Most amateurs come to the markets with half-baked trading plans, clueless about psychology or money management. Most get hurt and quit after a few painful hits. Others find more cash and return to trading. We do not have to call people who keep dropping money in the markets losers because they do get something in return. What they get is fantastic entertainment value.
Markets are the most entertaining places on the face of the Earth. They are like a card game, a chess game, and a horse race all rolled into one. The game goes on at all hours—you can always find action.
An acquaintance of mine had a terrible home life. He avoided his wife by staying late in the office, but the building closed on weekends, pushing him into the bosom of his family. By Sunday mornings he could take no more “family togetherness” and escaped to the basement of his house. There he had set up a trading apparatus, using the equipment loaned to him by another loser in exchange for a share of future profits. What can you trade on a Sunday morning in suburban Boston? It turned out that the gold markets were open in the Middle East. My acquaintance used to turn on his quote screen, get on the phone (this was in the pre-Internet days), and trade gold in Abu Dhabi!
He never asked himself what his edge was over local traders. What has he got, sitting in a bucolic suburb of Boston, that they haven’t got in Abu Dhabi? Why should locals send him money? Every professional knows his edge, but ask an amateur and he’ll draw a blank. A person who doesn’t know his edge does not have it and will lose money.
Warren Buffett, one of the richest investors on Earth, says that when you sit down to a game of poker, you must know within 15 minutes who is going to supply the winnings, and if you don’t know the answer, that person is you. My Boston buddy wound up losing his house in a bankruptcy, which put a whole new spin on his marital problems, even though he no longer traded gold in Abu Dhabi.
Many people, whether rich or poor, feel trapped and bored. As Henry David Thoreau wrote almost two centuries ago, “The mass of men lead lives of quiet desperation.” We wake up in the same bed each morning, eat the same breakfast, and drive to work down the same road. We see the same dull faces in the office and shuffle papers on our old desks. We drive home, watch the same dumb shows on TV, have a beer, and go to sleep in the same bed. We repeat this routine day after day, month after month, year after year. It feels like a life sentence without parole. What is there to look forward to? Perhaps a brief vacation next year? We’ll buy a package deal, fly to Paris, get on a bus with the rest of the group, and spend 15 minutes in front of the Triumphal Arch and half an hour going up the Eiffel Tower. Then back home, back to the old routine. Most people live in a deep invisible groove—no need to think, make decisions, feel the raw edge of life. The routine does feel comfortable— but deathly boring.
Even amusements stop being fun. How many Hollywood movies can you watch on a weekend until they all become a blur? How many trips to Disneyland can you take before all the rides in plastic soap dishes feel like one endless ride to nowhere? To quote Thoreau again, “A stereotyped but unconscious despair is concealed even under what are called games and amusements of mankind. There is no play in them.” And then you open a trading account and punch in an order to buy 500 shares of Intel. Anyone with a few thousand dollars can escape the routine and find excitement in the markets.
Suddenly, the world is in living color! Intel ticks up half a point— you check quotes, run out for a newspaper, and tune in for the latest updates. If you have a computer at work, you set up a little quote window to keep an eye on your stock. Before the Internet, people used to buy pocket FM receivers for market quotes and hide them in halfopen desk drawers. Their antennae, sticking out of desks of middleaged men, looked like beams of light shining into prison cells.
Intel is up a point! Should you sell and take profits? Buy more and double up? Your heart is pounding—you feel alive! Now it’s up three points. You multiply that by the number of shares you have and realize that your profits after just a few hours are close to your weekly salary. You start calculating percentage returns—if you continue trading like that for the rest of the year, what a fortune you’ll have by Christmas! Suddenly you raise your eyes from the calculator to see that Intel has dropped two points. Your stomach is tied in a knot, your face pushes into the screen, you hunch over, compressing your lungs, reducing the flow of blood to the brain, which is a terrible position for making decisions. You are flooded with anxiety, like a trapped animal. You are hurting—but you are alive!
Trading is the most exciting activity that a person can do with their clothes on. Trouble is, you cannot feel excited and make money at the same time. Think of a casino, where amateurs celebrate over free drinks, while professional card-counters coldly play game after game, folding most of the time, and pressing their advantage when the card count gives them a slight edge over the house. To be a successful trader, you have to develop iron discipline (Mind), acquire an edge over the markets (Method), and control risks in your trading account (Money).
Read More : Discipline Minded Traders
