Wisdom of Benjamin Franklin

1. A good conscience is a continual Christmas.

2. A great empire, like a great cake, is most easily diminished at the
edges.

3. A house is not a home unless it contains food and fire for the mind as well as the body.

4. A learned blockhead is a greater blockhead than an ignorant one.

5. A man wrapped up in himself makes a very small bundle.

6. A penny saved is a penny earned.

7. All mankind is divided into three classes: those that are immovable, those that are movable, and those that move.

8. All wars are follies, very expensive and very mischievous ones.

9. An investment in knowledge pays the best interest.

10. And whether you’re an honest man, or whether you’re a thief, depends on whose solicitor has given me my brief.

11. Any society that would give up a little liberty to gain a little security will deserve neither and lose both.

12. Anyone who trades liberty for security deserves neither liberty nor security.

13. Beware of little expenses. A small leak will sink a great ship.

14. By failing to prepare, you are preparing to fail.

15. Certainty? In this world nothing is certain but death and taxes.

16. Content makes poor men rich; discontent makes rich men poor.

17. Creditors have better memories than debtors.

18. Diligence is the mother of good luck.

19. Distrust and caution are the parents of security.

20. Do not fear mistakes. You will know failure. Continue to reach out.

21. Eat to please thyself, but dress to please others.

22. Either write something worth reading or do something worth writing.

23. Employ thy time well, if thou meanest to gain leisure.

24. Energy and persistence conquer all things.

25. Even peace may be purchased at too high a price.

26. For having lived long, I have experienced many instances of being obliged, by better information or fuller consideration, to change opinions, even on important subjects, which I once thought right but found to be otherwise.

27. Gain may be temporary and uncertain; but ever while you live, expense is constant and certain.

28. Games lubricate the body and the mind.

29. Genius without education is like silver in the mine.

30. Half a truth is often a great lie.

31. Having been poor is no shame, but being ashamed of it, is.

32. He does not possess wealth; it possesses him.

33. He that can have patience can have what he will.

34. He that displays too often his wife and his wallet is in danger of having both of them borrowed.

35. He that is good for making excuses is seldom good for anything else.

36. He that is of the opinion money will do everything may well be suspected of doing everything for money.

37. He that lives upon hope will die fasting.

38. He that waits upon fortune, is never sure of a dinner.

39. He who falls in love with himself will have no rivals.

40. Hear reason, or she’ll make you feel her.

41. Honesty is the best policy.

42. Human felicity is produced not as much by great pieces of good fortune that seldom happen as by little advantages that occur every day.

43. I saw few die of hunger; of eating, a hundred thousand.

44. If a man could have half of his wishes, he would double his troubles.

45. If passion drives you, let reason hold the reins.

46. If you desire many things, many things will seem few.

47. If you know how to spend less than you get, you have the philosopher’s stone.

48. If you would know the value of money, go and try to borrow some.

49. It is easier to prevent bad habits than to break them.

50. It is only when the rich are sick that they fully feel the impotence of wealth.

51. It is the working man who is the happy man. It is the idle man who is the miserable man.

52. It is the eye of other people that ruin us. If I were blind I would want, neither fine clothes, fine houses or fine furniture.

53. It takes many good deeds to build a good reputation, and only one bad one to lose it.

54. Many a man thinks he is buying pleasure, when he is really selling himself to it.

55. Many people die at twenty five and aren’t buried until they are seventy five.

56. Mine is better than ours.

57. Necessity never made a good bargain.

58. Never leave that till tomorrow which you can do today.

59. No nation was ever ruined by trade.

60. Rather go to bed with out dinner than to rise in debt.

61. Remember that credit is money.

62. The Constitution only gives people the right to pursue happiness. You have to catch it yourself.

63. The discontented man finds no easy chair.

64. The first mistake in public business is the going into it.

65. The use of money is all the advantage there is in having it.

66. There are three faithful friends - an old wife, an old dog, and ready money.

67. There are two ways of being happy: We must either diminish our wants or augment our means - either may do - the result is the same and it is for each man to decide for himself and to do that which happens to be easier.

68. Those disputing, contradicting, and confuting people are generally unfortunate in their affairs. They get victory, sometimes, but they never get good will, which would be of more use to them.

69. Time is money.

70. To succeed, jump as quickly at opportunities as you do at conclusions.

Trading as a Business

I am disappointed when you allude to 20-30% annual return on investment as normal expectancy when churning $20M capital and then cast the entire expectations of traders as in your image. As a day trader, it would be unreasonable for anyone to put into play that much capital to begin with.

The normal bet size for most position day traders is about $500-$1000 risk per trade. This usually converts into 5-8 bets per week. Not the kind of numbers that would attract the likes of Goldman Sakks. The name of the game for day traders is not to make a killing but to stay ahead by 2-3x amount risked per trade, on a consistent basis.

For example, the month of August, I netted 15R. In order to achieve this I had to risk 7R. This resulted from 68% probability of winning trades, versus 32% of loosing trades (my edge was better than a coin toss). On a 1R basis this equals a return of 214%. Or, to make it more interesting, on a weekly basis, return was approx 54%. Not achievable you say? Or perhaps you might add that no one can achieve these results in the long run. I beg to differ as I have established otherwise.

I believe where you err in your thinking is the mistaken belief of looking at % return in isolation of total money management. I think if you were to revisit the money management principles akin to poker you will see why some players are successful regardless of the randomness of card shuffling. If your argument was true, then you must hold the belief that the maximum % return for any good poker players is capped at a fixed % per year? Hardly credible I believe.

The key to winning is knowing when to hold and when to fold, and this translates in the stock market as “let your profits run”. A concept that few traders grasp!

Might’ve made for some interesting reading had you not deleted the comments. But I can always get my fill at Elite Trader Forum.

Here is where I believe the misunderstanding in our logic is occurring, and I will use a hypothetical month’s performance as a example:

In August, if I placed a total of 25 trades (net wins 15R, loss 7R, b/e 3 trades, 1R = $400). My day trading “cash” account was $50,000, and, I turnover $1,103,690 in total stock “sales”. I netted after commission a profit of $5,841.

As such, my profit of $5,841, calculated as a % return on “cash” capital of $50,000 = 11.68%, or 2.92% per week. My profit as a % of “sales” of $1,103,690 = 0.53%, or 0.13% per week.

IMO, my $50,000 “cash” capital has no bearing on how much stock I am willing and able to trading. Even if this number was $1mm, I would most likely still trade at a risk level I am most comfortable with, as I did in August. It is merely a tool for me to achieve “sales” of $1,103,690.

As such, net profit as a % of Sales, in accounting lingo, is referred to as the Profit Margin Ratio. Thus, If I am able to net .53% per month on sales of $1,103,690, this is equivalent to 6.88% return per year. In any other business venture, this would not be considered unreasonable and unattainable.

Now back to my original argument on my prior post: “For the month of August, I netted 15R. In order to achieve this I had to risk 7R. On a risk/reward basis this equals a return of 214%. Or, to make it more interesting, on a weekly basis, return was approx 54%”.

Note: these % has nothing to do with “cash” or “sales” % returns! But only in relationship to how much reward is obtainable when risking a certain amount.

As you can see based on my performance numbers for August you and I are looking at exactly the same data but interpreting it different ways.

Hope this help to clarify where our logic goes off in a tangent.

I understand your comments regarding the usage of % return on capital as a useful tool to compare different trading styles, time frames, and industry standards.

However, consider this: a small entrepreneur having invested considerable initial capital to start up a new enterprise, must now deal with the challenge of how to generate and sustain sales in order to offset operating expenses, and yet net a decent profit.

In my prior post, I was alluding to exactly the same dilemma: since my business is operating at well below capital efficiency (ie. below 100% margin), how do I increase sales to maximize my profit margin? In my unique case, this is the number of profitable monthly trades. For others, it might be the sale of widgets.

This 20%-30% annual expectation while a convenient explanation for “normalized” expectancy, is not how the real world thinks and operates. No worthy financial manager ever obsesses over % return on capital ratios (unless he is looking for financing), but rather on how to increase sales and reduce operating costs.

I understand what you’re saying, but the friction, slippage, commissions, mistakes, and spread will take a huge chunk out of a winning percentage.

Also, with your expectancy of wins on day trades, it seems that you have a good system. Milk it for as long as the mistress of the market allows it to be profitable.

As for a 50% return on money in a week, Soros, Jones, Williams, Ritten, Larson and Niederhoffer don’t even net those kind of numbers. Buffett, the sage of Omaha, doesn’t even achieve that kind of return. Can they be achieved? Of course they can, but not over the long haul 30-40 year time frame. Are they usual? Perhaps with a very small account less than $10,000, but anything larger than that involve scalability issues. I couldn’t even achieve those kind of numbers when I was in the pit trading the inside market. However, I’m not able to achieve anything close to 50% per week on average because I only have a small amount of my net worth at risk any time. I don’t lay everything on the pass line every day because I don’t want to blow up. I will risk 2% of my trading account on a futures trade, but I also have 5 positions on at a time. Also, I trade moderate size positions….I won’t have more than 600 contracts of a grain on at a time or 100 contracts of anything else. My max draw down is 10% of my account with my money management system. My trading style and system of money management have served me well since 1978, so I think I will keep doing what I do. If I’m wrong, I will keep on continuing to be wrong, as it has served me well.

I know the guys over at Elite Trader would disagree with me, as all 75,000 of them make in excess of 50% per week. I’m not that good.

I don’t err in total % return because I look at it as a percentage of my disposable assets. I look at it this way because I intend to leave the business on my terms.

As for poker playing…..every big poker player including Brunson, Chan, Johnny Moss, and Amarillo Slim has gone bust more than once….and they know when to hold them and when to fold them. The probability of ruin, especially in NL poker approaches 100% over the long run.

As a follow up to our discussion, I must impress upon you theses additional points:

1- With +500 trades under my belt over a two year period, I have never encountered any dramatic slippage or unusual spreads. Why? I only place limit orders with predefined targets and stops. I have rarely miss entry/exit targets (exits are at stop market orders). In addition, I never carry a position overnight! So no am surprises.

2- Commission fees are extremely low when using Interactive Brokers.

3- Mistakes will always be the bane of traders. No different than a bookkeeper experiencing paper cuts or a carpenter with the occasional hit and miss. The only antidote to errors and misjudgment is experience.

4- I never risk more than 1% of my total capital per position. I never enter a 2nd trade unless the first is at breakeven or at a profit. If my capital is down -10%, i.e., 10 loosing trades in a row, I stop trading for the month.

5- In addition, this is how I manage my day trades with simply money management:

a- Preserve Capital = risk -1% capital per trade

b- Get a Free Ride = move stop to breakeven once 1R is achieved

c- Bank some Cash = once 2R is reached, exit 50% position. This automatically setup a contingency account to offset the inevitable future losses.

d- Let profits run = exit remaining position at end of day.

6- For ever 10 trades I expect 3-4 loosing trades. I will never hit a win rate of 60-70% without giving back 30-40%.

I wonder if the poker players you mentioned that went bust did not experience the Jesse Livermore syndrome? That is, it was not their capital that need preserving, but rather protection of the traders from themselves?

PS: I forget to mention, while I can expect 3-4 losses, and 2-3 breakeven trades for every 10 trades, it is those 3-5 trades I hold to end of day that usually are the big winners. Hence the wisdom of the old adage, “let profits run”. It truly is a beautiful thing! Unfortunately few traders understand its implications.

George Carlin Quotes

1. I don’t have pet peeves — I have major psychotic fucking hatreds!
2. Think of how stupid the average person is, and realize half of them are stupider than that.
3. Swimming is not a sport. Swimming is a way to keep from drowning. That’s just common sense!
4. A house is just a place to keep your stuff while you go out and get more stuff.
5. Have you ever noticed that their stuff is shit and your shit is stuff?
6. I wanna live. I don’t wanna die. That’s the whole meaning of life: Not dying! I figured that shit out by myself in the third grade.
7. I used to be Irish Catholic. Now I’m an American — you know, you grow.
8. You can’t fight City Hall, but you can goddamn sure blow it up.
9. If the Cincinnati Reds were really the first major league baseball team, who did they play?
10. Honesty may be the best policy, but it’s important to remember that apparently, by elimination, dishonesty is the second-best policy.
11. If it’s true that our species is alone in the universe, then I’d have to say that the universe aimed rather low and settled for very little.
12. No one knows what’s next, but everybody does it.
13. There are 400,000 words in the English language, and there are seven you can’t say on television. What a ratio that is! 399,993 to 7. They must really be baaaad. They must be OUTRAGEOUS to be separated from a group that large. “All of you words over here, you seven….baaaad words.” That’s what they told us, right? …You know the seven, don’t ya? That you can’t say on TV? Shit, piss, fuck, cunt, cocksucker, motherfucker and tits.
14. The very existence of flamethrowers proves that sometime, somewhere, someone said to themselves, “You know, I want to set those people over there on fire, but I’m just not close enough to get the job done.”
15. The reason I talk to myself is because I’m the only one whose answers I accept.
16. Just when I discovered the meaning of life, they changed it.
17. Religion has convinced people that there’s an invisible man…living in the sky, who watches everything you do every minute of every day. And the invisible man has a list of ten specific things he doesn’t want you to do. And if you do any of these things, he will send you to a special place, of burning and fire and smoke and torture and anguish for you to live forever, and suffer and burn and scream until the end of time. But he loves you. He loves you and he needs money.
18. Weather forecast for tonight: Dark. Continued dark overnight, with widely scattered light by morning.
19. If it requires a uniform, it’s a worthless endeavor.
20. If you live long enough, sooner or later everybody you know has cancer.
21. You know the good part about all those executions in Texas? Fewer Texans.
22. Soft rock music isn’t rock, and it ain’t music. It’s just soft.
23. Reminds me of something my third-grade teacher said to us. She said, “You show me a tropical fruit and I’ll show you a cocksucker from Guatemala.”
24. As soon as someone is identified as an unsung hero, he no longer is.
25. If a movie is described as a romantic comedy, you can usually find me next door playing pinball.
26. The IQ and the life expectancy of the average American recently passed each other in opposite directions.
27. I knew a transsexual guy whose only ambition is to eat, drink, and be Mary.
28. I put a dollar in a change machine. Nothing changed.
29. If you’ve got a cat and a leg, you’ve got a happy cat. If you’ve got a cat and two legs, you’ve got a party.
30. You can prick your finger — just don’t finger your prick.
31. By and large, language is a tool for concealing the truth.
32. Ever notice that anyone going slower than you is an idiot, but anyone going faster is a maniac?
33. Isn’t it a bit unnerving that doctors call what they do “practice”?
34. I don’t like to think of laws as rules you have to follow, but more as suggestions.
35. I think it’s the duty of the comedian to find out where the line is drawn and cross it deliberately.
36. When you’re born you get a ticket to the freak show. When you’re born in America, you get a front-row seat.
37. Eventually, alas, I realized the main purpose of buying cocaine is to run out of it.
38. I never fucked a ten, but one night, I fucked five twos.
39. I never joined the Boy Scouts. I don’t trust any organization that has a handbook.
40. I would never want to be a member of a group whose symbol was a man nailed to two pieces of wood.
41. Have you noticed that most of the women who are against abortion are women you wouldn’t want to fuck in the first place? There’s such balance in nature.
42. So I say, “Live and let live.” That’s my motto. “Live and let live.” Anyone who can’t go along with that, take him outside and shoot the motherfucker. It’s a simple philosophy, but it’s always worked in our family.
43. Catholic — which I was until I reached the age of reason.
44. Here’s a bumper sticker I’d like to see: “We are the proud parents of a child who’s self-esteem is sufficient that he doesn’t need us promoting his minor scholastic achievements on the back of our car.”
45. I love and treasure individuals as I meet them; I loathe and despise the groups they identify with and belong to.
46. Beethoven was so hard of hearing, he thought he was a painter.
47. Don Ho can sign autographs 3.4 times faster than Efrem Zimbalist Jr.
48. God bless the homicidal maniacs. They make life worthwhile.
49. I’ve never seen a homeless guy with a bottle of Gatorade.
50. One great thing about getting old is that you can get out of all sorts of social obligations just by saying you’re too tired.
51. If Helen Keller had psychic ability, would you say she had a fourth sense?
52. What year did Jesus think it was?
53. George Washington’s brother, Lawrence, was the Uncle of Our Country.
54. Have you ever wondered why Republicans are so interested in encouraging people to volunteer in their communities? It’s because volunteers work for no pay. Republicans have been trying to get people to work for no pay for a long time.
55. In America, anyone can become president. That’s the problem.
56. Once you leave the womb, conservatives don’t care about you until you reach military age. Then you’re just what they’re looking for. Conservatives want live babies so they can raise them to be dead soldiers.
57. “One thing leads to another”? Not always. Sometimes one thing leads to the same thing. Ask an addict.
58. No one who has had “Taps” played for them has ever been able to hear it.
59. Property is theft. Nobody “owns” anything. When you die, it all stays here.
60. The best thing about living at the water’s edge: You only have assholes on three sides of you, and if they come this way you can hear them splash.
61. The future will soon be a thing of the past.
62. The planet is fine. The people are fucked.
63. The real reason that we can’t have the Ten Commandments in a courthouse: You cannot post “Thou shalt not steal,” “Thou shalt not commit adultery,” and “Thou shalt not lie” in a building full of lawyers, judges, and politicians. It creates a hostile work environment.
64. Boxing is a more sophisticated form of hockey.
65. The only good thing ever to come out of religion was the music.
66. I think everyone should treat one another in a Christian manner. I will not, however, be responsible for the consequences.
67. Bowling is not a sport because you have to rent the shoes.
68. “When Will Jesus Bring the Pork Chops?” This title offends all three major religions, and even vegetarians!
69. Thou shalt keep thy religion to thyself.
70. And now, in the interest of equal time, here is a message from the National Institute of Pancakes: It reads, and I quote, “Fuck waffles.”
71. Atheism is a non-prophet organization.
72. Whoever coined the term “Buyer Beware” was probably bleeding from the asshole.
73. Cloud nine gets all the publicity, but cloud eight actually is cheaper, less crowded, and has a better view.
74. Have you ever noticed that the lawyer always smiles more than the client?
75. I’m always relieved when someone is delivering a eulogy and I realize I’m listening to it.
76. Just think, right now as you read this, some guy somewhere is gettin’ ready to hang himself.
77. The reason they call it the American Dream is because you have to be asleep to believe it.
78. If all our national holidays were observed on Wednesdays, we could wind up with nine-day weekends.
79. “Meow” means “woof” in cat.
80. Most people with low self-esteem have earned it.
81. Most people work just hard enough not to get fired and get paid just enough money not to quit.
82. “No comment” is a comment.
83. If a man smiles all the time, he’s probably selling something that doesn’t work.
84. You can’t argue with a good blowjob.
85. Most of the time people feel okay. Probably it’s because at the moment they’re not actually dying.
86. So far, this is the oldest I’ve been.
87. Instead of warning pregnant women not to drink, I think female alcoholics ought to be told not to fuck.
88. Do you think Sammy Davis ate Junior Mints?
89. When you think about it, attention-deficit order makes a lot of sense. In this country there isn’t a lot worth paying attention to.
90. The Golden Gate Bridge should have a long bungee cord for people who aren’t quite ready to commit suicide but want to get in a little practice.
91. I think I am, therefore, I am. I think.
92. If the cops didn’t see it, I didn’t do it!
93. Hooray for most things!
94. Capitalism tries for a delicate balance: It attempts to work things out so that everyone gets just enough stuff to keep them from getting violent and trying to take other people’s stuff.
95. I don’t have a fear of heights. I do, however, have a fear of falling from heights.
96. What was the best thing before sliced bread?
97. May the forces of evil become confused on the way to your house.
98. Life is a zero sum game.
99. Somehow I enjoy watching people suffer.
100. I have as much authority as the Pope. I just don’t have as many people who believe it.
101. It isn’t fair: the caterpillar does all the work, and the butterfly gets all the glory.