Jesse Livermore's Trading Rules

All successful stock and commodity traders have rules for buying and selling. Many traders today still use the trading rules Jesse Livermore first devised almost a century ago. Jesse Livermore constructed his rules over several years while he learned by trial and error what worked on the markets. He was guided by one of his favorite principles: "There is nothing new in Wall Street. There can't be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again."
1. Buy rising stocks and sell falling stocks.
2. Do not trade every day of every year. Trade only when the market is clearly bullish or bearish. Trade in the direction of the general market. If it's rising you should be long, if it's falling you should be short.
3. Co-ordinate your trading activity with pivot points.
4. Only enter a trade after the action of the market confirms your opinion and then enter promptly.
5. Continue with trades that show you a profit, end trades that show a loss.
6. End trades when it is clear that the trend you are profiting from is over.
7. In any sector, trade the leading stock - the one showing the strongest trend.
8. Never average losses by, for example, buying more of a stock that has fallen.
9. Never meet a margin call - get out of the trade.
10. Go long when stocks reach a new high. Sell short when they reach a new low.
11. Don't become an involuntary investor by holding onto stocks whose price has fallen.
12. A stock is never too high to buy and never too low to short.
13. Markets are never wrong - opinions often are.
14. The highest profits are made in trades that show a profit right from the start.
15. No trading rules will deliver a profit 100 percent of the time.
16. Divide your capital into 10 equal parts, and never risk more than 1/10 of your capital on any one trade.
17. Use stop-loss orders and always protect a trade when you use a stop-loss order by using reasonable price limits.
18. Never over-trade and adhere to your risk management rules.
19. Never turn a profit into a loss. If you are using a stop-loss order, then raise your stop-loss so as to lock in a profit.
20. Remember, "the trend is your friend," and never buy and sell if you are not sure of the trend according to the fundamentals and technicals.
21. When in doubt, get out. Only trade when you feel confident about your trading strategies.
22. Trade in the most active markets, and refrain from the slow, inactive markets. Also, trade the most liquid contract months.
23. Your risk should be equally distributed. Trade in 2 or 3 different commodity products so as to avoid tying up all your capital in any one commodity.
24. Trade "at the market" whenever possible and try to avoid using orders with a fixed buying and selling price (except a stop-loss).
25. Establish a "surplus account" after you have a series of successful or winning trades. Your goal is to retain the "surplus account" in times of emergency or panic.
26. Never get into the market because you are anxious from waiting, and never get out of the market just because you have lost your patience.
27. Never buy just because the price of the commodity is "low", or sell just because the price is "high."
28. Never change your position in the market without a good reason. If you execute a trade, base it on a fundamental reason or technical rule. And then do not get out without a definite indication of a change in trend.
29. Do not guess where the top and bottom of the market is, but let the market prove its top and bottom.
30. Reduce your trading after your first loss; never increase or "double-up."
31. Perception is not reality. Only trade on "quality" advice.
32. Avoid the natural tendency toward increasing your trading after a long period of success or a period of profitable trades.
33. Use self-discipline as your guide when the market goes against your position. Take your loss and wait for another opportunity.
34. Never average a trading loss.
35. Avoid getting in and out of the market wrong, and getting in right and out wrong. This only leads to doubling your mistakes.
36. Avoid taking small profits and big losses.
37. Strategize according to market consensus. When too many market participants are moving the market in any one direction, the market becomes very vulnerable.
38. Only trade with genuine risk capital, and be aware of the risk of losing.
39. Do not trade when you do not understand the market. Trade with confidence and conviction.
40. Find your personal trading niche, and remain focused. Be cautious to not over extend your attention span.
41. Do not treat all markets the same. Learn to adjust the size of your positions and the frequency of your trades for different markets.
42. Look at all sides of the market. Try to understand why a buyer would buy, and why a seller would sell. This will enable you to be more flexible, and less resistant to change.
43. Ignore the minor price fluctuations and place positions with the basic trend of the market. Remember, the odds are on your side when you trade with the trend rather than try to pick trend reversal points.
44. Guessing key reversal points can be risky. Therefore, let the market tell you when it is over by a patterned reverse in direction.
45. Always remain true to your trading plan, and follow the trading style that works best for you. This may be accomplished through the help of a broker or done independently.
46. Never make a mistake without asking yourself why. Learn from your trading mistakes. If possible, keep a log of your trades - why you made them, what happened and why, etc.
47. Do not establish your trading size based solely on margin requirements.
48. Always trade within your capabilities, financial and otherwise.
49. Put your trust in the markets, and do not be afraid when they reach historic highs or lows.
50. Never underestimate the makeup and volume of the market’s participants. There's a lot of money out there!
51. Remember, the key to any plan is how well it performs over time.
52. Never let greed or fear take control over your winning positions.
53. It is very difficult to make and keep profits by becoming addicted to either the action in minor fluctuations, or to opposing the majority just to be a contrarian.
54. Declining volume usually indicates the market is not accepting higher or lower prices, and could indicate a turn.
55. A market that is topping or bottoming out does not spend much time at the extremes, so there will be little volume at these points.
56. Be flexible with your trading. This will promote your growth as a trader. Alter your plan as it suits your increasing knowledge of the markets.
57. Finally, have confidence and believe in yourself!

Dead Evidence

What Bullet Holes in Airplanes Can Teach You About Making Better Business Decisions:
During World War II, statistician Abraham Wald tried to determine where to add extra armor to airplanes. Based on the patterns of bullet holes in returning airplanes, he suggested that the parts not hit should be protected with extra armor. Why? Wald was looking at what is sometimes called "dead evidence." He reasoned like this... if these planes are returning, we know that if they are hit in the spots they have been hit, they can still fly. The planes that did not return must have been hit in different places. So put the extra armor wherever the returning planes were not hit. I think most people would have a natural inclination to put the armor where the returning planes had been hit. The real answer is simple, but counterintuitive. It's called "dead evidence" because it is what people ignore when they make these judgments.

An Intelligent Fool

A visitor to a small town noticed some activity on a street corner. Some loiterers outside a saloon were having some fun with the village idiot. A barfly held some money in each hand and said, "which would you like? The nice, shiny 50-cent piece or the dirty old dollar bill?" The village idiot replied, "The shiny 50-cent piece." Everybody laughed as the loiterer handed him the coin. Another barfly stepped forth. Same question. Same answer. More laughter as the alleged, dunce got another half-dollar. After watching this four times, the out-of-towner could stand it no longer. He walked up to the village idiot and said, "Don't you know that the dollar bill is worth twice as much as the 50-cent pieces?" "I know that." "Then why do you keep picking the coin?" "Because when I pick the dollar bill, they stop playing the game. Sometimes it is easier to fool the people by looking like a fool"  

Management Lessons

ALTITUDE:

A crow was sitting on a tree, doing nothing all day. A small rabbit saw the crow, and asked him, "Can I also sit like you and do nothing all day long?” The crow answered: "Sure, why not.” So, the rabbit sat on the ground below the crow, and rested. All of a sudden, a fox appeared, Jumped on the rabbit... and ate it. Moral of the story: To be sitting and doing nothing you must be sitting very, very high up. 

CHARACTER:

A turkey was chatting with a bull. "I would love to be able to get to the top of that tree," sighed the turkey, "but I haven't got the energy.” "Well, why don't you nibble on some of my droppings?" replied the bull. They're packed with nutrients." The turkey pecked at a lump of dung and found that it actually gave him enough strength to reach the first branch of the tree. The next day, after eating more dung, he reached the second branch. Finally after a fortnight, there he was proudly perched at the top of the tree. Soon he was spotted by a farmer who promptly shot the turkey out of the tree. Moral of the story: Bullshit might get you to the top, but it won't keep you there. 

SILENCE:

A little bird was flying south for the winter. It was so cold; the bird froze and fell to the ground in a large field. While it was lying there, a cow came by and dropped some dung on it. As the frozen bird lay there in the pile of cow dung, it began to realize how warm it was. The dung was actually thawing him out! He lay there all warm and happy, and soon began to sing for joy. A passing cat heard the bird singing and came to investigate. Following the sound, the cat discovered the bird under the pile of cow dung, and promptly dug him out and ate him! The morals of this story are: (1) Not everyone who drops shit on you is your enemy. (2) Not everyone who gets you out of shit is your friend. (3) And when you're in deep shit, keep your mouth shut

SIMPLICITY:

Managers may be afraid to embrace simplicity. In business we are all scared of being called "too simple." People confuse simplicity, which is hard to achieve, with simplistic, which is easy and usually lacking value. When in doubt, a manager may add a layer of complexity where it is not needed just to be safe. It takes courage to be simple.

EFFORT:

Many will stop reading when I say you need four double-faced playing cards for this effect. Many others will continue reading, but will not bother to obtain the necessary items from a magic dealer. A few will take the trouble, and they will possess a gem of card magic.

Performance

It's a fine sunny day in the forest and a rabbit is sitting outside his burrow, tippy-tapping on his typewriter. Along comes a fox, out for a walk.

Fox: "What are you working on?"

Rabbit: "My thesis."

Fox: "Hmm... What is it about?"

Rabbit: "Oh, I'm writing about how rabbits eat foxes."

Fox: "That's ridiculous! Any fool knows that rabbits don't eat foxes!"

Rabbit: "Come with me and I'll show you!"

They both disappear into the rabbit's burrow. After few minutes, gnawing on a fox bone, the rabbit returns to his typewriter and resumes typing. Soon a wolf comes along and stops to watch the hardworking rabbit.

Wolf: "What's that you are writing?"

Rabbit: "I'm doing a thesis on how rabbits eat wolves."

Wolf: "you don't expect to get such rubbish published, do you?"

Rabbit: "No problem. Do you want to see why?"

The rabbit and the wolf go into the burrow and again the rabbit returns by himself, after a few minutes, and goes back to typing. Finally a bear comes along and asks, "What are you doing?

Rabbit: "I'm doing a thesis on how rabbits eat bears."

Bear: "Well that's absurd!”

Rabbit: "Come into my home and I'll show you"

Scene: As they enter the burrow, the rabbit introduces the bear to the lion.

Moral: IT DOESN'T MATTER HOW SILLY YOUR THESIS TOPIC IS; WHAT MATTERS IS WHOM YOU HAVE AS A SUPERVISOR.

Management Lesson In the context of the working world: IT DOESN'T MATTER HOW BAD YOUR PERFORMANCE IS; WHAT MATTERS IS WHETHER YOUR BOSS LIKES YOU OR NOT.

Subordinates

It's a fine sunny day in the forest and a lion is sitting outside his cave, lying lazily in the sun. Along comes a fox, out on a walk.
Fox: "Do you know the time, because my watch is broken"
Lion: "Oh, I can easily fix the watch for you"
Fox: "Hmm... But it's a very complicated mechanism, and your big claws will only destroy it even more“
Lion: "Oh no, give it to me, and it will be fixed"
Fox: "That's ridiculous! Any fool knows that lazy lions with great claws cannot fix complicated watches"
Lion: "Sure they do, give it to me and it will be fixed"
The lion disappears into his cave, and after a while he comes back with the watch which is running perfectly. The fox is impressed, and the lion continues to lie lazily in the sun, looking very pleased with himself.
Soon a wolf comes along and stops to watch the lazy lion in the sun.
Wolf: "Can I come and watch TV tonight with you, because mine is broken"
Lion: "Oh, I can easily fix your TV for you"
Wolf: "You don't expect me to believe such rubbish, do you? There is no way that a lazy lion with big claws can fix a complicated TV“
Lion: "No problem. Do you want to try it?"
The lion goes into his cave, and after a while comes back with a perfectly fixed TV. The wolf goes away happily and amazed.
Scene: Inside the lion's cave. In one corner are half a dozen small and intelligent looking rabbits who are busily doing very complicated work with very detailed instruments. In the other corner lies a huge lion looking very pleased with himself.
Moral: IF YOU WANT TO KNOW WHY A MANAGER IS FAMOUS; LOOK AT THE WORK OF HIS SUBORDINATES.
Management Lesson In the context of the working world: IF YOU WANT TO KNOW WHY SOMEONE UNDESERVED IS PROMOTED; LOOK AT THE WORK OF HIS SUBORDINATES.

Don't Treat The Symptoms. Treat The Disease

The problem we have here is point of view. I see a suffering economy as good, you see it as bad. A suffering economy is a symptom to a problem. It tells us we need to fix something. The same way that when your body gets sick, your body sends you signal that something is wrong. If we never had those symptoms, we would die. Because we would never know there was anything wrong with us.  The idea is not to give the economy pain killers so we don't have to feel the pain. The idea is to feel the pain so we don't make the same mistakes again in the future. You want to treat the symptoms. I want to treat the disease. 

The Law Of The Garbage Truck

How often do you let other people's nonsense change your mood?  Do you let a bad driver, rude waiter, curt boss, or an insensitive employee ruin your day? Unless you're the Terminator, for an instant you're probably set back on your heels. However, the mark of a successful person is how quickly one can get back their focus on what's important.  Sixteen years ago I learned this lesson. I learned it in the back of a New York City taxi cab. Here's what happened.  I hopped in a taxi, and we took off for Grand Central Station. We were driving in the right lane when, all of a sudden, a black car jumped out of a parking space right in front of us. My taxi driver slammed on his breaks, skidded, and missed the other car's back end by just inches!  The driver of the other car, the guy who almost caused a big accident, whipped his head around and he started yelling bad words at us. My taxi driver just smiled and waved at the guy. And I mean, he was friendly. So, I said, "Why did you just do that? This guy almost ruined your car and sent us to the hospital!"  And this is when my taxi driver told me what I now call, "The Law of the Garbage Truck."  "Many people are like garbage trucks. They run around full of garbage, full of frustration, full of anger, and full of disappointment. As their garbage piles up, they need a place to dump it. And if you let them, they'll dump it on you. When someone wants to dump on you, don't take it personally. You just smile, wave, wish them well, and move on. You'll be happy you did."

So this was it: The "Law of the Garbage Truck." I started thinking, how often do I let Garbage Trucks run right over me? And how often do I take their garbage and spread it to other people: at work, at home, on the streets? It was that day I said, "I'm not going to do it anymore."  I began to see garbage trucks. Like in the movie "The Sixth Sense," the little boy said, "I see Dead People." Well, now "I see Garbage Trucks." I see the load they're carrying. I see them coming to drop it off. And like my Taxi Driver, I don't make it a personal thing; I just smile, wave, wish them well, and I move on.  One of my favorite football players of all time, Walter Payton, did this every day on the football field. He would jump up as quickly as he hit the ground after being tackled. He never dwelled on a hit. Payton was ready to make the next play his best. Good leaders know they have to be ready for their next meeting.  Good parents know that they have to welcome their children home from school with hugs and kisses. Leaders and parents know that they have to be fully present, and at their best for the people they care about.  The bottom line is that successful people do not let Garbage Trucks take over their day.  What about you? What would happen in your life, starting today, if you let more garbage trucks pass you by?  Here's my bet. You'll be happier.  Life's too short to wake up in the morning with regrets. Love the people who treat you right. Forget about the ones who don't. Believe that everything happens for a reason. If you get a chance, TAKE IT! If it changes your life, LET IT!  Nobody said it would be easy… they just promised it would be worth it!

Tips For Becoming Lucky

Unlucky people are generally more tense than lucky people, and this anxiety disrupts their ability to notice the unexpected. Lucky people are more relaxed and open, and therefore see what is there rather than just what they are looking for. Lucky people generate good fortune via four principles. They are skilled at creating and noticing chance opportunities, make lucky decisions by listening to their intuition, create self-fulfilling prophesies via positive expectations, and adopt a resilient attitude that transforms bad luck into good. Here are four top tips for becoming lucky:
1. Listen to your gut instincts—they are normally right.
2. Be open to new experiences and breaking your normal routine.
3. Spend a few moments each day remembering things that went well.
4. Visualize yourself being lucky before an important meeting or telephone call.
The happiest people in the world are not those who have no problems, but those who learn to live with things that are less than perfect. 

Think Different

Clouds are same across the world. But based on the vision of the viewers its shapes could be interpreted. Thousands of business are available around the world and millions of business people may be doing your business. But what makes you different from them will be your vision alone. The need of the hour as a businessman/woman is your creative vision in the name of innovation or intelligent vision. Every business is playing hide and seek by hiding the opportunities. To be a good player, always be the first to create something new or try to innovate with what you have, ready to adopt possible risks and never lose your hope.  Where the heart is willing, it will find a thousand ways; but where it is unwilling it will find thousand excuses. As we have heard “a loser sees uncertainties in every opportunity and the winner sees opportunity in every uncertainty”. Be the winner. And to be the winner, don’t work hard but think hard. Think different. Your thought could change the world one day and on that day your business could rule the world. 

The Ten Commandments of Egoless Programming (By Gerald Weinberg)

1. Understand and accept that you will make mistakes. The point is to find them early, before they make it into production. Fortunately, except for the few of us developing rocket guidance software at JPL, mistakes are rarely fatal in our industry, so we can, and should, learn, laugh, and move on.
2. You are not your code. Remember that the entire point of a review is to find problems, and problems will be found. Don't take it personally when one is uncovered.
3. No matter how much "karate" you know, someone else will always know more. Such an individual can teach you some new moves if you ask. Seek and accept input from others, especially when you think it's not needed.
4. Don't rewrite code without consultation. There's a fine line between "fixing code" and "rewriting code." Know the difference, and pursue stylistic changes within the framework of a code review, not as a lone enforcer.
5. Treat people who know less than you with respect, deference, and patience. Nontechnical people who deal with developers on a regular basis almost universally hold the opinion that we are prima donnas at best and crybabies at worst. Don't reinforce this stereotype with anger and impatience.
6. The only constant in the world is change. Be open to it and accept it with a smile. Look at each change to your requirements, platform, or tool as a new challenge, not as some serious inconvenience to be fought.
7. The only true authority stems from knowledge, not from position. Knowledge engenders authority, and authority engenders respect—so if you want respect in an egoless environment, cultivate knowledge.
8. Fight for what you believe, but gracefully accept defeat. Understand that sometimes your ideas will be overruled. Even if you do turn out to be right, don't take revenge or say, "I told you so" more than a few times at most, and don't make your dearly departed idea a martyr or rallying cry.
9. Don't be "the guy in the room." Don't be the guy coding in the dark office emerging only to buy cola. The guy in the room is out of touch, out of sight, and out of control and has no place in an open, collaborative environment.
10. Critique code instead of people—be kind to the coder, not to the code. As much as possible, make all of your comments positive and oriented to improving the code. Relate comments to local standards, program specs, increased performance, etc.

When Missing A Train Is Painless (By Nassim Taleb)

I once received another piece of life-changing advice, which, unlike the advice I got from a friend, I find applicable, wise, and empirically valid. My classmate in Paris, the novelist-to-be Jean-Olivier Tedesco, pronounced, as he prevented me from running to catch a subway, "I don't run for trains."  Snub your destiny. I have taught myself to resist running to keep on schedule. This may seem a very small piece of advice, but it registered. In refusing to run to catch trains, I have felt the true value of elegance and aesthetics in behavior, a sense of being in control of my time, my schedule, and my life. Missing a train is only painful if you run after it! Likewise, not matching the idea of success others expect from you is only painful if that's what you are seeking.  You stand above the rat race and the pecking order, not outside of it, if you do so by choice. Quitting a high-paying position, if it is your decision, will seem a better payoff than the utility of the money involved (this may seem crazy, but I've tried it and it works). This is the first step toward the stoic's throwing a four-letter word at fate. You have far more control over your life if you decide on your criterion by yourself.  Mother Nature has given us some defense mechanisms: as in Aesop's fable, one of these is our ability to consider that the grapes we cannot (or did not) reach are sour. But an aggressively stoic prior disdain and rejection of the grapes is even more rewarding.

Be aggressive; be the one to resign, if you have the guts. It is more difficult to be a loser in a game you set up yourself. In Black Swan terms, this means that you are exposed to the improbable only if you let it control you. You always control what you do; so make this your end. But all these ideas, all this philosophy of induction, all these problems with knowledge, all these wild opportunities and scary possible losses, everything palls in front of the following metaphysical consideration. I am sometimes taken aback by how people can have a miserable day or get angry because they feel cheated by a bad meal, cold coffee, a social rebuff, or a rude reception. Recall my discussion in Chapter 8 on the difficulty in seeing the true odds of the events that run your own life. We are quick to forget that just being alive is an extraordinary piece of good luck, a remote event, a chance occurrence of monstrous proportions.  Imagine a speck of dust next to a planet a billion times the size of the earth. The speck of dust represents the odds in favor of your being born; the huge planet would be the odds against it. So stop sweating the small stuff. Don't be like the ingrate who got a castle as a present and worried about the mildew in the bathroom. Stop looking the gift horse in the mouth—remember that you are a Black Swan.

You Can't Predict Who Will Change The World (By Nassim Taleb)

Before the discovery of Australia, Europeans thought that all swans were white, and it would have been considered completely unreasonable to imagine swans of any other color. The first sighting of a black swan in Australia, where black swans are, in fact, rather common, shattered that notion. The moral of this story is that there are exceptions out there, hidden away from our eyes and imagination, waiting to be discovered by complete accident. What I call a "Black Swan" is an exceptional unpredictable event that, unlike the bird, carries a huge impact.  It's impossible for the editors of Forbes.com to predict who will change the world, because major changes are Black Swans, the result of accidents and luck. But we do know who society's winners will be: those who are prepared to face Black Swans, to be exposed to them, to recognize them when they show up and to rigorously exploit them.  Things, it turns out, are all too often discovered by accident--but we don't see that when we look at history in our rear-view mirrors. The technologies that run the world today (like the Internet, the computer and the laser) are not used in the way intended by those who invented them. Even academics are starting to realize that a considerable component of medical discovery comes from the fringes, where people find what they are not exactly looking for. It is not just that hypertension drugs led to Viagra or that angiogenesis drugs led to the treatment of macular degeneration, but that even discoveries we claim come from research are themselves highly accidental. They are the result of undirected tinkering narrated after the fact, when it is dressed up as controlled research. The high rate of failure in scientific research should be sufficient to convince us of the lack of effectiveness in its design. If the success rate of directed research is very low, though, it is true that the more we search, the more likely we are to find things "by accident," outside the original plan. Only a disproportionately minute number of discoveries traditionally came from directed academic research. What academia seems more masterful at is public relations and fundraising. This is good news--for some.

Ignore what you were told by your college economics professor and consider the following puzzle. Whenever you hear a snotty European presenting his stereotypes about Americans, he will often describe them as "unintellectual," "uneducated," and "poor in math," because, unlike European schooling, American education is not based on equation drills and memorization. Yet the person making these statements will likely be addicted to his iPod, wearing a T-shirt and blue jeans, and using Microsoft Word to jot down his "cultural" statements on his Intel-based PC, with some Google searches on the Internet here and there interrupting his composition. If old enough, he might also be using Viagra.  America's primary export, it appears, is trial-and-error, and the innovative knowledge attained in such a way. Trial-and-error has error in it; and most top-down traditional rational and academic environments do not like the fallibility of "error" and the embarrassment of not quite knowing where they're going. The U.S. fosters entrepreneurs and creators, not exam-takers, bureaucrats or, worse, deluded economists. So the perceived weakness of the American pupil in conventional studies is where his or her very strength may lie. The American system of trial and error produces doers: Black Swan-hunting, dream-chasing entrepreneurs, with a tolerance for a certain class of risk-taking and for making plenty of small errors on the road to success or knowledge. This environment also attracts aggressive tinkering foreigners like this author.  Globalization allowed the U.S. to specialize in the creative aspect of things, the risk-taking production of concepts and ideas--that is, the scalable part of production, in which more income can be generated from the same fixed assets through innovation. By exporting jobs, the U.S. has outsourced the less scalable and more linear components of production, assigning them to the citizens of more mathematical and culturally rigid states, who are happy to be paid by the hour to work on other people's ideas.

Let us go one step further. It is high time to recognize that we humans are far better at doing than understanding, and better at tinkering than inventing. But we don't know it. We truly live under the illusion of order believing that planning and forecasting are possible. We are scared of the random, yet we live from its fruits. We are so scared of the random that we create disciplines that try to make sense of the past--but we ultimately fail to understand it, just as we fail to see the future.  The current discourse in economics, for example, is antiquated. American undirected free-enterprise works because it aggressively allows us to capture the randomness of the environment--the cheap Black Swans. This works not just because of competition, and even less because of material incentives. Neither the followers of Adam Smith nor those of Karl Marx seem to be conscious of the prevalence and effect of wild randomness. They are too bathed in enlightenment-style cause-and-effect and cannot accept that skills and payoffs may have nothing to do with one another. Nor can they swallow the argument that it is not necessarily the better technology that wins, but rather, the luckiest one. And, sadly, even those who accept this fundamental uncertainty often fail to see that it is a good thing.  Random tinkering is the path to success. And fortunately, we are increasingly learning to practice it without knowing it--thanks to overconfident entrepreneurs, naive investors, greedy investment bankers, confused scientists and aggressive venture capitalists brought together by the free-market system.  We need more tinkering: Uninhibited, aggressive, proud tinkering. We need to make our own luck. We can be scared and worried about the future, or we can look at it as a collection of happy surprises that lie outside the path of our imagination.

Peer Cruelty (By Nassim Taleb)

Every morning you leave your cramped apartment in Manhattan's East Village to go to your laboratory at the Rockefeller University in the East Sixties. You return in the late evening, and people in your social network ask you if you had a good day, just to be polite. At the laboratory, people are more tactful. Of course you did not have a good day; you found nothing. You are not a watch repairman. Your finding nothing is very valuable, since it is part of the process of discovery—hey, you know where not to look. Other researchers, knowing your results, would avoid trying your special experiment, provided a journal is thoughtful enough to consider your "found nothing" as information and publish it. Meanwhile your brother-in-law is a salesman for a Wall Street firm, and keeps getting large commissions—large and steady commissions. "He is doing very well," you hear, particularly from your father-in-law, with a small pensive nanosecond of silence after the utterance—which makes you realize that he just made a comparison. It was involuntary, but he made one. Holidays can be terrible. You run into your brother-in-law at family reunions and, invariably, detect unmistakable signs of frustration on the part of your wife, who, briefly, fears that she married a loser, before remembering the logic of your profession. But she has to fight her first impulse. Her sister will not stop talking about their renovations, their new wallpaper. Your wife will be a little more silent than usual on the drive home. This sulking will be made slightly worse because the car you are driving is rented, since you cannot afford to garage a car in Manhattan. What should you do? Move to Australia and thereby make family reunions less frequent, or switch brothers-in-laws by marrying someone with a less "successful" brother? Or should you dress like a hippie and become defiant? That may work for an artist, but not so easily for a scientist or a businessman. You are trapped. You work on a project that does not deliver immediate or steady results; all the while, people around you work on projects that do. You are in trouble.

Such is the lot of scientists, artists, and researchers lost in society rather than living in an insulated community or an artist colony. Positive lumpy outcomes, for which we either collect big or get nothing, prevail in numerous occupations, those invested with a sense of mission, such as doggedly pursuing (in a smelly laboratory) the elusive cure for cancer, writing a book that will change the way people view the world (while living hand to mouth), making music, or painting miniature icons on subway trains and considering it a higher form of art despite the diatribes of the antiquated "scholar" Harold Bloom. If you are a researcher, you will have to publish inconsequential articles in "prestigious" publications so that others say hello to you once in a while when you run into them at conferences. If you run a public-corporation, things were great for you before you had shareholders, when you and your partners were the sole owners, along with savvy venture capitalists who understood uneven results and the lumpy nature of economic life. But now you have a slow-thinking thirty-year-old security analyst at a downtown Manhattan firm who "judges" your results and reads too much into them. He likes routine rewards, and the last thing you can deliver are routine rewards. Many people labor in life under the impression that they are doing something right, yet they may not show solid results for a long time. They need a capacity for continuously adjourned gratification to survive a steady diet of peer cruelty without becoming demoralized. They look like idiots to their cousins, they look like idiots to their peers, they need courage to continue. No confirmation comes to them, no validation, no fawning students, no Nobel, no Shnobel. "How was your year?" brings them a small but containable spasm of pain deep inside, since almost all of their years will seem wasted to someone looking at their life from the outside. Then bang, the lumpy event comes that brings the grand vindication. Or it may never come. Believe me; it is tough to deal with the social consequences of the appearance of continuous failure. We are social animals; hell is other people.

Who Says Life Is Fair?

Like most grandparents love telling their stories, she started narrating hers. "I started working at age of seven, by helping my mom who was a house maid. Later I got married at fifteen. And as is the case in many low income households, my husband was a drunkard and died because of it. As such I had to take my own and my son’s responsibility. I lost my young 25 yr old son in a train accident. As such, I have to earn my living." She begins her day at 4:00 am, with filling water. Water supply in the city is restricted to some 1-2 hours especially in slums and chawls and the water timings are usually this weird. She and her sister then have tea with 2 biscuits, which is along with a banana at night is their only meal for the whole day. Her sister earns her living by doing some household work. At her age no one would offer her that work. She works in small scale packaging firm. Although the firm manager does not give her any work, he pays her the wages for the efforts she takes to reach there every day. Alas! I thought, there are few good people around. I got back to reading my book again. But the thought of her, lingered in my mind for long. I could sense there was some silence around. No not out of pity. Why should anyone pity her, when she herself didn’t? Possibly it was out of self introspection that everyone was doing, just like me. Here I was complaining and whining about small things in life. How mean I am I felt. I felt my insides churn. Poverty, grief, struggle neither could bring down this lady’s self respect. At her age she could have easily taken up to begging, asking for help and donations. But she still prefers to earn her living. She has the willingness and courage to face the world, start life all new. And even more she never had complaints from life. She taught me how life was full of hope. Very few people can make a difference to your life. She had in some way touched mine. Her smile was a tight slap in face of all those people who cry life is unfair. Who says life is fair? Life was always unfair. It’s up to us to make it fair.  

God Is Omnipotent

Building is there. Implies Builder should be there. Creation is there. Creator should be there. I can see the building, which is in front of my eyes, but builder need not stand in front of the building. He will be in his own job. If you want to meet the builder, you should definitely put effort to locate the builder and see him. Likewise Creation is there in front of our eyes. But have we put anytime effort to locate and identify the creator? Instead of that, with least effort we can propagate to others also that God is not there. They are not only blinded, they are making others also blinded. Some people who are theists may become prey for the propagation of this ignorance also unfortunately. The greatest sin on the earth is to be unfaithful. To identify the builder you should know the identification marks, where he lives, what he does etc... and we have to enquire if we don't know. i.e., knowledge is required to identify any person. This knowledge is called divine knowledge if the aim is to identify the Lord, which actually only is to be propagated. Lord created this universe for the enjoyment without any selfish motive and we human beings are enjoying the creation. Like through nice parents, wife, children, beautiful nature consisting of pleasant looking mountains, rivers, sea, nature, changing weather etc. If we cannot please the Lord, the human life is incomplete. We serve our family members by spending our hard earned money and also physically. Are we not serving family as Servant, and these family members are nearly equal to us. Whereas, Lord is omnipotent and requires no help from us, many times satisfied our desires, saved us from mishaps etc. and if we cannot bow our head in front of Him, it is very ridiculous. It is very great honor to serve Him, this is the path followed by His real devotees. These real devotees could overcome ego and always wants to serve Him as servant. Jesus preached the gospel and His followers participated in His mission as servants for further propagation of divine knowledge. These great devotees never hesitated to serve Lord Jesus and their names have also been known even today.

Life & Football

You find out life's this game of inches, so is football. Because in either game - life or football - the margin for error is so small. I mean one half a step too late or too early and you don't quite make it. One half second too slow, too fast and you don't quite catch it. The inches we need are everywhere around us. They're in every break of the game, every minute, every second. On this team we fight for that inch. On this team we tear ourselves and everyone else around us to pieces for that inch. We claw with our fingernails for that inch. Because we know when add up all those inches, that's gonna make the difference between winning and losing! Between living and dying! In any fight it's the guy whose willing to die whose gonna win that inch. And I know, if I'm gonna have any life any more it's because I'm still willing to fight and die for that inch, because that's what living is, the six inches in front of your face. Now I can't make you do it. You've got to look at the guy next to you, look into his eyes. Now I think you going to see a guy who will go that inch with you. Your gonna see a guy who will sacrifice himself for this team, because he knows when it comes down to it your gonna do the same for him. That's a team gentlemen, and either, we heal as a team, or we will die as individuals. That's football guys, that's all it is.

Time Changes Everything

In 1923, nine of the world's most successful financiers met at Chicago's Edgewater Beach Hotel. Financially, they literally "held the world by the tail" -- anything that money could buy was within their grasp -- they were rich -- rich -- rich! Hear their names and the high position each held:
1. Charles Schwab, the president of the largest steel company.
2. Samuel Insull, the president of the largest electric utility company.
3. Howard Hopson, the president of the largest gas company.
4. Arthur Cutten, the great wheat speculator.
5. Richard Whitney, the president of the New York Stock Exchange.
6. Albert Fall, the Secretary of Interior in President Harding's Cabinet.
7. Jesse Livermore, the greatest "bear" on Wall Street.
8. Ivar Kreuger, head of the world's greatest monopoly.
9. Leon Fraser, president of the Bank of International Settlements.
A tremendously impressive group -- right? Would you like to change positions with one of them? Before you decide, let's look at the picture 25 years later -- in 1948:
1. Charles Schwab was forced into bankruptcy and lived the last five years before his death on borrowed money.
2. Samuel Insull not only died in a foreign land, a fugitive from justice, but was penniless.
3. Howard Hopson was insane.
4. Arthur Cutten became insolvent and had died abroad.
5. Richard Whitney had just been released from Sing Sing prison.
6. Albert Fall had been pardoned from prison so he could die at home--broke.
7. Jesse Livermore had died a suicide.
8. Ivar Kreuger took his own life.
9. Leon Fraser also committed suicide.

Edge

3 examples of edges.
The first one is obviously the market maker who earns a spread. Now why is that market makers don't blow up and go broke but traders do?
Next one, casinos. Casinos have an edge with every game. The edge varies from game to game but they earn their edge too. Now why is that casinos never go broke and blow up but gamblers do?
Third one, the sports bookie. He has an edge. He collects 5% from the winner right. So why is it that bookies never go broke and blow out but sports bettors do.
See in each of these categories, the people who have the edge end up sooner or later taking the money from the people who don't have an edge. These edges are real and they last that’s why market makers, bookies and casino operators have been around since the beginning of time. That is why these groups of people have amassed huge fortunes. Argue all you want but you’re not getting their money. They are getting yours. The key for them is to keep finding new suckers. Why? Because if you stop betting with the bookie, trading with the market maker or gambling at the casino, they lose. Why do you think all three of these groups find clever new ways to get you to play? They try to make it as easy as possible for you and in some cases, even convince you that it’s really you that has the edge not them. This is a sucker’s ploy. Why do you think casinos have bookshops in their lobby teaching you how to count cards? Why do you think they will let you carry the book with you to the blackjack table? Why do the CBOE and Merc give free seminars on trading their new products? Why does the bookie let you have free bets? It's to get your money. As Bobby Deniro says in the movie "Casino", guys come in here with every system, every strategy in the world. They come in here to try to take our money but sooner or later we get it all.

Investing Principles By Charlie Munger

Charlie Munger is the partner of Warren Buffet and is considered by many to be the brain behind Buffet’s success. His investment principles are worth reading.
Risk – All investment evaluations should begin by measuring risk, especially reputational
•  Incorporate an appropriate margin of safety
•  Avoid dealing with people of questionable character
•  Insist upon proper compensation for risk assumed
•  Always beware of inflation and interest rate exposures
•  Avoid big mistakes; shun permanent capital loss
Independence – “Only in fairy tales are emperors told they are naked”
•  Objectivity and rationality require independence of thought
•  Remember that just because other people agree or disagree with you doesn’t make you right or wrong – the only thing that matters is the correctness of your analysis and judgment
•  Mimicking the herd invites regression to the mean (merely average performance)
Preparation – “The only way to win is to work, work, work, work, and hope to have a few insights”
•  Develop into a lifelong self-learner through voracious reading; cultivate curiosity and strive to become a little wiser every day
•  More important than the will to win is the will to prepare
•  Develop fluency in mental models from the major academic disciplines
•  If you want to get smart, the question you have to keep asking is “why, why, why?”
Intellectual humility – Acknowledging what you don’t know is the dawning of wisdom
•  Stay within a well-defined circle of competence
•  Identify and reconcile dis-confirming evidence
•  Resist the craving for false precision, false certainties, etc.
•  Above all, never fool yourself, and remember that you are the easiest person to fool
 “Understanding both the power of compound interest and the difficulty of getting it is the heart and soul of understanding a lot of things.”
Analytic rigor – Use of the scientific method and effective checklists minimizes errors and omissions
•  Determine value apart from price; progress apart from activity; wealth apart from size
•  It is better to remember the obvious than to grasp the esoteric
•  Be a business analyst, not a market, macroeconomic, or security analyst
•  Consider totality of risk and effect; look always at potential second order and higher level impacts
•  Think forwards and backwards – Invert, always invert
Allocation – Proper allocation of capital is an investor’s number one job
•  Remember that highest and best use is always measured by the next best use (opportunity cost)
•  Good ideas are rare – when the odds are greatly in your favor, bet (allocate) heavily
•  Don’t “fall in love” with an investment – be situation-dependent and opportunity-driven
Patience – Resist the natural human bias to act
•  “Compound interest is the eighth wonder of the world” (Einstein); never interrupt it unnecessarily
•  Avoid unnecessary transactional taxes and frictional costs; never take action for its own sake
•  Be alert for the arrival of luck
•  Enjoy the process along with the proceeds, because the process is where you live
Decisiveness – When proper circumstances present themselves, act with decisiveness and conviction
•  Be fearful when others are greedy, and greedy when others are fearful
•  Opportunity doesn’t come often, so seize it when it comes
•  Opportunity meeting the prepared mind; that’s the game
Change – Live with change and accept irremovable complexity
•  Recognize and adapt to the true nature of the world around you; don’t expect it to adapt to you
•  Continually challenge and willingly amend your “best-loved ideas”
•  Recognize reality even when you don’t like it – especially when you don’t like it
Focus – Keep things simple and remember what you set out to do
•  Remember that reputation and integrity are your most valuable assets – and can be lost in a heartbeat
•  Guard against the effects of hubris (arrogance) and boredom
•  Don’t overlook the obvious by drowning in minutiae (the small details)
•  Be careful to exclude unneeded information or slop: “A small leak can sink a great ship”
•  Face your big troubles; don’t sweep them under the rug