Data for my Ground Truths | Top Stock Books

I have already discussed two of my deep beliefs:

• The first being that the efficient market hypothesis is completely false
• The second being that all great traders/investors base their trades on data

In describing these I did not provide any data on why I believed these things.  Here is a quick list of books that led me to come to the above conclusions, although there have been many additional sources that have lead my to these conclusions these were some of the influences to my thought process.

• The Alchemy of Finance
• Author: George Soros
• I read this book 4 and a half years ago in my school library and found it quite interesting.  One of the best investors in the world was discussing the behaviorial/emotional component of a stock, and wasn't even debating that it existed.  It was just PRESUMED! In addition he took it a step further to explain how stock prices act as a reinforcing control system (to a point) in which as price increases, the company has the ability to borrow more, can expand more quickly, earn more and the therefore can increase in price even more quickly (you obviously run into a limit quite quickly once you have saturated the market with your product).  Great read, I could use a re-read.
• Contrarian Investment Strategies - The Next Generation
• Author: David Dreman
• Thought provoking book that was one of the first I read that directly challenged the basis of the efficient market hypothesis.  Focuses on understanding how to make money in the markets by understanding the stock types that have historically outperformed. It is a thorough review but I think he misses the ability to take advantage of the markets emotional swings, which makes sense as his investment horizon is 2+ years.
• Reminiscences of a Stock Operator
  
• Author: Jesse Livermore
• This book is a must read at a minimum for the story that it provides, combined with his biography it is an extremely telling book of Jesse's life and ultimate suicide.  Jesse essentially grew up in the markets, starting in the bucket shops (branches that sold stock) and made a killing, eventually being banned as he made so much money. This led him to speculate in stocks and eventually he became extremely successful.  The story is entertaining, and there are many interesting takeaway's from this book; the first is that the market is definitely not efficient as he was able to personally move the market in many different stocks. The second is that emotions are a huge component to trading as you see the emotional grips that individuals go through as they trade around him. And finally understanding stock movement (price and volume) is as critical as understanding the fundamental reason for a move, this was how he differentiated himself from others.
• Snowball - The life of Warren Buffet
• Author: Alice Schroeder
• An interesting read because it highlights how different Warren's life was from that of a normal kid from the start.  As a brilliant young kid he understood the value of compound interest and always had a business venture, that was successful on the go. His method of investing was always to dig and get much more information than anyone else, then once he had enough information to know that a company was severely undervalued he would let the market in on the secret making large amounts of profit from each trade.  Once again, this disproves the efficient market hypothesis, but confirms the data oriented approach.
• How I made 2,000,000 in the Stock Market
• Author: Nicolas Darvas
• Great story regarding Nicolas's struggle to make money in the stock market. He ended up catching a bull cycle with a method that was perfect for it based on large increases in both price and volume.  Its an interesting read, but lacks in depth that would help understanding his trading strategy.  One of the most helpful discussions throughout the book is his battle with his emotions which shows that even when someone is getting it right, it is an emotional battle. In the end he learned to avoid anything that would make him overly emotional, and focus only on the data and the truth that it holds.
• Lessons from the Greatest Stock Traders of All Time
• Author: John Boik
• This book is helpful at comparing different traders styles allowing the reader to understand their similarities.  I read it over a year ago, but I remember that I did not feel that the author did a great job at understanding these individuals and truly making the meaningful connection between them all.  The model character from this book that I wanted to understand was Wiliam O'Neil as he followed a completely data based approach.  He was also the youngest person ever to buy a seat on the NYSE and still holds that record to this day.
• How to Make Money In Stocks
• Author: William O'Neil
• William O'Neil has had the most rigorous data approach that I have read about.  It details from start to finish how he went about making money in the market and amassed his initial fortune.  Although his system is specifically tuned for the individual investor who can move easily in and out of stocks without causing liquidity issues, it has no equal for that audience.  I wholeheartedly recommended the book, however my one caution is to watch out for the details.  There is quite a bit of information and as much as they try to dumb it down for the reader, the writers do not do a particularly good job at identifying the priority order of the winning qualities for trades.  Also, when a stock looks "perfect" from IBD's numbers, typically a large portion of the profit has already been missed.
• Invest like a Shark
• Helpful insights into emotions and some basic practical advice...dumbs down the theory component way to much to be particularly helpful. Very much a momentum based system that is helpful in pointing out how to pick up on money flowing into a stock from a chart.
• Trading for a Living: Psychology, Trading Tactics, Money Management
• Helpful practical advice to trading, one of the most important was how to prevent yourself from making emotional trades. As the author Alexander Elder is a pyschologist he describes the emotional basis of the problem, its similarities to that of alcoholism and an effective treatment method.  One at least that I found helpful
• Intermarket Technical Analysis: Trading Strategies for the Global Stock, Bond, Commodity, and Currency Markets
• Haven't gotten the chance to read it completely.  A little bit of a slow read, it does a good job at connecting based on data the equity, commodity, bond, and currency markets.  Also gives a guideline from a macroeconomic perspective as to the general relationship that it will follow. I got into it because my buddy on a trading desk recommended it as the goto book to read for technical analysis (Many of the trades that he makes were based off of this relationship, and betting that it would hold)

Sorry for the length of the post, hopefully next time I will get into outlining the process by which I will approach the data analysis.

Welcome

Hi All,

In case the name of the blog doesn't give it away, the goal of this blog is to track my journey in the stock market.  I will be trying to earn enough money from stocks to live off for the rest of my life. A complication here is that I would prefer not to discuss how much money I start with, so for simplicities sake we will assume I have 100k in the bank and use that to review whether or not I could make a living off the cash outflow.

First, let me apologize for my poor writing skills. I would never claim to be talented, nor even proficient at writing it is only a means to transmit thoughts. But enough of that, I would like to start with some ground truths that I truly and deeply believe in.

First, I believe that the market can be beaten, and beaten mightily. Countless individuals have done this from the early well known investors such as Jesse Livermore, Bernard Baruch, and John Maynard Keynes, to the equally well known George Soros, Steven Cohen and of course Warren Buffet. All of these individuals year in and year out do something that you supposedly cannot in efficient markets, make more money(or lose less) than everyone else. They run the gamut from short term traders to long term "investors". All have on thing in common though, they see an opportunity and go after it, even if it is not the popular course to follow.

Second, I believe the answer on how this can be accomplished can be found in the data. Although I will not go into depth on stating why this is the case, an example can be found in the work of William O'Neil (the found of IBD and a massively winning investor) or David Dreman. Before these extremely successful traders put on trades they understood both the macroeconomic theory they were investing in and the microeconomic stock picture. I believe that this understanding and focus was one of their most critical assets and one of the main defining quality that I have connected among leading investors. They focus on the most important data, understand as much as they can about what it means, act appropriately and immediately.

My next post will highlight how I go about figuring out what data is most important, and how to analyze it. I expect to get into a discussion(with myself) regarding how the stock market actually works (which I know little about).

Best of luck to all investing! Also, any feedback on this is more than welcome