Some of you may think that’s crazy, but hear me out!
Sooner or later, every financially successful person, regardless of what they do for a living, decides they are going to make money in the stock market. The “reasoning” is that, “If I am smart and successful in my field, then how hard can it be to make money in the market?” That would be Mistake #1. Other than possibly being in the
restaurant business, I can’t think of anything more complicated, and probably more stressful, than investing in the stock market- especially today.
So, about 35 years ago, I was that guy. I decided that the prudent way to invest would be to go to a major brokerage firm, find one of their top producing account executives, and give him/her a pile of my hard earned money to invest. Mistake #2. Why? Because unlike today’s no fee trades, they were getting whopping commissions on every trade back then. Since they weren’t making any money if one held the same stocks for the long term, my broker was constantly trading me in and out of stocks, and gain or loss, they banked their commission each time. I did this for a few years, and came close to breaking even, while the broker did very well; however, interest rates were high, and I would have done better with bank CDs or T-Bills. Then I decided to go to a discount brokerage firm, and not rely on a broker to make my trading choices, but do it myself. This could have been a sound idea, but since I was woefully ignorant on how to trade, it turned into Mistake #3.
The problem was I thought I knew what I was doing, when I didn’t. I made every mistake in the book. I bought stocks for the wrong reasons, at the wrong times. I didn’t want to sell them when they were down, hoping they would come back. When I did have a winner, I often sold it too soon, then agonized over how much it went up after I sold it.
I traded on tips and rumors, and I can attest to the truth of the old adage that, “It’s better to invest in steak tips than stock tips!” I lost a bunch of money. Still, I was attracted to the trading game, and I refused to give up. Others were making money in the market; I needed to learn how to do it properly.
There were plenty of stock trading schools and courses out there, most of which suggesting that you would become a zillionaire after taking their overpriced classes. I attended a number of free introductory courses, during which one was hammered by their equivalent of time-share salespeople, using every slick come-on to suck you in. I tried some online trading chats, and eventually learned about a small school in Chicago that appeared to be the real deal. The courses were taught only by active or recently retired successful floor traders on the Chicago Board of Options Exchange. I paid $300 to take their weekend orientation course in New York, with about 75 people. We filled out an anonymous questionnaire which asked us to describe in detail our previous stock market experience. I cringed as I chronicled my litany of blunders.
We were then given a thorough look into their courses and methods. We were told that their primary focus was on day trading, but that the principles applied to longer term investing as well. All courses were taught at the CBOE, eight hours a day for 5 1/2 days. They were quite expensive, and each class had ten or less students with two instructors. It was a big commitment, and the speaker was adamant in stressing that this was not for everyone. He actually tried to discourage anyone from taking a course who was not committed to not only absorbing a mind boggling amount of information, but also to throwing out all their preconceived notions about stock trading. After the class, we were told that we could speak to the instructors at any time afterwards, to answer any questions prior to our deciding to enroll in a course. They also gave references from previous students.
All I thought I knew about day trading was that very few really made any money at it, and it was very risky. Yet, here were experts who claimed that it was the safest way to trade, albeit the most demanding, for those who were religiously willing to follow the rules. They stressed that a trader’s biggest enemy was her or himself, PERIOD, and the number one source of failure was not sticking to one’s own rules. Yes- during and after your education, you would formulate your own personal set of trading rules, and woe be unto you, should you not abide by them. One example would be setting profit limits on each trade. You would place a “Sell Stop” on your account, via computer, that would automatically trigger a sale when the stock hit a certain price. That price would be determined by your own preferences, such as a certain percentage of profit.
In any case, I was intrigued, to say the least. I wrote a hefty check, and enrolled in the “Master Trader” course, to be given at the CBOE in March, 2008. Looking back, it amazes me how many people, myself included, lost thousands and thousands of dollars in the stock market, because they had absolutely no idea what they were doing. Well, unbeknownst to me, I was soon to learn exactly what I should be doing, from some of the best in the business!
“Buy when there’s ‘blood in the streets’ – even when it’s your own!”- Baron Nathan Rothschild
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