found. Sometimes your wait period will be long and tedious, but if the company pays a decent dividend, you can sit back and collect dividends while you wait patiently for your stock to go from undervalued to overvalued.

One last thought. We like to find out why a stock is selling at a bargain price. Is the company competing in an industry that is dying? Is the company suffering from a setback caused by an unforeseen problem? The most important question, though, is whether the company’s problem is short-term or long-term and whether management is aware of the problem and taking action to correct it. You can put your business acumen to work to determine if management has an adequate plan to solve the company’s current problems.

Follow these seven value investing principles, and you’ll invest like Benjamin Graham. With luck, perhaps you’ll have the same kind of success he enjoyed!

Quote for the day

“Our great democracies still tend to think that a stupid man is more likely to be honest than a clever man, and our politicians take advantage of this prejudice by pretending to be even more stupid than nature made them.” - Bertrand Russell,

Friday, 14 December 2018

Colombo Stock Exchange Trade Summary 14-Dec-2018

Quote for the day

“If you give up what you want most for what you think you should want more, you'll end up miserable.” - Brandon Sanderson,