BC TRADING
Saved by @Mollyycolllinss

The Baltimore Stockbroker Parable

How one stockbroker managed to achieve a 100% success rate in predicting stock movements

/THREAD/

 1/ One day you receive an unsolicited newsletter from a stockbroker in Baltimore.

It contains a tip that a certain stock will soon rise sharply.

A week passes, and as he predicted, the stock goes up.
2/ The next week, you get another newsletter from the stockbroker, this time with a tip about a stock that will fall.

And next week, the stock craters.
3/ Ten weeks go by, and each week you receive a tip about a stock that will go up or down.

Every time the prediction comes true.
4/ On the 11th week, you get a solicitation to invest your money with the Baltimore stockbroker for a hefty commission, justified by his successful predictions.

That sounds like a great deal, right?
5/ This stockbroker seems to know what he is doing.

It is incredibly unlikely that a complete buffoon with no special knowledge would have gotten 10 correct stock predictions in a row.
6/ In fact, you grab a pen and paper and compute the probability of him getting 10 correct predictions in a row.

For a 50-50 chance of being right or wrong, and 10 picks, the calculation is (1/2) in the power of 10.

This comes down to 1/1024, less than 0.1%.
7/ This is so minuscule, that you think that this guy can't be so lucky and he must be the real deal.

But things look different from the stockbroker's side.
8/ In the 1st week, you weren't the only one who received the newsletter.

He sent out 10,240, half with the prediction the stock will rise and half with the opposite prediction.

The 5,120 who received the incorrect prediction never heard from him again.
9/ This continues every week.

The recipients that got the correct prediction, receive another newsletter.

Half the recipients get the "correct" prediction and half of them the "incorrect".
10/ After 10 weeks, there are 10 "lucky" people who received 10 correct predictions in a row.

Ten people who think the stockbroker from Baltimore is an investing genius.

Ten people from whom he expects to collect hefty fees.
11/ The closest this parable came to reality, was in a 2008 reality TV show.

A British magician, Derren Brown, pulled off a similar stunt, mailing various horse-racing picks to thousands of people, eventually convincing one that he had created a foolproof prediction system.
12/ However, this parable is alive and well in the financial industry.

When an investment firm launches a mutual fund, they often maintain it in-house before they open it to the public.
13/ This practice is called incubation.

Typically, these firms incubate dozens of funds at the same time, experimenting with different strategies and allocations.
14/ The funds that show great returns are quickly made available to the public, with detailed documentation of their performance.

The ones that fail, are thrown into the trash can, and the public never notices they even existed.
15/ However, once the public starts investing in these successful mutual funds, they do not maintain their excellent performance.

Instead, they offer the same mediocre returns as all the other mutual funds in the market.
16/ So how do all these affect your investment decisions?

It means you would be better off resisting the temptation of the hot new funds with the excellent track record and incredible returns over the past couple of years.
17/ Instead, follow the unsexy financial planning advice.

Stop looking for the stock magician with the golden touch and put your money in a low-cost index fund and forget about it.

https://t.co/l9sb5X2z2F
18/ When you put your life savings into the new hot fund with the eye-popping returns, you are like the person who received the newsletter from the Baltimore stockbroker.

You have been lured by the impressive results, but you don't know how many chances they had to get them.
19/ The same applies to all the internet gurus, who tell you how good they are because they suggested buying $AMZN 15 years ago.

But they never tell you how many predictions they have made.

/END/
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For more educational threads on financial independence and investing for beginners see below for a collection of threads 👇👇👇

https://t.co/6o3A2IQCMs

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Isaac Newton: A brilliant scientist, a terrible investor

How Issac Newton lost $4 million due to the first stock market bubble in history and insider trading

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1/ Sir Isaac Newton is considered one of the most influential scientists of all time and a key figure in the scientific revolution.

He was a mathematician, physicist, astronomer, theologian, and author.

2/ The most prominent part of his work was the formulation of the laws of motion and the law of gravity.

However, his most prominent failure was losing an entire fortune in the first stock market bubble in history, the South Sea Company in 1720.


3/ Newton was usually a cautious investor.

Before 1720 most of his investments were in safe and reliable securities, various government bonds that delivered a regular stream of income, and shares in a few of the larger companies on the exchange, including South Sea Co.

4/ Newton began in 1720 with stocks and bonds worth approximately £32,000 (close to $6-million in current U.S. dollars).
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If you want to become financially independent and don't know where to start, here is a thread that will help you get started

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1. Review your expenses and make a budget

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2. Set your investing and retirement goals

How much do you need to support yourself in retirement and when do you want to


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Companies to AVOID

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Some tips by Peter Lynch, one of the most successful investors of all time, on which companies to avoid investing in


1. Hottest stock in the hottest industry, with nothing but hope and thin air to support them (MJ stocks in 2017, internet stocks in 2000, electric vehicles in 2020)

Deteriorating balance sheet.

When analysts predict double-digit growth forever, the industry goes into decline.

2. Product/service, not protected by patent or niche, easy to be replicated by competitors, especially in a high-growth industry.

3. The "Next Something"

Everyone wants the next $TSLA, $AMZN, $GOOG

Most likely you won't find a company to replicate their business with that success.

4. Diversification = companies wasting capital on foolish acquisitions, in new sectors they do not understand, and in companies that are overvalued.
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California Gold Rush, the biggest get-rich-quick scheme in American history

How Sam Brannan became the wealthiest man in California without selling a single ounce of gold

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1/ On January 24, 1848, a carpenter named James W. Marshall discovered gold at John Sutter's Mill in Coloma California (close to present-day Sacramento), where he was employed.

Californian residents were the first to rush into the area in late 1848.


2/ By 1849, the word had spread around the world with almost 100,000 gold-seekers and merchants immigrating to California from across the US and abroad, being named forty-niners.

By 1855 the number reached 300,000. It was the biggest immigration movement at the time.


3/ The gold influx into the money supply system rejuvenated the country's economy giving statehood to California.

The rise in population led to an expansion in various sectors, such as agriculture, ranching, and merchandising.


4/ The San Francisco population exploded from 200 residents in 1846 to 30,000 in 1852.

Many cities and infrastructure was built across California.

New methods of mining and transportation were developed creating a technological boom.
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Tulips, the #Bitcoin of the 17th century

How a pandemic, FOMO, and speculation made a flower worth the same as a mansion

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1/ During the beginning of the 1630s in the Netherlands, tulips were difficult to cultivate and preserve.

This made them a luxury good reserved for the rich and affluent of the upper class living in mansions with big gardens.


2/ The tulip market was not organized nor regulated, as other trades, which made it easy for professional growers to enter it.
Due to the international trade expansion, the growers starting cultivating rare varieties, to achieve higher prices.

3/ The biggest change occurred when florists used tulip bulbs as speculative assets.

The market expansion led to forward bulb-purchase contracts, thus enabling trading during the entire year, and not just during the summer months when tulips bloom.


4/ Easy loans and credit for forward contract purchases led many to enter the market since not much capital was required.

People from the lower economic class (maids, servants, craftsmen) could not resist the temptation for some quick profits and entered the speculative market.
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Very quick read.

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It's all in French, but if you're up for it you can read:
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• Their high-level legal decision: https://t.co/hwpiEvjodt
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I've read it so you needn't!

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Catch me if you can @Mitesh_Engr

Time for a🧵
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In collaboration with @AdityaTodmal


Edward de Bono says intelligence is like a🚗 Automobile

“A powerful car may be driven badly. A less powerful car may be driven well. The skill of the car driver determines how the power of the car is used.”


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Every trader has a go-to strategy that works best for them. My trading is all about keeping it simple stupid and revolves around two indicators - Exponential moving averages and vwap.

Here's the strategy that I utilize on nearly 80% of my trades.

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What are Exponential Moving Averages?

EMA's are a type of moving average that places a greater weight on more recent data points.

8EMA = Exponential Moving Averages of the last 8 candle closing prices.

EMA's adjust with respect to chart time frame.

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EMA's I use

- 8
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