Rev Shark:
One Constant to Trading: Losing
1/12/05 8:41 AM ET
"No one that ever lived has ever had enough power, prestige, or knowledge to overcome the basic condition of all life -- you win some and you lose some."
-- Ken Keyes, Jr.
One of the most helpful things for market participants to realize about investing is that even the best traders and investors lose a lot. The most experienced market professionals in the world are wrong on a regular basis. It simply is the nature of investing.
That doesn't seem a particularly insightful or astute observation. Obviously no one is perfect when it comes to the stock market, but if all you did was read the comments in the media from gurus and commentators you wouldn't know it.
The folks who write and talk about the stock market rarely admit in public that they were wrong. Their timing might have been off or their original point misunderstood but they were seldom, if ever, incorrect. For the most part incorrect predictions are simply ignored in the hopes that they fade away and are forgotten.
That isn't particularly surprising. No one likes to admit to mistakes, particularly in public, but it is a great disserve to investors because it fails to keep us aware of how common and unavoidable it is to lose when you are trading. Because we don't like to admit to mistakes, we don't see much helpful discussion about how to deal with them. The media stay focused on making predictions and seldom provide any assistance on what to do when the predictions are just plain wrong.
I think it is very important for people like me who write about the stock market publicly to make note of the fact that we have made mistakes or errors. We resist doing it because we don't want to look stupid or foolish but not doing it a misrepresentation of the investing process. Losses shouldn't be perceived as a deep dark secret but just part of the cycle of investing.
If you are confident that your investing or trading style will work in the long run it becomes much easier to deal with losses in the short term. I've been trading long enough and have had enough success over the years that a period of losses doesn't undermine my confidence. In fact, I often find it quite helpful psychologically to admit when I'm having a bad run rather than denying it or excusing it.
The start of 2005 has certainly been a poor period of trading for me. The complete lack of strength so far caught me by surprise. This certainly isn't the first time I was positioned poorly, nor will it be the last time. What is important is that I don't let my error do too much harm. I take some losses, raise cash and stand aside until the market settles down and I can regroup.
The point I'm making is that you should not be ashamed of losing. Proclaim it loudly and embrace it when it happens and then you can deal with it the way you should. Mistakes don't make you a bad trader but ignoring them does.
We have a little bump on the good news and some upgrades of Intel (INTC:Nasdaq). It sure would be nice if we could count on that to end the recent downturn but that looks like a very dangerous assumption to make. The market needs to hold after the opening gap up and I suspect there will be some pretty heavy selling pressure caused by folks who have been trapped the past week or so.
Overseas markets didn't do much and oil is up a bit, which is negative so we'll see how things go. I definitely would think very hard before chasing stocks on the open.
Gary B. Smith:
