Choose Well & Make It Real

Last time I mentioned about investors’ choices. If you don’t want to hold stocks forever just like Warren Buffett does (actually when the company fails to comply with his investment criteria, he kiss them goodbye too), we have got to be a kind of traders, i.e. position trader, swing trader or day trader. And it’s all up to you.

I say ‘Choose Well & Make It Real’ because most people cannot choose well. They don’t know themselves. Once I ask them whether they are sure about their decision, some of them pause and rethink. This is not a sign of a well-thought decision.

Meanwhile there are many of them who are able to choose well but cannot make it real. They know themselves. They know what to do. Nonetheless they cannot make it real through the process.

For example, Rohan is an investor who is sensitive to market conditions and people around him. He believe that ‘playing’ the stock market needs quick moves. He is considered as a good technical chart reader so he decides to day trade. However, after a series of wrong decisions, he loses his confidence and hesitates to cut loss at the end of the days. As a result he holds the positions and inevitably becomes a swing trader.

To make it worse, he usually trades via telephone so that every time he cuts loss, in his point of view, he not only feels bad to himself but also loses his face to his broker and let her know his mistake. Therefore he keeps his terrible investments in his portfolio, waiting for a turnaround so that he can sell them off. (At this point he goes beyond even being a swing trader.)

From this example, where is Rohan’s mistake? Not choosing well? Not making it real? Or both?

In my opinion he might choose it right because, from the information above, he is a good chart reader and believes in success from quick actions. He can be a day trader, of course. Hence the problem is not about choosing but may be because he cannot “make it real”. He reads technical charts well but he cannot “read” himself well enough.

As he knows that he might have problems about making decisions, he could adopt mechanical trading rather than discretionary trading, at least for the first trading months. For his bad feeling about cutting loss, it is important for him to realise that cutting loss is a courageous manner and gives him a chance to retain his investment strategies. All successful traders cut loss.

I would like to tell you a noninvestment related story which could help you guys as investors.

In Formula One racing many years ago, the Brazillian Rubens Barrichello was Ferrari’s second driver. (Each team had two drivers. The other Ferrari driver was the world champion Michael Schumacher.)

In one race almost all drivers, including Schumacher, opted for the three-stop strategy which means that the car will stop three times to refill fuel and replace tires while Barrichello received a team order to use the two-stop strategy. By this Barrichello’s car weighed more than others’ but he needed not stop often. He knew that his car was loaded and slower so he just drove it his way even though he was overtaken time after time in the race. But it was a ‘different strategy’ he needed to stick to it.

In the end his discipline paid out. I’m not sure which place he got exactly but remember that he was on the podium (in the top 3). This is an excellent example how your patience and discipline lead to success.

Understand your situation, stick to ‘YOUR OWN strategy’ and never listen to any backseat drivers because they will never share our prosperity. Good luck.