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Why Most Investors and Nearly All Traders Lose Money

  
  Education
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I strongly suggest that you do not confuse being an Investors with being a Trader. I’ve been pointing out for many years that the Stock Market is greatly influenced by day-traders, flash-traders, program-trading firms, in for quick trades of a few hours, a couple of days at most, and back out again. That’s not Investing and certainly not Investing Wisely.

The problem for Investors is that they have for decades, for the most part, considered themselves to be Buy and Hold Investors, (married to the stocks and mutual funds) through both good times and bad. When they finally get discouraged, (and they do!)they get out, usually due to large losses, and they tend to stay out for very long periods. An excellent current example is / are those who have been on the sidelines since the big bear market plunge of October 2007 through early last year, not enticed back in for even part of the new bull market of last year plus.

They (Mutual Fund Investors) tend to listen to Wall Street saying they need to have a long-term perspective when their stocks and mutual funds are plunging 25% – 50% and more, and so hold on. When they do decide to ‘reposition’ their portfolio they tend to listen to mutual fund managers, and brokerage firm sales persons and spokesmen on TV shows and in magazines, advising them to buy a stock that should be 30% higher 24 months from now, without considering that it might first be 30% lower three or more months from now.

Historically (way back when) Buy and Hold strategies and long-term outlooks work well in secular bull markets, when there is /was much less downside risk, when bear markets are more spaced out, less severe, and short-lived. In secular bull markets the long term trend is up, and when bear markets end the market ‘comes back’ to its previous high in the next cyclical bull market and continues on to still higher highs, continuing to be interrupted by only occasional mild bear markets.

Those days are gone and possible gone forever.

It’s the cyclical bull markets that are temporary, not exceeding previous highs before the next cyclical bear market takes the market back down again. In both secular and cyclical bear markets Buy and Hold is probably the worst imaginable investment strategy. Not only does it not produce gains, but even the most determined Buy and Hold investors are likely to give up with the worst of timing, after their losses have become larger than they can handle either financially or emotionally. (more…)

Opinion no value at all

  
  Education
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The market does not care about your opinion and what you think it ought to do.  The market cannot be tamed, placed in a box, or coerced into your way of thinking.  The market does not care about your technical analysis based on past history not does it care about your projections for the future.  The market does not care about this edge or that one.  The market does not care about what I think, about what the most popular flavor of the month guru thinks, or what the latest ANALyst on Blue Channel thinks.  The market does not care about your dreams, goals, and aspirations no matter how well grounded and planned.  The market does not care about the latest economic news.  The market only cares about the present. Remember this the next time you get into a trade believing, hoping, and praying that it HAS TO WORK.  The market does not care if it hurts you, so if you choose to believe, instead of see, what is right there in front of you, then that which you fear the most will come to be. I am not alone when I say this.

“Professional traders make good risk/reward trades and are not concerned with the outcome.   Nor are they under the delusion that they really know where a stock or the market is headed.  Those who will be pushing paper around at some dead end job in the near future are new traders who trade seeking to fulfill some narcissist need to be correct.    Or smarter than the market.  Or your trading neighbor.  Or a friend.  Get over yourself. You have no idea where the market or stocks are really going in six months. All there is are favorable risk/reward trades to make with the outcome uncertain and controlling your risk paramount.”

“This is one of the paradoxes of trading and investing: you need distinct views to put your money at risk, and you need to persist with these views in order to ride winners. At the same time, you can’t become married to these views; you need to quickly revise and even abandon your outlooks in order to limit losses. We can trade and invest for ego needs, and we can trade and invest to make money: over the long haul, we can’t do both. It takes a strong ego to formulate and act upon one’s ideas; an even stronger one to step back from those ideas in the face of non-confirmation.”

“Most people, let’s face it, must be right. They live to have other people know they’re right. They don’t even want success. They don’t even want to win. They don’t want money. They just want to be right. The winners, on the other hand, just want to win.”

“Life happens when you’re making other plans. This is true and no matter how much we visualize future success, set goals and create plans for achieving them, there will be things that happen over the course of the coming year beyond your control that will impede, slow, stop or even reverse your progress. This is to be expected and, if at all possible, planned for. Frequently the difference between success and failure is being able to accept those challenges head on as they occur and keep working toward your goals even when you experience complete failure and hardship. Anyone who has achieved anything worthwhile has failed in doing so, if not many times. But, that’s part of how we grow and get better.”

“The less I cared about whether or not I was wrong, the clearer things became, making it much easier to move in and out of positions, cutting my losses shot to make myself mentally available to take the next opportunity.”

If you enter a trade and the stock doesn’t go the way you predicted, go ahead and take that loss immediately. Don’t sit their like a twit and try to justify a bad trade as you lose more money, dump it. Move on. Forget the need to be right.”

“In reality, the market puts us in a contest with ourselves.  Until we let go of the false ideas of what makes the market tick and simply respond as the market unfolds, we will continue to be punished.”

The degree by which you think you know, assume you know, or in any way need to know what is going to happen next, is equal to the degree to which you will fail as a trader.

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