Comments on: Do you Want to be Proud, or do you Want to Make Money?

By: Josh Stern

Josh Stern — Sat, 06 Jun 2009 14:00:03 +0000

It’s useful to understand that there are different ways of being “right” or “wrong” that may have different investment implications. Here are a few relevant ones:

1) One may have a directional thesis on a stock that is right over time frame A but wrong over the different time frame duration B; someone could maximize profits by always being right about the short term time frame, but someone who has a method for predicting longer term time frames but no method for predicting short term time frames might have much higher percentages at those time frames than the shorter ones (I guess this is something like David’s point);

2) one might be “right” that factor A will affect a stock but be wrong about the overall directional prediction for the stock because of some other factor B (which could be anything from poor management to a stock market crash);

3) one might be “right” that factor A is important to a stock but “wrong” about its effect on future price movement because of an incorrect assessment about whether the import of factor A is already priced in (e.g. stock’s which fall after apparent earnings beats).

I agree that with both David and Abnormal Returns that psychological biases are a big problem for investors, but just wanted to point out that being right in the right way is also very important.

By: r cohn

r cohn — Sat, 06 Jun 2009 00:35:46 +0000

If you can strictly define your risks on every trade ,you will succeed

By: David Merkel

David Merkel — Sat, 06 Jun 2009 00:30:42 +0000

Indeed, poor Sam — DFR was one of my biggest blunders, and my biggest loss ever. That you lost money on it too makes it all the worse for me. My apologies again.

By: Stevie b.

Stevie b. — Fri, 05 Jun 2009 20:27:26 +0000

David – nice & well said (& I expected nothing less of you) – cheers!

By: sam uttendorf

sam uttendorf — Fri, 05 Jun 2009 20:23:59 +0000

Indeed, I wanted to make money . . .
. . . that is, until I took your recommendation to buy DFR.
(a very poor) Sam

By: David Merkel

David Merkel — Fri, 05 Jun 2009 19:46:59 +0000

C, I’ll take the rebuke from SB. There were better ways to say what I said. A 9-year track record on my strategy is good, and it has been a more consistent strategy than most, but it too can fail. Perhaps I should re-read my disclaimer at the bottom of the page — the markets always find a new way to make a fool out of you — and that means me too.

By: Stevie b.

Stevie b. — Fri, 05 Jun 2009 18:57:24 +0000

I managed money on Wall St. relatively successfully for nearly 30 years. I recognised that markets always made me humble, usually right after I thought I was the smartest guy on the block. Having read his blog for well over a year, I do not doubt that David is wise, but I do feel justified in gently probing the depth of his humility.

By: Mr. C

Mr. C — Fri, 05 Jun 2009 18:15:18 +0000

Stevie b,

You’re nitpicking. I have read Mr. Merkel’s posts for years. He is humble and wise.

By: Stevie b.

Stevie b. — Fri, 05 Jun 2009 07:26:29 +0000

“It’s not perfect, but I typically have 70% winners, and my winners are larger than my losers”

I don’t mean to nitpick, but if you were truly humble – an essential asset for money management as you say – perhaps the above should read:

“It’s not perfect, but I typically have had 70% winners, and my winners have been larger than my losers”

After all, the past is no guarantee of the future.