This week Frank and I speak about the effect of Hurricane Sandy on the energy markets, including the delivery problems in NY Harbor.Continue Reading...
I just got off the phone with a good friend who I know is an investor and a financial advisor, not a trader. He’s in denial about what’s happening with Apple. He’s in love with its products, spiritually identifies with Steve Jobs, and he thinks that what everyone is feeling about Apple will not change or go away. Although he had TREMENDOUS difficulty expressing their edge to me in a clear and concise manner, he has what I call “blind conviction”…much to the detriment of his investor clients. He thinks it’s intellectual…
He has a few hundred dollars of unrealized capital gains per share, so he uses the flaccid excuse of “I don’t want to sell before the year-end because I’ll give my clients a tax bill.” I reminded him that that manner of thinking wiped out hundreds of millions of unrealized capital gains taxes between March 10, 2000 and December 31, 2000. Coincidentally, he and his clients got killed in 2000 when the tech stocks crashed.
When I wear my coaching and mentoring hat, I see for a fact, that the most enduring illnesses of the marketplace is how investors and traders can intellectualize their actions and inactions without fully understanding that it is their emotions that are controlling their behavior. Something magical happens and the feeling of being so correct (intellectual, but random) overshadows and semblance of sensibility to do the first thing that both investors and traders must do: protect capital.
When I mention this, he tells me “I’m diversified” in such a matter-of-fact tone that if you overheard the conversation, you’d think he invented the concept. I told him that diversification is risk reduction, not risk management. He’s confused the two.
He does not want to hear that the Samsung Galaxy S III is a better device that the iPhone 5, or certainly more popular. He doesn’t want to hear that the Nexus 7 has better features than the iPad Mini. It’s as if he’s possessed, and this type of blind faith can a) get you killed; and, b) vaporize cash faster than Jon Corzine did at MF Global.
It utterly stops me in my tracks that individuals can be so disjointed within themselves. That their intellectual mind can be so dislocated from their emotional mind.
I think to myself that they must have some type of self-hatred…to do all this work…to take the risk of putting the trade on…and then be lucky enough to get the gains they’d hoped for (it’s usually random)…to enjoy the moments of glory…but to not acknowledge that all big moves end and protect your capital.
Traders and investors alike need to find that place — the protective stop price — where they will be financially and emotionally stable in offsetting their positions and in doing so protect their capital. If you don’t have that “place” I think you are a reckless joyrider.
PTJ is known for saying “prices move first and the fundamentals follow.” That may very well be the case with Apple right now.Continue Reading...
You all too often hear that 80-90% of those who try to make it as traders fail.
There is no question that it is a very tough profession and for some perhaps not a good fit.
I wonder about this statistic though. Many professional traders failed their way to success. They failed forward as it’s said.
After all, so much of trading is learning to take losses and building the emotional capacity to trade your plan without deviation.
Perhaps the statistic changes to being slightly more favourable each time a trader gets back in the ring for another round.
Admittedly it takes a particular kind of resilience to do this.
One thing is certain finding good training and mentoring can help you to short cut some of the steep learning curve. It’s very important to find someone you trust and who’s approach gels with you.
You also have to be open to the possibility that you can be a successful trader. If you aren’t, you have pretty much guaranteed you aren’t going to achieve what you want.
Breaking the four-minute-mile used to be considered scientifically impossible. Then Roger Banister broke the barrier in 1954. His achievement opened up the possibility that it was possible to others. Over the next few years many more people broke the barrier.
It took one man to show that it was possible. That was all that was needed to allow others athletes to make the mental shift and open to the possibility they could do it too.
Read the Market Wizards books (listen to Michael’s Jack Schwager Hedge Fund Market Wizards Video Interview) and read around this site for countless other examples of those who have achieved what you want. Ask yourself are you open to the possibility that you can do it too?
Be sure that you aren’t getting in your own way of being a trader. You may need to open up the possibility that you really can.
What do you think about the statistic? Does the failure rate decrease the more someone perseveres? Let me know what you think in the comments.Continue Reading...
Do you remember the Euro Crisis? The Fiscal Cliff? Yes… those media reports about Germany throwing money away by financing Greece? Spain going under? Greece austerity? How about those violent street demonstrations? China slowdown?
You see, the media’s job is to sell advertising — nothing more and nothing less, and in order to do so, the media is attempting to pull your emotional cords, such as anger and fear and keep you tuned in.
As a trader you have two choices: let the media play with your emotions, or shut down the noise and pay attention to the markets, after all the SP500 is up 12% this year, Euro Stock index up 8.55%, Germany up 23.43% and the Hong Kong index is up 16.5%.
Did you catch any of these returns, or did you let the Fiscal Cliff, Euro Crisis, or the China slowdown media-fest keep you out of these markets?Continue Reading...