Blog - Investing Notes

June 14, 2006 - Training for the Investor/Trader Hurdles (Updated 7/1/07)

As illustrated in the cartoon below, investors and traders face three hurdles on the track to success: (1) developing a workable strategy/methodology as a foundation for decision-making; (2) persistently performing the research needed to reconfirm/execute the strategy; and, (3) overcoming emotional temptations to ditch strategy and research by succumbing to fear or greed. More specifically...

The dimensions of strategy include: buy-and-hold versus timing; within timing, momentum versus contrarian; long-only versus long-short; style (such as value versus growth, or small capitalization versus large); fundamental analysis versus technical; funds (hedge, mutual, sector, index) versus individual stocks; and, diversified portfolio versus concentrated. The gurus we review represent a range of strategies. We ourselves occasionally experiment with trading strategies. For a some major investing concepts, see Big Ideas for Investing/Trading.

Regarding research, we recommend Triumph of the Optimists as a knowledge baseline. The Social Science Research Network is a good way to stay current with academic research on investing. We capture some of the most actionable academic research in our External Research blog archive, and occasionally offer original research as listed in our Internal Research blog archive. To review major research themes, we suggest our synthesizing blog entries of:

The Equity Risk Premium on the equity risk premium (what return you should expect from stocks);

Gunning for the Fed Model? on the Fed Model timing strategy;

The Size Effect on small-capitalization stock investing;

The Value Premium on value investing;

Volatility Effects on volatility-based timing;

Momentum Investing/Trading on momentum-based timing;

The Economy and the Stock Market on economic indicator-based timing;

Politics and the Stock Market on politics-based timing;

Some Trading Indicators on the validity of some specific trading indicators;

Calendar Effects on calendar-based timing;

Short Selling and Short Interest on short selling;

Equity Options on trading in equity options;

Individual Investing on characteristics of, and some tools for, individual investors/traders;

Mutual Funds and Hedge Funds on mutual fund and hedge fund investing; and,

Buybacks and Secondaries on timing based on share buybacks and secondary stock issuances.

For a research-oriented discussion of animal spirits, in the spirit that forewarned is forearmed, see:

Animal Spirits Round-up on the animal spirits of investing/trading;

Sentimental Journey on the value of sentiment indicators; and,

The Wisdom of Analysts, Experts and Gurus and Guru Grades on how much to be swayed by the pronouncements of experts.