Wall Street Craps – 2012 Global Ebook Finance Award-Winner

stock market:

1. a regulated exchange where public securities are traded between buyers and sellers.

2. also referred to as “Wall Street,” which is the actual location in New York City that is regarded as the financial center of America.

3. a financial game of risk and reward that favors those who possess discipline, decisiveness, specialized knowledge, and keen awareness.

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“I believe the true road to preeminent success in any line is to make yourself master in that line. I have no faith in the policy of scattering one’s resources, and in my experience I have rarely if ever met a man who achieved preeminence in money making – who was interested in many concerns.”

Andrew Carnegie ~ American industrialist & philanthropist (1835-1919)

MAINTAIN A SIMPLE APPROACH TO INVESTING: As you expand your knowledge of stock market investing, keep reminding yourself that it is not necessary for you to know everything. The fact is that there is a never-ending supply of information, opinions, theories, and stories regarding stock market investing.

You will find that the media is especially fixated on stories that explain why the market either goes up or down on a particular day. But while hindsight is 20/20, even the experts can never agree on what the markets will do in the future. Therefore, the savvy investor must not get distracted by what is simply “interesting” about the market; instead, they stay focused on what is most useful.

What you want do in terms of stock market investing is to find reliable information that leads to action. Dr. Wallace Wattles described a concept called “efficient action” in his 1903 classic book, The Science of Getting Rich. Efficient action is the habit of consistently doing the right thing on a person’s journey towards wealth. The point that Dr. Wattles was making is that financial wealth is created with certainty over time by simply adhering to the right daily habits of thinking, emotion, and action.

In terms of investing in the stock market, efficient action would include the following habits that are described in this book: (1) manage your money wisely through prudent asset allocation, (2) “invest” the major part and “play” with the minor part of your assets, (3) play the stock market game correctly on a consistent basis, (4) maintain your emotional balance, and (5) appreciate the entire experience. Reminder yourself that success in the stock market comes from acquiring the habits of efficient action, instead of wasting time trying to absorb the endless streams of financial news, information and opinions.

Remember that the confused mind does nothing. Keep your approach to stock market investing simple by resisting the urge to know everything. The way to success is by acquiring the clarity to take correct decisive action when opportunities periodically present themselves to you.

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“There is a secret to investing that cuts a path directly to the profits that you’re looking for. The secret is simplicity. The more elementary your investment style, the more confidence you can be of making money in the long run.”

Jane Bryant Quinn

DON’T PLAY TOO LONG: Spend significantly more time out of the market than in it. If it’s the thrill of action that you crave, then find other games of chance to fill this emotional need. Savvy players get their kicks out of anticipating the next big move in the market.

Shedding more light on this same idea comes from one of the most colorful speculators in Wall Street history, Jesse Livermore (1870-1940), who once stated, “There are only a few times a year, possibly four or five, when you should allow yourself to make any commitment at all. In the interims, you are letting the market shape itself for the next big move.”

Remember that being out of the market in a 100% cash position for your trading account allows you the break in time to rebalance your emotions and prepare yourself for the next trading opportunity. If you’re playing too long at any game of chance such as cards, dice, roulette, or stock market trading, there’s a natural tendency to get sloppy in your decision-making.

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“Gambling is taking a risk when the odds are against you, like playing the lottery or pumping silver dollars into a slot machine. Speculating is taking a risk when the odds are in your favor.”

Victor Sperandeo

NEVER PLAY WITH SCARED MONEY: When you gamble with money that you can’t afford to lose, you’re setting yourself up for automatic failure.

Success in the stock market requires patience, flexibility, resiliency, and decisiveness. These qualities are not present when you’re too afraid of losing money. If you find yourself investing in a fearful manner, either get out of the market or else sell down to the level of play that allows you to enjoy a good night’s sleep. Don’t let fear cloud your thinking and cause you to play the investing game poorly. In many instances, playing with scared money indicates that you haven’t allocated your assets properly. You will learn more about how to correct this mistake later in the next chapter on money management.

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“If I can’t afford to take losses, I have no business at the gambling table or at the Casino of Wall Street. Wall Street is not a philanthropic organization. I walk into the Casino with my eyes open as I would if I were walking into a Casino in Las Vegas. I ignore the chatter, I watch the action, and I try my luck.”

Nicolas Darvas

GAIN FIRST-HAND EMOTIONAL EXPERIENCE: Playing with small amounts of your capital allows you to gain valuable experience on a gut level. This is the only way to appreciate the actual emotions of fear, greed, worry, doubt, overconfidence, and indecision that get in the way of playing the stock market correctly.

The pressure of trading the stock market has an uncanny way of exposing one’s emotional weaknesses and true individual temperament. And, in most cases, an investor’s degree of success or failure in trading the stock market over time is predicated more on emotional control than it is on factual knowledge. It’s the quality of your investment decisions that will determine your success, regardless of the pressure that you feel individually. Therefore, it’s wise to prepare for inevitable emotional pressure by getting your feet wet with actual trading experience.

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“Wall Street is motivated primarily by emotions – fear and greed.”

Wall Street Adage

TRADE SHARES IN ANY QUANTITY YOU LIKE: If you’re buying and selling shares of actively traded stocks (like the ones that are recommended in the “Wall Street Craps” approach), you don’t have to be concerned about whether it is for 100 shares (round lot) or 47 shares (odd lot).

While there are certain limitations to buying odd lots (i.e., parcels of stocks that aren’t multiples of 100), it doesn’t affect the simple buying and selling of actively traded stocks that are listed on the major American stock exchanges. There was a time, in the past, when trading in odd lots would cost the average investor an additional one-eighth to one-quarter point. That was because the transaction was physically handled by an “odd lot broker,” who trekked over to the trading floor for that particular stock to find a buyer. But today, small stock trades, whether for 35 or 100 shares, are handled by computers rather than by people. That means you can buy shares in any quantity, without incurring any extra costs.

But for many people like me, the preferred way to buy stocks is in traditional round lots. Perhaps this is out of habit or because it feels like a simpler and cleaner way to keep track of my trading positions. On the other hand, I prefer to buy positions in regular mutual funds based on round dollar amounts and fractional shares. The point is that you are free to choose how you want to trade stocks and mutual funds in whatever share quantity or dollar amount that suits your tastes, without any regard for cost or quality of execution.

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“If you have never missed when investing, you haven’t been in there trying.”

Venita Van Caspel

PLAY SMALL WHILE YOU LEARN: Gladly pay the price of apprenticeship. Learn, experience, and practice in a safe environment so that your early mistakes can’t hurt you. Don’t play big until you’ve gained enough mental and emotional experience to trade confidently.

This is especially true when traders finds themselves “squeezed” in heavy short positions during violent stock market rallies. Beware of the reassurances of some investment advisors who claim that shorting the stock market can be a sensible way to invest your money. What’s not mentioned by such advisors is that successful short-selling requires more awareness, discipline, and experience than traditional trading on the long side. For the majority of non-professional investors, it’s wiser and safer to be on the sidelines planning your next move to the upside than it is to be emotionally involved trading the short side of the market. (Note: The act of “shorting” or to “go short” means to bet that a particular stock is going to go down in price instead of up.)

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“Timidity prompted by past failures causes investors to miss the most important bull markets.”

Walter Schloss ~ Value Investor Who Learned From Benjamin Graham

CHOOSE A PLAYER-FRIENDLY TABLE: Do your stock trading with a reputable online discount brokerage firm for low commissions, minimum distractions, and maximum privacy.

Why waste your time and money doing business with full-service brokers whose main incentive is to generate sales commissions for themselves? If you’re going to make your own decisions in the stock market, then play it smart by trading with established low-commission firms such as Charles Schwab, Fidelity, E*Trade, Scottrade, TD Ameritrade, TradeKing, and Vanguard. All of these firms charge commission fees below $12 for most online transactions. But, more importantly, for those independent investors who play a unique approach to the stock market like Wall Street Craps is that you won’t have to deal with unexpected sales calls cleverly disguised as “unique timely opportunities” from full-service, high-commissioned brokers.

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“Broker: the end-result of turning a large fortune into a small one.”

Kurt Brouwer ~ Author of Unusual Investment Definitions (1987)

Avoid The Tricky Side Of Shorting: The short side of the market is not the inverse of the long side. It is usually a quicker, steeper, and bumpier ride, which punishes investors for the slightest miscalculations in timing.

This is especially true when traders finds themselves “squeezed” in heavy short positions during violent stock market rallies. Beware of the reassurances of some investment advisors who claim that shorting the stock market can be a sensible way to invest your money. What’s not mentioned by such advisors is that successful short-selling requires more awareness, discipline, and experience than traditional trading on the long side. For the majority of non-professional investors, it’s wiser and safer to be on the sidelines planning your next move to the upside than it is to be emotionally involved trading the short side of the market. (Note: The act of “shorting” or to “go short” means to bet that a particular stock is going to go down in price instead of up.)

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“Few traders have found the short side profitable over a long period of time. I think that more than 75 per cent of my own losses have resulted from short sales.”

Robert Rhea ~ Author of The Dow Theory (1932)

Play The Long-Side Only: Leave the short-selling side of the stock market game for experienced traders to play. The mental discipline required to win consistently at short-selling is difficult for most investors to acquire and maintain.

Remember the words of legendary investment sage, Bernard Baruch (1870-1965), who once remarked, “Bears don’t live on Park Avenue.” While we all know that the market goes down for part of the time, it’s important to understand that playing the long side and participating in the upward movement of stocks has proven to be the more likely path to long-term investment success. If your objective is to make big money consistently over time, then stick with playing the long side of the market — betting on a gradual upward movement in stocks, rather than by playing the short side hoping for a quick collapse in prices. That’s because the stock market has an obvious bullish bias by spending significantly more time moving up than it does going down. (Note: The “long side of the market” or “going long” means to bet that a particular stock is going to go up in price. This is the traditional wager that stock market investors make.)

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“There is a way to make a lot money in the market; unfortunately it is the same way to lose a lot of money in the market.”

Peter Passell and Leonard Rose