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Credit deflation and the reflation cycle to come.


DurhamBorn

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10 hours ago, sancho panza said:

@Harley has discussed behavioural economics before and I'm fascinated by it as it makes usch good sense.Obviously,ignored by the MSM and the Establishment

First, can I just take a moment to really thank SP, DB, and co for their comments.  Coming up a level to talk about behaviour, etc really makes one appreciate the special situation here.  Many thanks.

Trading and investing is first and foremost a mind game.  Douglas' Trading Room books, etc are my go tos.  Like I have a system primarily to limit the emotional rollercoaster playing out in my mind.  You say you have a system and the "thinkers" immediately want to analyse how technically good it is without thinking about the emotional side, something which makes me back off as I may not hear much from them later!  Indeed, this whole game would be even more boring without it. 

There's a reason certain people (e.g. ex-snipers) are good at it!  Cool, detached, patience.  And one's overall performance is always sub optimal which only encourages certain types to keep going.  Like those military "sickeners" did for some - "your next RV is back from where you just crawled from", and those that got up, found the Land Rover waiting over the next hill, and achieved satisfaction more than success.

That's why it's a game - a mind game - and the trick is to ensure you stay in it!  Honestly bare your soul, put in the hours, and b**dly well ace your money management!

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10 hours ago, sancho panza said:

I've struggled staying in long enough to get the full benefit of a good call.

Me too.  And then at New Year a trader friend simply reminded me to sell in thirds (assuming the trade is a success!).  Something I had totally forgotten and fitted so well with the weak sell side of my system.  So fundamental yet I was too absorbed by the detail to remember.  I was going for the 100% solution and forgot the game is not 100%.  That's why it's a game.  Sure, shoot for 100% but settle for whatever makes money, 'cause practically, 100% won't!

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13 minutes ago, Harley said:

Me too.  And then at New Year a trader friend simply reminded me to sell in thirds (assuming the trade is a success!).  Something I had totally forgotten and fitted so well with the weak sell side of my system.  So fundamental yet I was too absorbed by the detail to remember.

I sell bottom ladders Harley when they go up 20% usually.I find that works really well for me.Im a macro contrarian investor so i tend to be buying stocks that are hated or at best wrote off for one reason or another.Because of that its very rare i buy at the bottom in my first buys,and indeed its not ideal if i do buy at the bottom with my first buys.If the shares then go down again i will buy back the ladder.I just find this helps me lower my average price on shares im wanting for the long term/cycle.I tagged the bottom on 8 miners in the last few months with this way of doing things and it meant the miners as a whole in my portfolio only had to go up 11% to go green,some are up 50%+ now.

My main mistakes from investing over the decades have come from selling too early mostly and thats why i use a cycle road map now.For instance Go Ahead,Stagecoach,Vodafone,Centrica etc are shares iv laddered into.Iv sold bottom ladders in Go Ahead and Stagecoach as i tagged the bottom on both.The rest will be owned until 2026/27 whatever price the shares are.They only way i wont own them now is they go bust or are taken over.My macro work provides me the sell point,not the individual shares themselves.That takes the emotion out of it for me,and stops me selling shares that are up 30% that then deliver 500% over the cycle.Iv done that many times in my younger years and it was the hardest mistake to shake off.

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20 hours ago, janch said:

I just wanted to get in having dithered

I'm a great ditherer!  Done it so many times.  TBH my partner, and probably most of her kind, are far better at not doing it than me.  It has caused me no end of anguish, even mild depression over the biggies.  Then I realised trading and investing is like a river running in front of you.  Opportunities are always passing by.  More than I can handle.  I just have to relax, patiently wait on the bank, and keep looking for the right ones.

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I had a lot of fun an uni.  Alas my Economics degree was suffering so in despair I doubled down and opted for the life or death essay paper in my finals rather than the course work assessment or other options.  Four hours to write an essay of their choosing.  I turned the paper and there was the question:  "Is Economics and art or a science"?  I was saved!  In essence, my answer was Econimics is artistic in nature to which you can apply scientific rigour, while never forgetting the nature of what you're dealing with.  My favourite example is the Gauss- Markov BLUE (Best Limited Unbiased Estimator) theorem and the concept of regression analysis to minimise but not eradicate error and to interpret results based on the co-efficients of explanation, and accepting correlation is not causation.  Hence my despair at current economics which seems to have sold its soul (by at least its silence) to politics, betraying itself as a science of absolutes.  As goes economics, so can go trading and investing!  Both will end in failure.

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Just now, A_P said:

You chaps are making a persuasive argument for passive investing ;)

I had to sort out someone's estate on death once.  Admitedly this was back in the day when interest rates were reasonable.  At first I despaired at how the money had merely been put in the bank and not invested.  Then I recalculated things and as much money was made over the 15 years or so in the bank than it would have been broadly invested in the FTSE (ignoring divs).  Sure, very good timing or the right stocks would have made a big difference but the person could never have done this, if indeed anyone really could have.  The divs were like the risk premium.  But this was money earmarked as legacy money.  Just makes today's situation even sadder.  For the situation, it was absolutely the right thing to do.

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13 hours ago, DurhamBorn said:

Il try to write an answer over the next few days as i think it deserves a good explanation.As always its not a science and its not always black and white,but it is very interesting......

That would be most excellent thanks.  Just the approach alone would be fantastic as I can always do my own legwork!  Maybe criteria similar to the parameters for selecting dividend stocks, or something even more intriguing! 

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1 hour ago, DurhamBorn said:

I sell bottom ladders Harley when they go up 20%

Something similar, or on the first main pullback (not initial optional buy signal) if I'm putting the effort in!

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23 minutes ago, Harley said:

I had to sort out someone's estate on death once.  Admitedly this was back in the day when interest rates were reasonable.  At first I despaired at how the money had merely been put in the bank and not invested.  Then I recalculated things and as much money was made over the 15 years or so in the bank than it would have been broadly invested in the FTSE (ignoring divs).  Sure, very good timing or the right stocks would have made a big difference but the person could never have done this, if indeed anyone really could have.  The divs were like the risk premium.  But this was money earmarked as legacy money.  Just makes today's situation even sadder.  For the situation, it was absolutely the right thing to do.

But ignoring the divis goes against the premise of passive investing and would also be like ignoring the interest if it had sat in the bank ;). What era are you looking over as well? How would that have done over the last ten years? I had forgotten about an old work pension i had from the mid 00's. When getting my act together and starting my sipp last year I tracked it down. The thing had quadrupled in ten years. Some of you chaps are far too quick to write of what is plain to see, even when you write it yourself in other words. I wonder why this is? For most mere mortals the data shows, even by a lot of the statements i read in this thread, it's best to leave things rather than tinker about.

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i got to agree on the leave it alone bits, but not always, case in point my lloyds shares, i left them for years, they never came back to what they were bought at, that might be an exception to the rule i suppose. Im still guilty of fiddling even now, but its on very small amounts and i class it as gambling punts, they rarely come off.

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44 minutes ago, A_P said:

But ignoring the divis goes against the premise of passive investing and would also be like ignoring the interest if it had sat in the bank ;). What era are you looking over as well? How would that have done over the last ten years? I had forgotten about an old work pension i had from the mid 00's. When getting my act together and starting my sipp last year I tracked it down. The thing had quadrupled in ten years. Some of you chaps are far too quick to write of what is plain to see, even when you write it yourself in other words. I wonder why this is? For most mere mortals the data shows, even by a lot of the statements i read in this thread, it's best to leave things rather than tinker about.

TBC  I'm not dissing passive investing at all, especially now with rates where they are.  Quiet the opposite in that leaving well alone is a good plan for some people and parts of overall portfolios.  Depends on objectives, risk requirements, etc.  Certainly use it for my floor retirement funds.  I trade with other funds and take more risk for higher income in other funds.  I'm also beginning to use hedging at potential down times rather than sell my underlying passives which is more like trading.

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56 minutes ago, Harley said:

TBC  I'm not dissing passive investing at all, especially now with rates where they are.  Quiet the opposite in that leaving well alone is a good plan for some people and parts of overall portfolios.  Depends on objectives, risk requirements, etc.  Certainly use it for my floor retirement funds.  I trade with other funds and take more risk for higher income in other funds.  I'm also beginning to use hedging at potential down times rather than sell my underlying passives which is more like trading.

I'm not saying you are. However I do find it funny what some of you actives are saying. Like my original point being that a few of you are making a good argument for being passive investors and you don't realise it, or perhaps you do but don't want to admit it yourselves? If you want to trade because you like trading, that's cool. Nothing wrong with that. But let's be honest here, you could set your portfolio and be done with it rather than "dithering" and suffering "anguish"?

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10 hours ago, DurhamBorn said:

I sell bottom ladders Harley when they go up 20% usually.I find that works really well for me.Im a macro contrarian investor so i tend to be buying stocks that are hated or at best wrote off for one reason or another.Because of that its very rare i buy at the bottom in my first buys,and indeed its not ideal if i do buy at the bottom with my first buys.If the shares then go down again i will buy back the ladder.I just find this helps me lower my average price on shares im wanting for the long term/cycle.I tagged the bottom on 8 miners in the last few months with this way of doing things and it meant the miners as a whole in my portfolio only had to go up 11% to go green,some are up 50%+ now.

My main mistakes from investing over the decades have come from selling too early mostly and thats why i use a cycle road map now.For instance Go Ahead,Stagecoach,Vodafone,Centrica etc are shares iv laddered into.Iv sold bottom ladders in Go Ahead and Stagecoach as i tagged the bottom on both.The rest will be owned until 2026/27 whatever price the shares are.They only way i wont own them now is they go bust or are taken over.My macro work provides me the sell point,not the individual shares themselves.That takes the emotion out of it for me,and stops me selling shares that are up 30% that then deliver 500% over the cycle.Iv done that many times in my younger years and it was the hardest mistake to shake off.

Having a plan and a pre-defined entry and exit point for every trade is all part of the psychology - it takes the emotional side of things out of the equation completely, because you already know what you should be doing in each and every scenario that can occur. This is one of the main reasons why you are able to excel.

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10 hours ago, Harley said:

I'm a great ditherer!  Done it so many times.  TBH my partner, and probably most of her kind, are far better at not doing it than me.  It has caused me no end of anguish, even mild depression over the biggies.  Then I realised trading and investing is like a river running in front of you.  Opportunities are always passing by.  More than I can handle.  I just have to relax, patiently wait on the bank, and keep looking for the right ones.

There are literally millions of different ways in business and the markets to make money. You have to just find a way that works for you and your personality. That's why so many successful investors can offer advice for the markets which often seems contradictory - because they're all using fundamentally different styles of systems to make money.

You can't take every opportunity that comes your way - just take the ones you're comfortable with and make sure your finances are headed in the right direction.

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11 hours ago, A_P said:

But ignoring the divis goes against the premise of passive investing and would also be like ignoring the interest if it had sat in the bank ;). What era are you looking over as well? How would that have done over the last ten years? I had forgotten about an old work pension i had from the mid 00's. When getting my act together and starting my sipp last year I tracked it down. The thing had quadrupled in ten years. Some of you chaps are far too quick to write of what is plain to see, even when you write it yourself in other words. I wonder why this is? For most mere mortals the data shows, even by a lot of the statements i read in this thread, it's best to leave things rather than tinker about.

I think a lot of us ie me,are conflating the phrase  'Passive investing' with buying ETF's and buying funds and then doing nothing with them for twenty years.The pedia describes it as buy and hold,which is what a lot of us do.I'm not worreid too much about the fees as I don't  buy funds, but buy and hold I do.

Personally,after a productive discussion with re ETF's and the FTSE 100 ETF you highlighted charging 0.06% I will definitely be putting dear old Mama Panza into using a decent long term timing mechanism at the bottom of the next cycle.She's never been great a nursing the initial losses that invariably come with investing.

With individaul stocks I'm looking to outperfom the indices they come from.I may fail,I may succeed but have a good I will.Part of that will be buy and hold and part will be short term trading.

All in all I think a lot of people do a lot of types of investment.

https://www.investopedia.com/terms/p/passiveinvesting.asp

Passive investing methods seek to avoid the fees and limited performance that may occur with frequent trading. Passive investing’s goal is to build wealth gradually. Also known as a buy-and-hold strategy, passive investing means buying a security with the intention to own it long term. 

2 hours ago, azzuri82 said:

There are literally millions of different ways in business and the markets to make money. You have to just find a way that works for you and your personality. That's why so many successful investors can offer advice for the markets which often seems contradictory - because they're all using fundamentally different styles of systems to make money.

You can't take every opportunity that comes your way - just take the ones you're comfortable with and make sure your finances are headed in the right direction.

Absolutely.I invest for a few people and over the years,I've learned that some people handle losses/gains very differently.

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14 hours ago, Harley said:

As is true in most of life, people mostly only learn from their own mistakes.  The trick is to ensure they can stay in whatever game they're playing!  You have to burn your fingers on the hob every now and then else it's just a head exercise yet you're dealing with emotions.

It was something you said a few pages back about having to excercise the losing muscles or soemthing like that that made me think.I had an excllent shorting year last year.Made me cocky,stepped back in a bit too big in Feb and a bit too firm,only to get a lesson in discipline as my good run had enouraged me to override my experience and my plan.

Very true words and it's stayed with me that much I've quoted it to a couple of people.Muscle memory etc etc.

15 hours ago, UnconventionalWisdom said:

I'm also fascinated by it, not only for trading but life in general. We make so many decisions based on what we think is best, but in reality, it may be in our nature that makes us choose the wrong path. 

Loss aversion, valuing losses more than gains, is why most people don't do stocks. But looking at this more broadly, I'm sure its why people don't change jobs, partners or other things where they have the potential to be much happier. 

Loss aversion is shown in monkeys and hence really does indicate it as some underlying part of our nature. 

From the following link

https://www.psychologicalscience.org/observer/monkey-business

 

To test for this bias in capuchins, the researchers positioned two types of traders in the monkey marketplace. One trader always offered two pieces of apple — for clarity’s sake, we’ll call him Larry Loss, though the researchers used no such name. Upon receiving a token, sometimes Larry Loss handed two pieces to the monkey, but sometimes he removed one and delivered only a single piece. A second trader — let’s say Bonus Bob — always offered one piece of apple. When given a token, Bonus Bob sometimes delivered the single piece and sometimes added a second, extra piece. Sure enough, the monkeys preferred to trade with Bonus Bob, approaching him 71 percent of the time.

On the heels of this finding, Santos and collaborators studied a related behavior called loss aversion. Generally speaking, this concept states that people will go to great lengths to avoid losses, which have a stronger psychological effect on them than gains. To test loss aversion, the researchers brought back Larry Loss and paired him with a new trader, Even Stephen. Once again, Larry Loss offered two apple pieces. When the monkeys paid him a token, however, he delivered only one piece every time. Even Stephen, on the other hand, consistently showed one piece and, once paid, delivered the piece as promised.

Although the payoffs were identical in the end — both traders always parted with one piece of apple — the monkeys disliked the disappointment associated with Larry Loss. As a result, they traded with Even Stephen 79 percent of the time. Put together, the findings suggest that hallmark biases like reference dependence and loss aversion extend “beyond humans and may be innate rather than learned,” the authors concluded in a 2006 issue of Journal of Political Economy.

 

The things that fascinate me are the way we handle losses as humans and the way we emotioanlly anchor to price points or stocks that have served us well in the past.ZAslo the way we allow recent price action to predominate over historic price action.

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18 hours ago, A_P said:

I'm not saying you are. However I do find it funny what some of you actives are saying. Like my original point being that a few of you are making a good argument for being passive investors and you don't realise it, or perhaps you do but don't want to admit it yourselves? If you want to trade because you like trading, that's cool. Nothing wrong with that. But let's be honest here, you could set your portfolio and be done with it rather than "dithering" and suffering "anguish"?

I think we all love `doing a deal` don't we?...and I class myself as a risk averse passive investor...or perhaps it was the way I was bought up?!

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21 hours ago, DurhamBorn said:

I sell bottom ladders Harley when they go up 20% usually.I find that works really well for me.Im a macro contrarian investor so i tend to be buying stocks that are hated or at best wrote off for one reason or another.Because of that its very rare i buy at the bottom in my first buys,and indeed its not ideal if i do buy at the bottom with my first buys.If the shares then go down again i will buy back the ladder.I just find this helps me lower my average price on shares im wanting for the long term/cycle.I tagged the bottom on 8 miners in the last few months with this way of doing things and it meant the miners as a whole in my portfolio only had to go up 11% to go green,some are up 50%+ now.

My main mistakes from investing over the decades have come from selling too early mostly and thats why i use a cycle road map now.For instance Go Ahead,Stagecoach,Vodafone,Centrica etc are shares iv laddered into.Iv sold bottom ladders in Go Ahead and Stagecoach as i tagged the bottom on both.The rest will be owned until 2026/27 whatever price the shares are.They only way i wont own them now is they go bust or are taken over.My macro work provides me the sell point,not the individual shares themselves.That takes the emotion out of it for me,and stops me selling shares that are up 30% that then deliver 500% over the cycle.Iv done that many times in my younger years and it was the hardest mistake to shake off.

DB (or anyone else), can you explain the first sentence...I understand laddering in thought.

Thanks.

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18 hours ago, A_P said:

I'm not saying you are. However I do find it funny what some of you actives are saying. Like my original point being that a few of you are making a good argument for being passive investors and you don't realise it, or perhaps you do but don't want to admit it yourselves? If you want to trade because you like trading, that's cool. Nothing wrong with that. But let's be honest here, you could set your portfolio and be done with it rather than "dithering" and suffering "anguish"?

Nothing wrong having a mixture of both. I have a DB pension which I aim to take a hit on (using an EPA to drive the pension age down to 65) by taking it around 60ish. 

I then have a DC pot that I’m actively managing. My view being that we will certainly see the recompense of 2008 and the following financial papering over the cracks at some point (if not this year). 

I want to be prepared for that, and if it’s right and I’m positioned correctly at certain points then I will have a bigger pot (and better protected against financial fallout) to retire earlier and use that alongside my LISA from 55 (if we haven’t financial meltdown scenario by then in which we’ll have more to worry about than pensions - but at least I’ll still have my physical PMs!) 

My daughters main ISA is in a low fee passive index tracker, with a few PM miners which I actively manage for good measure. 

I try to teach her about investing so she understands what I’m doing with her ISA and how it works. That is something I never had as none of my family were ever financially minded.

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38 minutes ago, MrXxx said:

I think we all love `doing a deal` don't we?...and I class myself as a risk averse passive investor...or perhaps it was the way I was bought up?!

Don't we all and it's funny how we act in different situations. If my portfolio goes down by £3k or £4k as it did towards the end of the year (although now gone back up) I'm at peace with it and just continue with my plan and keep buying. Currently negioating on a house. Here I am not budging on £7k at the moment. Really what's £7k over the next 30 years xD. Mentally the former is easier for me. Now if there is a big kahuna how will I act as I still have a sizeable cash reserve? Can I go drop a load in and buy as everyone is running to the hills?

35 minutes ago, MrXxx said:

DB (or anyone else), can you explain the first sentence...I understand laddering in thought.

Thanks.

How I read it was that when he ladders in, once his lowest purchase goes up 20% (so probably inline with his 2nd ladder), he will sell it. eg for the sake of it starts laddering in at 150p, his bottom ladder is 100p. When it gets to 120p he sells one lot. I could be wrong though.

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8 hours ago, sancho panza said:

I think a lot of us ie me,are conflating the phrase  'Passive investing' with buying ETF's and buying funds and then doing nothing with them for twenty years.The pedia describes it as buy and hold,which is what a lot of us do.I'm not worreid too much about the fees as I don't  buy funds, but buy and hold I do.

Personally,after a productive discussion with re ETF's and the FTSE 100 ETF you highlighted charging 0.06% I will definitely be putting dear old Mama Panza into using a decent long term timing mechanism at the bottom of the next cycle.She's never been great a nursing the initial losses that invariably come with investing.

With individaul stocks I'm looking to outperfom the indices they come from.I may fail,I may succeed but have a good I will.Part of that will be buy and hold and part will be short term trading.

All in all I think a lot of people do a lot of types of investment.

https://www.investopedia.com/terms/p/passiveinvesting.asp

Passive investing methods seek to avoid the fees and limited performance that may occur with frequent trading. Passive investing’s goal is to build wealth gradually. Also known as a buy-and-hold strategy, passive investing means buying a security with the intention to own it long term. 

Absolutely.I invest for a few people and over the years,I've learned that some people handle losses/gains very differently.

Good post SP and enlightening.

After all that's been discussed though you're still looking at the FTSE 100. Why is this, say rather than the FTSE All Share? Not suggesting you go with the latter at all but interested in why you've chosen it. The All-Share can be picked up for 0.03% (https://www.ii.co.uk/funds/hsbc-ftse-all-share-index-instl-acc/3033434) now which is crazy. Although one's particular broker may charge more given its an institutional fund open to us plebs for some reason.

Also I would like to add I'm not knocking active versus passive, I just enjoy discussing it and seeing where you chaps coming from. We are all at different life stages and that is easily forgotten and lost when discussing on the forum. Like you say I do think there is some confusion/conflating when we discuss as there is various ways one can arrange and intergrate their portfolio.

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27 minutes ago, Sideysid said:

Nothing wrong having a mixture of both. I have a DB pension which I aim to take a hit on (using an EPA to drive the pension age down to 65) by taking it around 60ish. 

I then have a DC pot that I’m actively managing. My view being that we will certainly see the recompense of 2008 and the following financial papering over the cracks at some point (if not this year). 

I want to be prepared for that, and if it’s right and I’m positioned correctly at certain points then I will have a bigger pot (and better protected against financial fallout) to retire earlier and use that alongside my LISA from 55 (if we haven’t financial meltdown scenario by then in which we’ll have more to worry about than pensions - but at least I’ll still have my physical PMs!) 

My daughters main ISA is in a low fee passive index tracker, with a few PM miners which I actively manage for good measure. 

I try to teach her about investing so she understands what I’m doing with her ISA and how it works. That is something I never had as none of my family were ever financially minded.

LISA is 60 btw :( but at least it's all tax free :D

 

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sleepwello'nights
21 hours ago, Harley said:

I had a lot of fun an uni.  Alas my Economics degree was suffering so in despair I doubled down and opted for the life or death essay paper in my finals rather than the course work assessment or other options.  Four hours to write an essay of their choosing.  I turned the paper and there was the question:  "Is Economics and art or a science"?  I was saved!  In essence, my answer was Econimics is artistic in nature to which you can apply scientific rigour, while never forgetting the nature of what you're dealing with.  My favourite example is the Gauss- Markov BLUE (Best Limited Unbiased Estimator) theorem and the concept of regression analysis to minimise but not eradicate error and to interpret results based on the co-efficients of explanation, and accepting correlation is not causation.  Hence my despair at current economics which seems to have sold its soul (by at least its silence) to politics, betraying itself as a science of absolutes.  As goes economics, so can go trading and investing!  Both will end in failure.

Would you have passed if you'ld had that question the following year?

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1 hour ago, MrXxx said:

I think we all love `doing a deal` don't we?...and I class myself as a risk averse passive investor...or perhaps it was the way I was bought up?!

Absolutely. And it's probably this very arrogance of thinking we're smarter than the market that ruins many an investment!

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