A10, Stock Trader Dude

Fall in love with stocks?

We tell you that “historically” you’ll make money by making investments and allow you to believe that you have the chance to get rich.

Historically someone else gets rich in the stock market from your “investments.”

That is not in the brochure.

Another book to disappoint you, a discussion about what someone else would do (retail investors) when a stock price rises or falls isn’t going to help your situation (unless they are a model for poor decision-making). When you don’t have a clear understanding and inside track to the developments within the company (new products or services, regulation changes, earnings, management changes) and how it relates to peer companies and the sector then you sell, maybe not all at once but you begin the process to know where you are. You allow yourself to step away from the process and see that if the price rises, you might make less, and if the price declines, you lost less and can exit the rest of the position knowing you allowed yourself a chance to briefly wait for further gains.

The media, financial press, and self-help investment promoters tout making investments as a natural life experience/expectation like brushing your teeth. The decision not to invest isn’t part of their thought leadership. The concept of not investing isn’t part of their self-help dialogue. Experiencing the stock market isn’t appropriate for everyone, and this is where these self-appointed experts failed to aid the public.Losie Orman and Robert Kiyosuckie aren’t going to bail you out… they told you to get into investments even when the timing was bad, they were caught off guard by the severe decline in the stock market in 2000 and in 2008 they had no sense that it was artificially high, and that a severe decline could happen again. Why would anybody listen to them now? What can they say… hang on? We already know how Losie handles it, “Look at what you have, not at what you had” – okay lady, that was after 2000-2001, you still telling them that? Why do people buy stocks? Well, somebody told them to. They got their expectations from somewhere, right? When I was a child I never thought, “I want to buy stocks when I grow up.”

Why pay thousands of dollars for something when I can give you the overview of the process used at the workshop?

1. Personal responsibility for results
2. Thoroughly prepared
3. Disciplined psychology

Know the average profit per trade per dollar risked. Know your system – different forms of money management to achieve objective.The marketers and financial media are still promoting stocks as an investment but their ads miss the most important component to profiting from investments: It’s not so much what you buy, but who can you sell it to for more than you paid?The media and financial industry has trained you to buy but never to sell… or to not buy at all.

Relying on experience can be limiting… experience doesn’t necessarily hold lasting value, since value shifts with the marketplace. What worked well at one time doesn’t mean it’s best to repeat that approach.Experience: At 91, the man Warren Buffett famously dubbed a “superinvestor” is still picking unloved stocks [Forbes, February 11, 2008, pg 48]An interesting fellow, Walter Schloss, he doesn’t use a computer and he doesn’t pay for research reports or charts. The article stated, “He often found himself buying while stocks had a long way to fall and selling too early.” This was in reference to his experience during the 80s and 90s.“Still, many of his calls were spot-on. He shorted Yahoo and Amazon before the markets tanked in 2000, and cleaned up.” After that, unable to find many cheap stocks he liquidated his fund and gave investors their money back.The article listed five stocks that Schloss bought.The article states: It’s been two years since he bought in, and the stock is down a third. But the superinvestor, who has seen countless such drops, is philosophical and confident this one is worth book at least. “How much can you lose?” he asks.The answer: A lot, a little over a year later these stocks have fallen to penny stock prices. Four of them have risen at least 100% from the low in March, the other stock nearly rose a 100% from the low and each stock is still significantly below February 2008 prices.These companies were weak prior to 2008. Why is he picking losers? The man has experience in it and experience is a hard thing to give up. During a protracted economic downturn the share prices of these companies have gotten much cheaper… naturally.

Position sizing is that portion of your trading system that tells you “how many” or “how much.” How many units of your investment should you put on at a given time? How much risk should you be willing to take?

Aside from your personal psychological issues, this is the most critical concept you need to tackle as a trader or investor. Please… you cannot limit yourself… this approach doesn’t have anything to do with making an intelligent choice, selecting the one best mover and betting as much as you can when you have as close to a lock on something as possible. For further insight I’ll refer you to chapter three (Take monumental risks) of How to be a billionaire: Precisely because so many people are able to take this kind of risk, the rewards are not astronomical. No one has a 10-figure net worth purely through passive investing in the stock market. In March of 1989 Steven Ballmer bought $46 million of Microsoft stock (he was then an executive, now CEO) and three years later his investment was worth $350 million. A company gets cheap for good reason and rebounds in value only if somebody, or some change in conditions, fixes the problem.

Investors and traders rely on their sensations of their experience of the stock market. But you never directly interact with the stock market; you interact with your thoughts and feelings about investing and trading. Nobody is coming along to shove easy stock market profits into your pocket… or else you would have known to short or exit the stock market before the downward momentum. If you didn’t read the market correctly in 2008, what makes you think now is the time to invest or trade? You don’t have to see the future; you have to see yourself.S&P 500 from the October 2007 highs to the March 2009 lows: During the market crash toward the end of 1929 and the decline during the Great Depression, there were at least five rallies of forty percent or greater.The retail investor rarely makes substantial gains… he or she is too distracted, or too easy to influence.

Peak performance in investing or trading is not about what you know about the market, it’s what you know about yourself.Your personality messes up your investment returns. It’s not that difficult to develop a sound investment strategy. The difficult part is sticking with that strategy when emotions like fear, anger, greed and jealousy are trying to sabotage you at every turn.Associated with the idea of profiting in the various markets is making decisions based on the vast amount of information available. Information is not knowledge, information that does not provide an actionable insight may be low quality and market information does not contain predictive value. How you make decisions is important… Tharp(y) is out there trying to sell his workshops and study material. The thing with this guy is that he knows he doesn’t have the ability to outperform in the marketplace so he doesn’t directly experience the process of trading. Making money in investments is not a business, but making money by selling information about investments and the various markets is. If the folks who hold the keys to all this great information can’t profit from it directly within the stock market, what makes you believe them when they claim you can do it? The wrong answers are always for sale.You rarely hear that ignoring information is an intelligent selection process. If 80 – 95% of the information we pay attention to in our heads is total junk… meaning it doesn’t mean anything and is repetitive, then…

– That experience acts as the reality to which we give our attention.
– Our thoughts are mostly junk concepts that we mistake for reality.
– Exposure to the markets is through vague concepts that add more junk to the mostly junk thoughts already there.And it’s what’s going on in your head that you really trade (your concept of information, your beliefs, emotions, your limited experience), not the markets.And when you notice a belief, you need to understand the following:

1. Where did it come from?
2. What does it get me into?
3. What does it get me out of?
4. Is it useful? If not, then change the belief.