Lessons learned and often revisited:
Story you might enjoy and relate to from my personal life:
When I was 17, my father was a minority partner in a small commodities firm. During my summer break after my junior year in high school, he decided to introduce me to the wonderful world of commodities trading. I loved it from day 1. I studied and read everything I could that summer in his office about commodities trading and fell in love.
The following summer I openned my own account with $5000 and slowly started trading with the help of my dad. He kept a tight leash on me and I couldnt get enough of the action. I didnt see very many friends that summer.
Over the next 3 years, full time during the summers and part time rest of the year I kept trading and slowly build my account up to $25,000, while in college. Pretty good for a novice I thought. My dad was always there to help and guide me.
I learned more about technical trading than stock traders learn in a lifetime. But, I had one more lesson to learn.
After my junior year in college, that summer I told my dad I wanted to do it totally on my own and see how I could do. I had ambitions of doing this full time after college.
That summer I was on fire. Anything I touched turned to gold. The charts were clear as can be and my decisions flawless. By the end of the summer, my account had ballooned to $150,000.
To my dads great disappointment, I told him I was postponing my senior year to further pursue my trading fantasies. During that fall, I started swinging from the rafters. 20 contracts of gold, 30 contracts of wheat, 40 contracts of pork bellies, but my bread and butter was the swiss frank.
In late fall, my account was at $287,000. I was on top of the world. But, there was a change. I was no longer pushing trades, but rather pulling them. Often way overleveraged, and often trading position just slightly favorable. Thought I was invincible. I wanted to be a millionare in the next 6 months. Everyday I wanted to make a score and had no patience anymore. I was bulletproof.
Then 1 friday afternoon I sold 50 contracts of the swiss frank. Just barely missing my price target of covering, I decided to hold over the weekend. Up to that point I had made a mint on the swiss frank on the downside.
Bank intervantion happened sunday, limit up monday with no trading followed by limit up tuesday. Friday morning I was in my fathers office with tears and a broken man. He wrote out a check for $36,000 to cover my debt to the firm after I blew everything and more in 4 short days.
With my dream shaterred, I went back to school that january to finish college. I wasnt the same, it took me a long time to get over it and realize and understand my mistakes.
At 22, I had lived a lifetime.
2 years later I started trading again very small and slowly got into stocks. When I turned 29, my net worth was around 180K. 80K of that was in my stock account, which I traded mostly on the long side. My job, CEO of Intro-Logic, a small private software company in michigan at the time, I absolutely hated. So I quit that year and decided to pursue my hobbies Poker and Trading. I am a world class poker player and have won many big tournaments, 1 at the World Series of Poker in Vegas.
Anyway, I started trading stocks full time. That year my account grew from 80K to 410K on mostly maximum positions on the long side. I got caught again when one of my major holding preannounced and lost 50% overnight. It was a momentum stock with a pe of 70 (which was enormous at the time)
2 month later, once again a broken man, my account was down to 45k.
It was very hard to overcome this mentally. I thought I had learned all my lessons 8 years earlier. I guess not.
My poker was going great and that helped ease the pain. I always had balls of steel, but never knew how to control them in my 20s.
Over the years, I have seen many friends, acquintances, poker associates and even clients at Prudential Securities blow up and lose all their money. None of them had a plan or a clue about money and risk management.
In most cases, they never recovered mentally or financially.
For the past 8 years, I have developed a plan. I have implemented money and risk management into my investing.
The past 2 years, I have been on a fairy tale ride. My crystal ball has been working like never before.
On top of everything else, at the end of every month 1/2 of my trading profits are being dollar cost averaged into mutual funds.
Never will I feel the mental pain that I felt twice in my life.
Learn from my mistakes and successes.
Many of you are very strong traders that made lots of money shorting in a very favorable time (year 2000). Dont let your successes go to your head.
Sleep easy at night and always understand the risks of your investments.
BUILD ON YOUR STRENGTH, NOT YOUR TEMPTATIONS. |
