Economic Theory

[Jesse Livermore]

Hi, just wanted to know people's opinions on the study of pure economics (i.e. B. Economics) and its applications on trading + investment. I want to have the most Knowledge I can have and believe understanding the basics (supply + demand, GDP, business Cycles, Economic Indicators...)in detail is extremely important. what are peoples opinions on topics like econometrics and financial econometrics? what kind of analysis are people in the forum using (fundemental, technical, quantitave?) and what are there reasons for trading and investing? The ONLY reason people trade and invest is to make money, and studying people who have made lots of money can help us enourmously in our trading educations. Rene Rivkin is a fundementalist, Warren Buffett is a primarily a fundementalist, so what is the best type of analysis to use so i can make plenty of kish-cash$$$$$?????

 

[DTM]

I think if I had to go back in time and redo Uni, I would have done Economics. I think that it is primarily the best education you can get in understanding supply demand in the market place.

Just my two bob

 

[Rexer]

Jesse

I'm not sure if I'd hold up Rene Rivkin as the 'gold standard' high water mark of what you want to achieve.....

A manic depressive inside trader.

Hmmmm

Regards

Rexer

 

[tech/a]

Question

Would then every graduate of economics be a profitable trader?
Every Teacher?
If not why not?

 

[Jesse Livermore]

Question

Would then every graduate of economics be a profitable trader?
Every Teacher?
If not why not?

The study of the basics of economics can be learnt by anyone not just by university students. Much of what is learnt in an economic degree is irrelevant to trading and investment anyway, but what is taught in the first year (accounting + financial management/basic micro + macroeconomics/quantitave methods(statistics)) is needed to understand general economic conditions affecting the financial markets, individual industries, companies and share prices. A teachers aim is not to apply what they know but to perfect the knowlegde so that they can teach it, if you were to go to university and fail or not go at all for that matter, this is not to say you do not know enough and you would't be able to apply your reason to make money, because you don't need perfect knowledge. Also trading is more than an intellectual activity, there are major emotional factors affecting a trader or investor and with the combination of adequate knowledge and emotional control there is plenty of money to be made. It has also been said before it is possible to know too much in the business of trading!

 

[money tree]

I recommend the Securities Institute course:

Financial Markets Economics 401

cost around $500

 

[ghotib]

The study of the basics of economics can be learnt by anyone not just by university students. Much of what is learnt in an economic degree is irrelevant to trading and investment anyway, but what is taught in the first year (accounting + financial management/basic micro + macroeconomics/quantitave methods(statistics)) is needed to understand general economic conditions affecting the financial markets, individual industries, companies and share prices. A teachers aim is not to apply what they know but to perfect the knowlegde so that they can teach it, if you were to go to university and fail or not go at all for that matter, this is not to say you do not know enough and you would't be able to apply your reason to make money, because you don't need perfect knowledge. Also trading is more than an intellectual activity, there are major emotional factors affecting a trader or investor and with the combination of adequate knowledge and emotional control there is plenty of money to be made. It has also been said before it is possible to know too much in the business of trading!

Which all sounds as if you don't really *want* to spend 3 years studying Economics, so don't.

If you want to study at university, then maybe you could tackle some other field that really interests you and worry about application later. For instance, I have a friend who did an honours degree in Materials Science and then won a job with Saloman Bros. Now in New York, owns property there and in Sydney, and on track to live well from unearned income by age 35.

Study is at least as demanding as working, and both take up way too much lifetime to be spent being bored or frustrated. If your heart is in trading, then find a way to immerse yourself in trading (trading what? there's great money in pork belly futures? Could you trade pork bellies AND equity derivatives? If not why not? What could you change? What opportunities can you find?) Alternatively, find a job to cover expenses and then take short courses till you find something you really want to follow through on in depth.

Good luck!!

Ghoti (happier than ever on career number 5.. or is it 6?)

 

[Knobby22]

I did an MBA, corporate finance, financial engineering as well as basic accountancy are very useful for undestanding companie, how to value them and what to look for in ratios etc.

As techa insinuated, those who can't teach.

 

[tech/a]

As techa insinuated, those who can't teach.

Actually thats not what I meant.

More that there is a vast cavern betwen theory and practice----in Trading.

 

[Fleeta]

I majored in economics at university - and you really don't learn about trading - but get a great understanding of the peripheral impacts. The best way to learn about trading is to do it - its easy to forget what you learn in a seminar - but you don't forget the lesson when you lose the cold hard cash!!

I've learnt more in the past 2 years about trading patterns by being in the market and watching it closely than I ever did at university or doing CA.

 

[Jesse Livermore]

As techa insinuated, those who can't teach.

Actually thats not what I meant.

More that there is a vast cavern betwen theory and practice----in Trading.

I understand this, but it can be dangerous jumping into the sharemarket too soon without the adequate knowledge. I understand that books are good for developing the KNOWLEDGE, however it is not untill you do it for real that you start developing the SKILLS and RESOURCEFULNESS needed to make money.

(PS. What to members of the forum think about "PAPER TRADING")

 

[tech/a]

Think public paper trading has its place as if you set out your trading rules and present them for scrutiny---- then the public will keep you "honest" as you trade.
Also constructive comment on a method can be very benificial wether it trades profitably or at a loss.

Makes you think about what your doing and you cant "fudge" the results.Big brother is watching-----------takes some guts but if you want to learn with little more than a kick in the EGO then this is the way to go.


Doing it by yourself leaves you subject to Cheating and kidding yourself.

 

[DTM]

I understand this, but it can be dangerous jumping into the sharemarket too soon without the adequate knowledge. I understand that books are good for developing the KNOWLEDGE, however it is not untill you do it for real that you start developing the SKILLS and RESOURCEFULNESS needed to make money.

(PS. What to members of the forum think about "PAPER TRADING")

Trading with real money is totally different from live trading because the pschological/emotional stakes are higher. You won't know how you will react to live trading until you jump in. As Tech said, it is better paper trading using the public forum because you will have others who can assess your trading and assist you or provide feedback as required. Being a newbie will mean that others may be more patient (what doesn't kill you will only make you stronger). When you do move to live trading, I would suggest using minimal capital to trade. Get a feel for the market first and then slowly phase into it as you get more comfortable and more knowledgeable.

Rome wasn't built in a day

 

[bvbfan]

Learning some economic theory is all well and good but there are different schools of economic thought to consider

There are different schools of thought such as the classical school, the monetarist school, the Keynesian school, and Austrian economics probably quite a few others too

Major Schools of Economic Theory

HISTORY OF ECONOMIC THOUGHT

What is Meant by Economic Schools of Thought?

Also you should read up on Nikolai Kondratieff and his long wave economic theory, but here is a small diagram of the cycle

More detailed info can be found at
http://www.thelongwaveanalyst.ca

one of my favourite sites is The Ludwig von Mises Institute

In my opinion from doing a year of economics at uni as part of Finance degree most of the material is based on Keynesian model with no (or little) reference to the other thoughts

 

[It's Snake Pliskin]

The fundamentals shouldn't be ignored! Look at companies such as Millers retail. Would anyone trade it? Not me! The fundamentals give more reason not to trade it than anything else.

 

[RichKid]

The fundamentals shouldn't be ignored! Look at companies such as Millers retail. Would anyone trade it? Not me! The fundamentals give more reason not to trade it than anything else.

Funny how one of the tip sheets that invests in 'value' stocks has had their 'experts' go through Millers and they've been recommending it since early last year!! Just shows how opinions can differ despite knowledge of economic theory- I assume most of their analysts have tertiary qualifications and they boast they base their views on fundamentals rather than the charts. They say it is a great longterm prospect. But we are all wiser in hindsight. Still they stick with it while it almost halves in value.

The real world doesn't always follow the theory (even economists get it wrong quite often) but it is good to know about economics. Here's an interesting article: Puzzled by Economics? http://www.smh.com.au/news/Business...sk-an-Aborigine/2005/04/24/1114281451928.html

 

[bvbfan]

Saw this from Stephen Roach which I thought was a good read

Not sure if this was the most appropriate thread to post in though so if there is a better one you could post there

 

[wayneL]

Saw this from Stephen Roach which I thought was a good read

Not sure if this was the most appropriate thread to post in though so if there is a better one you could post there

Hehe great article. I posted it last night in the Bear is Back thread as well.