Microscopic details
To build a successful strategy you need a structural concept. A concept rooted in the market structure or behaviour. It should be enduring concept. Most of these concepts are in public domain.
Value investing has been around for ages so is growth. Or say earnings drive prices is a concept. It is not a great secret. Or say momentum leads to momentum is a concept. Or buybacks are good for future returns is a concept. Similarly insider trading behaviour is an indicator of long term price growth is a concept. None of the structural concepts are big secrets. But making it work in real trading situation determines your success. Given the same concept some traders pull in millions from market, some struggle to make 10%.
The process of making a concept work involves getting in to microscopic details. Most of the time the failure to implement a strategy lies in not putting in sufficient effort in to the microscopic details.
Getting in to microscopic details of an idea is an ability plus involves some skills. Many people temperamentally lack that skills. Expertise or insights come from purposefully engaging in such activities.
Many years ago at the beginning of my corporate career I worked with a brilliant and award winning copywriter. It was a great learning experience. Given a new product he would spend days getting in to microscopic details about everything about the product, product manufacturing process, product history, competitors and the works. He would drive clients crazy with his questions.Ecasperated clients would say enough of questions, show me the advertising.
He would read everything on the product including fine prints, legal footnotes, chemistry and the works. By the end of the assignment he would know as much or more about the product as the client. At the end of the day his output might be just one line of copy or slogan, but what made that line unique was it was based on microscopic understanding of the product and its market. I have used that approach again and again for many years with great success.
Some years back I taught a course in marketing for MBA students. One of my first assignment was for them to read end to end every single word on a particular 800 pages book on marketing and summarise it. That almost lead to a mutiny.A parent lashed out at me in a public place for making the students do it. Now I get emails from them after 6-7 years saying that was their biggest learning experience and how they hated it that time.
The very idea of going in to microscopic details turns many people off. Most of the successful people I have studied have the twin ability, ability to think in conceptual terms and also to think in microscopic details.
For sometime I have been exchanging emails with some traders and some new traders. One of my suggestion to them is say if you believe that earnings based approach has merits then get in to microscopic details of it and you will be very profitable. Same is true of momentum based approach. Some understand it some want quick fix solution.
There are many takers for promises of riches , but few are ready to put in the effort required to get their.
Value investing has been around for ages so is growth. Or say earnings drive prices is a concept. It is not a great secret. Or say momentum leads to momentum is a concept. Or buybacks are good for future returns is a concept. Similarly insider trading behaviour is an indicator of long term price growth is a concept. None of the structural concepts are big secrets. But making it work in real trading situation determines your success. Given the same concept some traders pull in millions from market, some struggle to make 10%.
The process of making a concept work involves getting in to microscopic details. Most of the time the failure to implement a strategy lies in not putting in sufficient effort in to the microscopic details.
Getting in to microscopic details of an idea is an ability plus involves some skills. Many people temperamentally lack that skills. Expertise or insights come from purposefully engaging in such activities.
Many years ago at the beginning of my corporate career I worked with a brilliant and award winning copywriter. It was a great learning experience. Given a new product he would spend days getting in to microscopic details about everything about the product, product manufacturing process, product history, competitors and the works. He would drive clients crazy with his questions.Ecasperated clients would say enough of questions, show me the advertising.
He would read everything on the product including fine prints, legal footnotes, chemistry and the works. By the end of the assignment he would know as much or more about the product as the client. At the end of the day his output might be just one line of copy or slogan, but what made that line unique was it was based on microscopic understanding of the product and its market. I have used that approach again and again for many years with great success.
Some years back I taught a course in marketing for MBA students. One of my first assignment was for them to read end to end every single word on a particular 800 pages book on marketing and summarise it. That almost lead to a mutiny.A parent lashed out at me in a public place for making the students do it. Now I get emails from them after 6-7 years saying that was their biggest learning experience and how they hated it that time.
The very idea of going in to microscopic details turns many people off. Most of the successful people I have studied have the twin ability, ability to think in conceptual terms and also to think in microscopic details.
For sometime I have been exchanging emails with some traders and some new traders. One of my suggestion to them is say if you believe that earnings based approach has merits then get in to microscopic details of it and you will be very profitable. Same is true of momentum based approach. Some understand it some want quick fix solution.
There are many takers for promises of riches , but few are ready to put in the effort required to get their.
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3 comments:
So Pradeep, what do you suggest reading/researching for finding momentum stocks?
Superperformance Stocks by Richard Love. It is out of print.
Pradeep--this post brought back memories of my Policy & Analysis class back in college. Our assignment was to prepare/present a case study. I (accounting major) was paired with 2 terrific team members: an Economics and a Marketing major.
Our study was on Anheuser Busch. We lived and breathed it for several weeks, and gave a knockout presentation. I told my Dad (this was in 1981) that he ought to buy some of the stock. Had I not been a poor college student at the time.
Targeting promising companies, reading filings reports, visiting their website, listening to conference calls and putting buy candidates on watch lists and watching them carefully has been the most successful strategy for me. I do most poorly when I stray from that format. It is time consuming, but your point about microscopic details is important.
I wrote on another post regarding TNH that I didn't have the conviction to hang on. What I really lacked was confidence in my own judgment. I couldn't understand why NO OTHER MARKET EXPERT was writing about the opportunity in these stocks due to NG going down. So I figured that I must have been wrong. NOT! It was the microscopic details like understanding that for every $1 (unhedged) that NG fell resulted in $25M falling to the bottom line. So when NG was at $15 and went down to below what $6? you get good earnings and special dividends.
I think that the hardest thing for investors like myself (read amateurs) is to trust your work and your judgment. Patience truly is a virtue, and you can be patient so long as you are not stupidly positioned.
Didn't meant to right a treatise.
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