Life is unfair: No one can read the TurtleTrader site for long before the statement, Trading is a zero-sum game starts to sound familiar. It's a fact that that some people win in the market and some people lose, and as our readers know, we like facts. The market is unfair just as life is unfair. Not everyone is equal nor is everyone going to get their fair share. To approach trading as a battle for survival makes it easier to accept another fact which is that those people who work the hardest at trading will win. Now that is fair.
Buy and hold - the lazy approach: Enter a reporter for a major financial web site. This reporter contacted TurtleTrader seeking an opinion about the downsides of buy and hold approaches given the dramatic NASDAQ declines during the bubble. Obviously, if you bought and held the NASDAQ for the last few years, you lost money. We told our new friend that investors and traders must have a strategy. If the last few years of watching the NASDAQ tank taught investors anything, it is that buy and hold is not the greatest of strategies. We even went so far to opine that buy and hold is not a strategy at all, but rather an excuse to be lazy with your thinking and your money in the market. You can always say I buy and hold. Sounds nice and comforting, maybe even slightly sophisticated.
What do I do if life's unfair?: The reporter wanted to know what must investors do now? She wanted to know what we are advising investors to do who bought technology stocks, got slaughtered and are now burdened with mega losses. She asked us for specific advice for the investor who has been killed and now doesn't know what to do (gamblers anonymous). She wanted forecasts about what would happen next year.
You accept reality and move on: We replied there are no forecasts for next year. No one can forecast the future. You can only react to the present. Furthermore, people need to have a strategy that has an exit point before they ever enter the market. Know when you are going to exit before you enter. Become smart. Lose your Las Vegas quick riches mind set. Stop day trading. We pointed out that there are clear strategies you can use to exit markets at proper times that enhance profitability. We added that buy and hold approaches must be rejected as irrational, except, of course, for people expecting to live forever.
Reality is hard to accept: Our new friend, who contacted us for an opinion, went ballistic. She proceeded to begin a wide ranging debate that is a common response and offers interesting clues as to why people lose in the market. Some of her more strident observations:
- She asked if we were calling her stupid. She accused TurtleTrader of not worrying about all traders. She seemed to imply that investing must be a socialist exercise. We advised that people need a strategy.
- She wanted to know why day trading was bad. She knew plenty of people who day traded and it was a viable strategy. She berated us for not giving day trading a fair shake.
- She wanted to know what the single mother with three kids who worked all the time was supposed to do. (We wondered if TurtleTrader was a candidate for political office.) We calmly replied that the market doesn't care who you are, so you need a strategy. She was literally screaming that this was not fair.
- She retorted that people no longer listen to brokers in this new age of investing. We told her that tips from brokers were still a problem. Once we stated that broker's tips were still a problem she asked us to cite a study. If we could cite her a study that broker's tips were still a problem, our response would be front page news in her opinion.
At this point we politely ended the interview. Why pass this story along? Because for those who truly want to win at trading, it is always nice to be reminded that in the zero-sum game people like this reporter exist in droves. She presents a case study of all of the emotional and psychological roadblocks losing investors possess. We wish her the best, but she is destined to keep losing.
