As someone who has exactly 24 paid members in her chatroom (24x$50=$1,200 before I give 1/2 to my co-host...Wow, that's going to make me rich!) these are my 2 cents on the Truth:
204.244.168.151
2000 October 01
Trading for a Living: The Biggest Lie of All...
"Mirror, mirror on the Wall..."
Last week, I went downtown to pick up a check from one of my trading accounts, a stock account (containing only T-Bills) that is managed by one of my buddies. As I pulled up to the parking lot under the Stock Exchange Tower where most of the cars belonging to those in the inner sanctum of my old firm were parked, I notice a new silver convertible Bentley. And where are the customer's yachts, I wondered? This was, in fact, the second new Bentley to show up here this year.
It's not a surprise to the public how much brokerage executives and corporate financiers make, I thought to myself, but this is about how far they ever come in their thinking. The clients grow to resent those who toil in broker/dealer firms because they think there is some inherent unfairness about how close these men are to the deals, and how close they are to the information surrounding the deals. That is all true, perhaps, but the job of the financier is to work with venture capitalists to craft deals where they all buy in at wholesale and then push it out at retail to the public. In this great capitalist society, it's almost funny how retail clients come to think of initial public offerings as gifts, rather than the direct transfer of risk to them in exchange for their hard earned capital. IPO should really stand for I'm Paid Out, as the brokers and venture capitalists do a great high five on opening day to the tune of popping champagne corks!
But that's not even the half of it...
"...What's the Biggest Lie of Them All?"
I receive many pieces of email messages during the week, and many of them are nice ones, from people telling me that I have been able to improve their trading performance; however, most of the messages do not contain such happy news, for it appears that most people have a hard time making any money in the market at all. This has puzzled me for a long time, for I had always believed that it was a lack of knowledge on their part that was responsible for their poor performance.
Having worked in the brokerage industry from the day I graduated from university, I saw quite a few things before my retirement to private life after twelve years. It occurred to me when I saw the Bentley, that I had been so brainwashed that I didn't even see the most fundamental piece of truth in trading - ever! It hit me like a ton of bricks. Notwithstanding the fact that there is a genuine fundamental difference in thinking between the professional traders and punters, I suddenly realized that the true difference in psychology is even more subtle, something that no one ever speaks of, as if it were some sort of deliberate cover up amongst those who actually do make money trading the markets.
"Your Secret is Safe With Me...No Longer"
This weekend, the usual amounts of spam poured into the email box, and one particular piece annoyed me to the max. A high profile organization, one that you've all heard of, was offering a two week free access to one of their chat rooms, without asking users to even register! This chat room is priced at almost $500 a month!
Immediately it brought back memories of my last few months at the old firm, when I was a guest speaker at a rookie broker class. I recall the sales manager storming in the next day, screaming "What the fuck were you doing, showing them when to sell?" I guess I had made the cardinal sin of all brokers and long term investors. I dared utter the words, (gasp!), "a time to sell". At that point, I asked the sales manager to come into the office, and since he had no jurisdiction over my position at the firm, I told it to him like it was.
"Those young guys have no hope in hell of making it in this business, but you hire them anyway, since you need salesmen to help blow off all the cheap paper that the firm bought at wholesale. To you, these dudes are all expendable. The only way they can ever survive here is if they learn how to lie, learn how to peddle bullshit to their clients. When the clients lose their money, it's the broker's job to find more suckers. Hasn't it ever occurred to you that it might be much cheaper to teach a broker how to make money for his clients, and then they would never have to prospect, because new clients will be referred to him instead????"
But, of course, we both knew the right answer to that question: It is not the broker's job to make money for his clients. In fact, the broker's job is to make money for the firm, by selling the firm's wares, for which it collects heavy duty corporate finance fees to manufacture.
What does this have to do with people not being able to trade for a living, you ask? What does this have to do with this chat room spam? "What is it?" you ask, "What's the Big Lie?"
Truth In Trading
The big lie that has been perpetrated is the fact that trading is supposed to be difficult. This is absolutely not true. Trading is down right simple, so simple that anyone with a pulse and brain function can be taught how to do it. If you can drive, you can trade. There's nothing to it. A bit of knowledge, combined with spending some time observing the market is all it takes. Why, then, is it so hard to make money?
Human beings seem to have been wired with a fundamental flaw - fear - and this makes it hard to win when fighting from a position of weakness. When you're really hungry it's a bad time to buy groceries, because you will choose all the foods that give you instant satisfaction but clog your arteries. When you're broke, you are forced to implement Band-Aid solutions, the ones that cost much more in the long run. When you are financially strapped, you make bad trades because the ones that look easy are always wrong. This is the truth.
For the majority of the public, looking in from the outside, trading offers a good lifestyle. You work at home; you can take a day off whenever you want. You don't have to get dressed up for the office or deal with people you don't like on a day to day basis. You can make unlimited amounts of money. It seems like heaven. The truth is that trading is a tough and lonely job that requires absolute concentration and discipline. You make decisions day in and day out, and every single one of these decisions involves the risk of losing money, the risk of losing self confidence and self esteem.
Most people make good investors but poor traders. They frown on those who try to trade, dismissing "market timing" and "technical analysis" because their investments have returned handsomely in this bull market. Even when their investments are under water, they constantly tell me that in the long run, stocks always go up, or cite endless amounts of corporate fundamentals. Whatever their reasons, one reason they made money is because they were fortunate to be in the right place at the right time, when the market was going up. Most importantly, they have real jobs to feed their families, and don't have to make their investments perform now. So long as the moment they turn 65 and the money has multiplied to some staggering number, all will be well. In the meantime they don't have to contemplate getting a job if their next trade doesn't work out, while the wife supports them in their day trading adventure.
They Don't Really Trade for a Living?
Next time you find someone telling you that you can trade for a living, think again before you write him or her a check. I realized today that perhaps the only reason why I became the trader that I am is due to the fact that all during my learning phase, I was actually getting a check from the old firm every two weeks. I had the luxury of being paid while I learned from the people around me. I didn't have to worry about my living expenses. Whatever money I lost, it was money that "I could afford to lose". If I look at all the firm's successful traders, every single one of them are on some sort of base salary for services performed for the firm. They also trade with the firm's capital, not their own nest egg. Before I retired to trade for my own account, I made sure that I could support my family - husband, kid, nanny, mother, cockatiel and parrot - on interest income from my savings.
Look around you. The gurus who make $30,000 a month from chat rooms don't worry about their expenses. The newsletter writers probably don't even trade at all. The guys who run the day trading offices get a piece of every order entered, and they probably also use the firm's capital. None of these people are doing the trapeze act without a big net under them...and why should you believe them when they say that you can? When you are shopping around for a place to learn to improve your market performance, have the courage to acknowledge this reality, and know that trading is a loser's game if you do not come financially - and psychologically - prepared.
T. |
