Kitchen versus Trading Philosophy

This few weeks I obsessed watching old TV show Kitchen Nightmares, where famous Chef Gordon Ramsay hits the road to help struggling restaurants all over the United States turn their luck around. Ramsay examines the problems each establishment faces, from unsanitary refrigerators to lazy or inexperienced staff, and searches for resolutions. With help from his team, Ramsay redecorates each eatery to give it a fresh new look and updates the menu as needed. Ramsay’s ultimate goal is to make the restaurants he visits popular and profitable, but it’s up to the restaurateurs to take his advice and turn their business nightmare into the American dream.

I observed in each episode; each restaurant had a different type of problems but all down to 3 similarity which is:

  1. The owner/s is in denial
  2. Losing support
  3. Lack of Principle/had swayed from the original principal

Why and how all this related to investment/trading?

  1. The owner is in denial

In the TV show from the start of each episode, the owner will keep saying to the Chef Gordon,”The food is perfect, I don’t agree with you that the food is terrible. The kitchen is clean and the food is not frozen and fresh waiting to serve. I had dedicated the job to him/her, so it is not my responsibility”. And the owner will get angry whenever his customers or staff is complaining and telling him the truth.

When Chef Gordon show the owner all the frozen package, the expired food, the cooked food had been put together with the raw food (which is a big no in kitchen rules; the cooked food will get contaminated easily) all inside the freezer which is most of the time not work correctly. The owner will either cry and blame the others or realise it is his responsibility because he owned the business.

When a trader is in denial, It means that he keeps denying by telling everyone including himself that he saw nothing is wrong, did nothing wrong and assumed that he had done everything correctly. So how he knows he is wrong? Just look at the trading account statement, and it never lies! If you keep losing money in the long run just like a restaurant business owner, you should start finding out what is the problem and fix it. If you still in denial, you will never be able to see the problem clearly, therefore finding the solution will be a mounting task to do.

  1. Losing Support

In the interview before Chef Gordon comes to help them, all the owners had the same/similar speech which is ”I don’t know why I lose in this business and I don’t know what to do next”. By the time Chef Gordon pointed out their mistakes, the owner realises all the error were apparent that they already should know it long before from the customers and people around him. The problem is the owner stop listening.

When you stop to listen, you stop getting valuable feedback from your staff, from your client and even from your own family. When you are in ignorance, people around you will stop communicating with you and the worst thing will follow is they stop supporting you.

As a trader, you may think why I need others people support? Whether you are fund manager or just a garbage collector; you will still need human support because we are only human. A trader at some point will need either emotionally or financially support from family, friends and even traders community itself. You need a mentor like Chef Gordon to guide you if you are a restaurant owner, same as you will need successful traders or fund managers to guide you along the way in your trading journey as well. You also will need support from investors when you become a successful fund manager. You can’t trade like George Soros if you don’t have investors to back you up. Please bear in mind that even George Soros makes his fortune by managing investors money first.

  1. Lack of Principle/had swayed from the original principal

In some episode, the owner had a good business before it goes downhill. It happens when the owner changes their business model like serving more type of foods, reduce costs by cutting headcount and cook using frozen food which needs lesser people to handle. All this practice is to improve profitability for the business but also jeopardise the quality of the service and the food. Eventually, the customer stops patronising the restaurant and business start to lose money. The owner had no longer follow their principle which providing good food and excellent service to customers which had become their pride when business is thriving. In the end, they lose their business and worst, their principal and pride.

A lot of traders will try to increase their profit by double the lot size every time they make some money without a proper plan, so they can quickly double the gains. They will also try to find brokers that offer cheap brokerage without checking their credibility. Instead of focusing on how to improve their trading skills and knowledge, they try to take a shortcut by concentrating on short-term gain. When you lose a principal, you will start to lose focus. Eventually, you begin to lose money.

Written by Jeff Kum | 27 February 2018.

A Right Trading Mindset to Profit in Stock Market

I had lunch with one of our member, Kent yesterday. His objective is to become a full-time trader so that he can spend more time taking care of his family. I am sharing my past failure experience as a full-time trader with him so that he won’t repeat the same scenario. I always like to share my failure with some traders with the hope that they can learn from my mistakes to speed up the learning journey and reach their trading goal sooner. One of the famous quote from Jack Ma when he was asked about the point of view in MBA courses, “Instead of learning from other people’s success, learn from their mistakes. Most of the people who fail will share a common trail (to fail) whereas success can be attributed to various kinds of reasons.”

We start a conversation about retail traders mindset. One of the most exciting topics that we have discussed is about trader’s objective in the stock market is to make a profit. But many of the trader’s mindset is not heading in the right direction. They are just looking for excitement and hope to be able to choose the right stock that can give them profit almost immediately. Most of the time, this kind of traders will end up losing more. It is because they had put their high expectation into the market and wish to hit one time like winning a jackpot, instead of listening to the market and trade accordingly. In this case, there is only one outcome; they will hit the one-time jackpot but holding a few losing stocks which the losses too massive to be covered by the winning amount. Since they are losing, why do they continue doing it?

Hitting the jackpot makes them feel excited, and the satisfaction of the winning enough to blind them from the real losing situation. You can call this group of traders, a gambler. When they hit the right stock, they are happy. But when they choose the wrong stock, they will change their strategy into investment mindset, which holds it for the long term and finds a million reasons from the web to support their thought that losing stocks is worth to invest or to collect dividends in the long run. Between this conversation, another famous quote by George Soros strikes into my mind, ” If investing is entertaining and if you are having fun, you’re probably not making any money. Good investing is boring.” So ask yourself, are you a gambler who is always looking for star stock pick or are you boring every day due to repeating same method trading routine?

If you are looking for one-hit wonder kind of excitement, trading is not for you. We believe real traders react to the market and we strive to achieve consistency in our trades. I assume that some traders will still try to convince themselves that they are not gambler after reading this. The numbers will never lie, look into your trading result, are you consistently making a profit every month? You know your answer.

Stock Market = Gold Mine, but do you know how to mine?

Written by Kelvin Yap, founder of Round & Surge

What is an Edge in The Market & Why it Should Not link it to Win : Loss Ratio

This posting is regarding my explanation of what is an edge in the market and why it should not link it to win : loss ratio. Where most traders thought high win rate more than 50% or by applying good risk-reward ratio, or by simplicity, as long as you make money, you have an edge.

You may have learned something from some guru or from some article which tells you what to do and give you the formula to follow, but you don’t understand why and how he designs the method. Then you might change the plan due to 1 or 2 losing trade and come with your formula and keep adjusting until you satisfy and make some money. But in the end, you still don’t know why you make money, and you thought you have an edge in the market because you make money.
Your next question is “I can apply good Risk:Reward ratio so I still can make money in the long run, so does it mean R:R also an edge?”. My answer is right R:R is not an edge. It just helps you to minimise the chance of losing money. You should not be applying R:R if you do not know what your advantage is.
For the better understanding of this situation, please look at 2 example below (sample only):

You observed that market would trend up most of the time after Christmas day. But you do not know how many times it will happen, and you don’t see how far it will go. So you will come out with an assumption report that we call it “hypothesis”. What you should do next is backtest and record it down. Once you have sure that your hypothesis is true and high probability to be correct then you shall have more information and some conclusion which part of it will be;

Sample 1: “Stock S will go up eight times out of 10 times after the Christmas day”. By your conclusion, you already can make money by applying 1:1 win : loss ratio on this stock.

Sample 2: “Stock A will likely go up triple from the opening market price before market close at evening (if stock A open at 1 dollar, it will go up to 3 dollars before day close). It happens 3 times out of 10 times after the backtest”. From this info, you may have 3 wins, and 7 loses, but you can apply 1 risk and 3 rewards for this time and still make money.
So you may not be able to apply right R:R on case 1 due to lack of some details, but you can use it on the second sample.

My conclusion is, so both info also considers as an edge regardless of win:loss ratio.

Written by Jeff Kum | 18 January 2018.

Why New Traders Choose Not To Understand Their Trading Strategy

Here is my thought, some seniors trader that I have met always emphasised that we need to do backtesting, to know what is the edge of our strategy. It is essential to see it, but when I read some of the posts about trading/investing in social media, most of the new trader posting their trades and a picture of their chart with fancy indicators and ask ‘what do you think?’, In my opinion, by posting your strategy on social media will not help them to pursue useful knowledge due to different traders had a different experience, different views and different approach. So my answer to them is I don’t know what it thinks and the market will not even bother what I think or what the others think of your strategy!

New traders always ask for confirmation (which I mean the group of young & new traders that already had some knowledge but still struggling), but I think they can get the confirmation info from the backtesting instead posting their one particular trade with the all-new fancy indicators. By backtesting their strategy, it will reveal whether their approach will work in the long run or not but more importantly, they will have to admit when they realised their plan is not going to make them money and by accepting the fact, they will rework on their strategy. This process will be tedious and annoying because it is a cycle, you had to do it again and again. Once you were able to find a stable and potentially profitable strategy, you will be facing more problem which I will have to explain in a lengthy essay, so you will have to rework your plan again, and the process is ongoing, it will never end.

New traders are not lazy, they are eager to learn but struggling. They choose not to understand it by themselves because they try to avoid the reality, reality that you had to disagree with yourself and to accept that you are wrong at some point and you need to change. The fact is that you will be more understanding of yourself and you are afraid of facing it. You don’t want to admit it, and you try to find someone else and hope they tell you what you want to hear.

The senior can only guide you to the path, but you had to walk thru it…..

Here are some additional point at below from pick from the book ‘Market Wizard’ as a support of my view:

1. Personal feelings and opinions are far less accurate than markets… – William O’Neil

2. Do you still talk to other traders about markets?
Not too much. Over the years, it has mostly cost me money. When I talk to other traders, I try to keep very conscious of the idea that I have to listen to myself. I try to take their information without getting overly influenced by their opinion. – Michael Marcus

3. I can always tell a rookie trader because he will ask me, “Are you short or long?” Whether I am long or short should have no bearing on his market opinion. Next, he will ask (assuming I have told him I am long), “Where are you long from?” Who cares where I am long from. That has no relevance to whether the market environment is bullish or bearish right now, or to the risk/reward balance of a long position at that moment. – Paul Tudor Jones

4.Do you use the opinions of other traders in making trading decisions, or do you operate completely solo?
I usually ignore advice from other traders, especially the ones who believe they are on to a “sure thing.” – Ed Seykota

If you want to read more content, I strongly suggest you to buy the book! You are welcome to comment below.

Written by Jeff Kum | 28 December 2017.

Investing Quotes 101

Here are some best investing quotes with a simple explanation:

  • “Don’t put all egg in one basket”

There’s a lot of good and bad company out there that you can invest so diversify your stock portfolio in order to diversify your risk.

  • “Be open-minded but investigate what is true”

You may listen to some tips given but you must do your own research as well before you start investing in that stock.

  • “Two things define your portfolio: Your patience when you are losing and your attitude when you are winning”

Most people failed because they quit learning and blame the market when they are losing, they also had a tendency to risk everything and thought nothing can be wrong when they are in winning streak.

  • “Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future.”

Nothing is guaranteed in future, so learn how to invest, make your own decision and diversify.

Target price for DRBHCOM (1619.MY)

The target price for DRBHCOM (1619.MY) is RM 2.13 and overweight rating are assigned.

This target price and rating are assigned by Analysts over the whole market and taking the mean price and mean rating.

The target price will be more reliable when a particular stock has more analysts to cover. In this case, there are 5 analysts are covering this counter.

According to the past 2 years of analysts’ performance, we can conclude that DRBHCOM share price performance used to hit the analysts’ target price.

What do you think??

This is Consensus Estimate in ShareInvestor Station.

We aim to help out our subscribers with how to utilize the information from our platform and how it can integrate into their investment strategy.

Please feel free to register if you are interested in our upcoming ShareInvestor Station Learning Workshop

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The target price for DRBHCOM (1619.MY) is RM 2.13 and overweight rating are assigned.This target price and rating are…

Posted by ShareInvestor Malaysia on Sunday, 19 November 2017

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