For a few years now I’ve been interested in trading and investing. I’ve spent quite a bit of time researching the topic, and like most people my interest was first peaked by the idea of day trading. I don’t think anyone has been able to escape those, that now seem, ridiculous ADs promising unrealistic profits based on simple and easy to follow plans. All conveniently priced at $400-$4,000, depending on the “quality.”
Whether it’s Forex, or Penny Stocks, or some combination of the two, the very idea that something is easy has always been a major red-flag for me. As a computer programmer, I know the incredible level of incompetence and error that has been injected into the market with the infusion of Frameworks, and online “education” promising to teach you how to “code.”
I am sure that professionals in the stock markets or Forex markets feel a grating sense of irritation when someone announces proudly that they learned to day trade from an online video. That sensation has to be close to what I feel when someone informs me they’ve learned to ‘code’, usually in Python, from some random website, or even worse a University.
After much reading, and messing around with paper trading, I came to the realization that predicting the stock market, or Forex market, in the short term is: impossible. It doesn’t matter if someone else is doing it, they are simply lucky. What you see in both investing and trading is a massive survivorship bias. You’re only looking at the few winners (and even those continually go broke within a couple of years, or disappear into the night and fog), and you’re not seeing all the losers.
As I think it’s been said, that 90% of Retail Traders lose 90% of their money within 90 days. The people who make the real money are the brokers, because they are the only ones who get paid regardless of which way the market turns.
That doesn’t mean you can’t make money, or that investing is a bad idea, obviously I don’t think that. And because I don’t think that, I decided to open a trading account, just a small one, and to begin investing my money based on the one system I am convinced has merit: Value Investing.
But trading real money is not the same as a paper account, and books and articles and videos assuring you of the sound mathematics behind this method of investing can never quite prepare you for the overwhelming sensation that maybe you’re wrong. All of those biases and pecadilos that make up the meat and potatoes of Behavioral Finance, taken from a century of study into human psychology, are real and they are powerful. The day trading siren song calls to you, the irrational hope of quick profits, of easy money are so strong you begin to really understand how the market is the worlds perfect con-game.
People always complain that the stock market is fixed, or rigged. I never quite understood why that would be a problem. It would be far worse if the stock market were truly random, like winning the lottery. When something is rigged or fixed, it is by definition predictable. The only real trick is making sure you’re not the sucker at the table.
I hope very much the market is rigged. It should be rigged.
Learning to love red is the hardest thing you’ll attempt, I can’t say I’m there, but over the last 12 days, I’ve seen a lot of red, and some green. I find myself daily encountering videos about day trading, and each time I see them they become more and more convincing. The people in them seem so much more earnest, so much more trust worthy. That feeling comes from the anxiety over uncertainty. When real money is on the line, when danger abounds, we naturally seek social proof to center ourselves, we seek people with “experience” to give us extra clues on which direction to take. You can’t simply ride on pure cussedness.
The problem is, this tendency of ours, especially when we are new to trading, is the con-artist’s best friend. Exploiting human frailties is the name of the game, and all of these people selling you easy money are only going to rob you blind. Just remember the old adage, if after five minutes at the table you can’t figure out who the sucker is, it’s you. In a situation where you are looking up to someone else as an authority, that’s the time to realize the only person who can actually be the sucker is you.
The problem is, value investors, for all their net-worths, are often not as compelling a personality as one would like. Warren Buffet, for all of his success is little more than a nerdy cuck. Charlie Munger is a pompous ass, and Bruce Berkowitz is a congenital whiner. The man has the cadence and tenor of a teenager perpetually asking “are we there yet?” There is also the sneaking suspicion that some of them may just be very lucky, or have been very lucky. You are never be sure, you have to constantly keep re-evaluating the evidence. There is this constant fear that maybe there is something new under the sun, maybe the markets have changed, maybe they’re being fixed in a new and unusual way?
Of course, they’re not, and there isn’t anything new under the sun. The market is either a turtles walk to the peak, or a rabbit’s race to the bottom. You have to ask yourself would you rather make and lose $1 million dollars in a year, or make and NOT lose $1 million dollars in 10 years? Patience is the most difficult virtue.
The most difficult thing about value investing is sticking to your guns, sticking to what you know to be true. A conservative, risk-aware and patient system of investing is far more likely to succeed than anything else. The stocks go up, the stocks go down. The most important question you need to ask and answer is: Do I want to be chained to this company for 10 years. Through rich and poor, through sick and health. It’s like a marriage. And marriage is hard. Especially with one click divorce.