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Financial Literacy

Mark Cook: What’s His Big Secret?

Mark Cook: What’s His Big Secret?
By Dr. Steve Sjuggerud, Chairman, Investment U
Friday, June 27, 2003: Issue #251

Mark Cook knows how to make LOTS of money in the stock market

In a trading contest in 1992, his return was 563% and in the next contest his return was 322%. It was no fluke since then, Cook’s annual returns have ranged from 30% to 1,422%.

Mark Cook went from a farm boy that was in hock to making millions in the markets, all because he was willing to try to learn from his mistakes. Follow Cook’s Big Secret, and you may well end up as wildly profitable as Mark as been

First, a little background Let’s start at the point when Mark was hitting rock bottom, very early in his career, when he was really just a kid

 

Mark Cook Was a Twenty-Something Farmer In Hock For a Half Million

When Mark Cook started out (as you can read in Jack Schwager’s excellent investing book Stock Market Wizards) he ran into trouble, and quickly

“Mom, I lost $100,000 of your money.”
“How much did YOU lose Mark?”
“I lost half a million dollars.”
“But you don’t have half a million dollars.”
“I know, Mom.”
“Besides losing all this money, what else is wrong?”
“That’s it, Mom.”
“Oh is that all! I thought you had cancer How long until you make it back?”

Cook didn’t give up. After years of studying the market, filling volumes of market diaries, and studiously recording and analyzing every trade he made, Marc’s trading became consistently profitable. Five years later, he sat his parents down again

“What’s the bad news this time.”
“I have an income tax problem [these new investments are now] worth $750,000.”
“How much did you invest?”
“Fifty-five thousand dollars”
“Gosh, take it.”
“No, they [the investments] are going up more tomorrow.”

Cook cashed out the next day with a $1.4 million profit. Things had turned around completely for him.

How Mark Cook Turned It All Around

It didn’t happen overnight; it happened over time. All those notes he took on his trading allowed him to consistently tweak and improve on what he had been doing. Years of little improvements turned into a big improvement in results.

Mark Cook documents all his trading activity in order to review it and improve on it. That is his “big secret.” And in order for you to get better, you should do the same.

If you want to have a chance at being like Mark Cook, with many years of extraordinary returns, then you need to start acting like him at least in this way. You need to ask yourself:

  • Why did I get into this trade?
  • Why did I get out?
  • Did I follow my rules?
  • What might I have done differently to improve on this trade?

If you do this self-analysis for every investment you make, you will get better. You’ll start to see your recurrent mistakes, and your results will improve. It’s almost guaranteed. If you don’t do this, chances are you’ll make the same investment mistakes again and again for the rest of your life.

There are other questions you should know about yourself and your investing, before you make another investment:

  • What are your objectives? Are you looking to make 4%, 40%, or 400%? If you need safe, stable income from your investments, for example, then you shouldn’t be trading options. You can trade options if you decide to but you must recognize that it is not part of your core objective.
  • What’s your timeframe for an investment? Three days, three months, or three years? You need to define this.
  • How much time per week can you devote to your investments? If it’s an hour or less, then you shouldn’t be trading on a short-term basis. Your timeframe should likely be a year or longer.
  • What are you going to trade? Your investment style needs to fit with your personality.
  • What’s your investment edge? To really succeed, you need to define this If you don’t have an edge, then how can you really expect to outperform the other guy?
  • What are your rules? Do you use a 25% trailing stop or have no more than 2% at risk? Do you only buy stocks that have positive earnings? Or that are below a P/E of 15?
  • What is the worst possible case, and can you deal with that? Can you handle that stock crashing? Or in Mark Cook’s case, that naked option that cost him a half-million dollars? What is truly the worst case?

If you seriously try to sit down and write the answers out to all of these, chances are you will discover that you may have a lot of problems in your existing investments – but they’re problems that are correctable. You may say, “Why the heck did I buy that? It goes against my rules. It goes against my objectives and I don’t have enough time per week to properly follow that one.”

The more you put into this exercise, the more you’ll get out of it. Give it a try. Your downside is 15 minutes with a pen in hand. Your upside is ending up like Mark Cook who went from a farm boy that was in hock to making millions in the markets, all because he was willing to try to learn from his mistakes.

Isn’t your financial future worth 15 minutes with a piece of paper?

Good Investing,

Steve

Today’s Investment U Crib Sheet

  • Mark Cook’s Big Secret was his detailed diary of his investments, and his willingness to constantly ask, How could I have done that one better? You can read the full interview with Mark Cook in the book Stock Market Wizards by Jack Schwager.
  • Trading coach Van Tharp has also written extensively on keeping trading journals. We are currently working on a book together called Safe Strategies For Financial Freedom. I’ll let you know when it’s available. You may want to learn more about Van and his Peak Performance Course for Traders, where he significantly covers this material.

P.S. People often ask me what programs I use to crunch numbers I’ve used all the expensive programs in the past, including the Bloomberg (at $1,500 a month) and the popular technical-analysis software programs MetaStock and TradeStation that can be hundreds of dollars a month. While they’re excellent, unless you’re a big institution or a day-trading technical analyst, you don’t need them.

You can do everything you need with Microsoft Excel and a super cheap but powerful companion program called XLQ. XLQ pumps tons of information on stocks into Excel in a way that is easy to manipulate. You analysis is really only bound by your Excel skills.

We do the lion’s share of our analysis around the office with XLQ, which should tell you all you need to know.

When you get into it, you realize that this program should cost a few hundred dollars a month. But it’s actually only $35 (yep, no monthly data charges or subscription fees just a one-time charge for the program). The price is ridiculous. And you can download it for free and try it out before you buy (no credit card, or name or email address even needs to be given!). You have nothing to lose.

The only caveats are You need to be pretty comfortable manipulating data and writing formulas in Excel. And you need to be willing to spend just a little time figuring out how XLQ works. Then, think of something you want to know (for example “I want to know the median Price-to-Sales ratio of the Nasdaq 100”) and test it out. (For that example, you’ll have to get the Nasdaq 100 names from www.nasdaq.com, and put them into Excel. Then use the XLQ formula.)

If you REALLY want to crunch numbers and test things on your own, I recommend giving this little bugger a shot. You can get XLQ at http://www.qmatix.com


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