Very few people can say they are worse at investing and trading than me. How’s that for whetting your appetite for my advice? Well, how about I tell you of how I have been a rotten trader for so long, and how I have recently managed to turn it around?
Birth of an Investing Idiot
My investment education started when the company I worked for was sold and I was given the opportunity to roll out my 401K to an IRA. This was around 1995. Of course, this was during the real start of the dot com bubble. In the five years leading up to the dot com bust, I made a ton of money. I took my 35K and turned it into 99K by trading in and out of the usual suspects of the day. In a way, it was like WSB without the formal Reddit page. Instead, I was all over Yahoo Finance message boards scanning for the next big winner. I listened to the hype and participated in it along with all the other Yahooligans. I also started watching CNBC religiously every morning while getting ready for work, then tuning in after work while I watched the profits roll in.
During this period financial websites were cropping up everywhere. I subscribed to a little website called TheStreet.com which was run by an investment “genius” named Jim Cramer. You may have heard of this guy from time-to-time here on the Slope of Hope. He was super popular with the new online investing 20 something crowd like me. He would provide names and we would all pile into the trades since he obviously knew what he was talking about.After all, old Jimmy is a Harvard graduate you know?
This is how I learned to invest. I was making money, lots of money for a guy from rural Oklahoma with poorly paid school teachers for parents. It was easy. All you had to do was listen to the talking heads, buy what they pumped on CNBC and various websites. Stocks only go up in the long-term. I learned my lessons well.
The Bust
I mentioned it in a comment on a post recently, but I bought CSCO at the top. I was that guy that paid the all-time highest price (at least until December 29, 2021). The market started doing something that I had never seen before. It went down. About five minutes after I bought CSCO, it started falling. It didn’t bother me too bad at first. Stocks always fluctuate, so I was not worried. I stayed in it for a few days, and it kept going down, but the gurus on TV said it was natural and to just hold onto it. It always comes back. Of course, CSCO was not the only stock I owned. Diversification is key! I was not stupid enough to own only one stock. I had money in several dot coms and tech stocks.
Stocks went down. They went down a lot. And they kept going down for a while. My account was doing something I had no experience with before. It shrank. And my “education” was not doing me any good now. A rally came and I was so relieved to see some green again. I was doing it correctly, just like the talking heads told me to do. Whew! For a few months everything settled down and it was kind of boring really. The account balance had taken some hits, but things were stabilizing. Everything was going to be alright, and I could still see myself retiring at 45. (Yes, I was delusional like all the other poor slobs listening to CNBC and Cramer.)
Then the bottom really fell out and so did my account balance. I was stuck in several stocks and finally relented. I can’t say exactly when that was, but I suspect it was near the bottom that I sold everything. I had been burned and learned my lesson. Don’t trust these clowns on TV, or websites, or message boards. Don’t trust mutual funds either. Not only did I lose in my IRA, but my 401K as well. I stopped doing any long trades and couldn’t short because of the way the IRA was set up, and I did not know how anyway.
At this point, my account was back to 35K. Hey, I didn’t lose any of the original money, but I also had not made anything in five years. What do I do now, I asked myself? Well, nothing. And that is exactly what I did. I left my money parked in money market accounts and whatever was “safe” in the 401K like stable value funds.
Bull to Bear
My ego was bruised. My accounts were bruised. My confidence shattered. I finally realized I knew nothing and what I did know was wrong. I didn’t really do any trading much for several years. Then around 2005 or 2006, I found a little website that had some really cool charting software. It was called Prophet.net, and somehow, I also made my way to a blog called Slope of Hope, by the owner of Prophet.net, Tim Knight. He was a good writer and explained a lot of charting stuff. He also had the same thoughts about the market that I did. I immediately made this a go-to site for me. (I also was one of the first paying subscribers. Hint, hint freeloaders!) Now I had someone that was bearish to listen to. No bearish actions were taken on my part as I could not short anything with my accounts set up as they were. So, here I was, no money to trade short with, but I could see he was on to something. Suddenly, there became a way for me to play the bearish side. I found mutual funds like BEARX and eventually ETFs like TZA. My 401K also introduced a new feature that allowed me to trade outside the standard funds. My dreams of making money were rekindled. Riches would fall into my lap as now I knew the market would drop again and all I had to do was wait for the bottom to get out with mega-profits. I dumped all my accounts into these types of mutual funds and ETFs. Hey, I still was not stupid, and diversified into several bearish ETFs and bearish mutual funds.
Then around 2008 the markets dropped, and I made 40% in just a few months. Happy days were here again! I might not be retiring at 45, but 55 maybe. Then the markets did something they had not done for several years. They started going up, and up, and up. My bearish dreams (and accounts) were being crushed, just as my bullish dream (and accounts) from a decade earlier had been.
Birth of An Option Trader
Well, after taking a few big hits, and learning that I could not make money as a bull or bear, I quit. Oh, I still looked at the markets longingly. Was still a faithful lurker on Slope of Hope. At this point I put everything in cash, money market funds, and stable value funds. Occasionally I would put a little in a mutual fund at work, usually at the exact wrong time and would take a small loss as I meekly exited the trade and put it back in the “safe place.”
When the government shut down everything for Covid, it was probably the best thing that ever happened to me financially. Well, I almost lost my employment, since my whole job is to travel and teach in-person classes. But I was able to stay at home and learn, really spend time some time educating myself. I discovered a way to convert my IRA which allows me to trade options. I bought a beginners guide to option trading. Then I really started paying attention to the knowledgeable Slopers and of course our illustrious host.
I started playing small options in early 2021. I bought a few puts and a few calls, made some money, lost some money, but made more than I lost. I was well on my way to becoming a confident option trader. I had ground to make up, so I started playing bigger. Money was starting to build up in my account again. I had found a rhythm in the market and was playing it well, until I didn’t. I bought some IWM puts in July or August. I still hadn’t really learned my lesson about diversification. The gambler mentality is very damaging and hard to overcome, especially when you see some success. I have known I was doing the wrong thing for years, but I always kept telling myself “I know I can do it this time; I’ll get out with a profit for sure.”
In early November 2021, IWM shot up and my December options went WAY down. I lost half of my account in a few days. As Forrest Gump said, “I am not a smart man.” That is when the light bulb, dim though it may be, went off over this thick skull of mine. For roughly 20 years I was a financial screwup, dimwit, dunce, thick headed idiot, net-worth nitwit, but finally the lessons stuck.
Knowledge and Wisdom
Blessed is the one who finds wisdom, and the one who gets understanding.
I finally “got it.” The many self-inflicted wounds that had been torturing my accounts for years, finally reached the grey matter between my ears. It was a long time coming, for there are not many people with a thicker skull than yours truly. I finally made the correct changes, and I guess you could say, got serious about trading.
Trading has been easy, and hard, and mostly profitable in 2022. I am far from the most sophisticated trader among the deep talent pool on Slope of Hope. In fact, I am probably one of the least talented here. Currently my account is up about 50% this year, and while that sounds great, just a few short weeks ago it was up 210%. So, lest you think I really have it figured out, I don’t. The latest bear market rally has been incredibly painful. I am playing much smaller positions now, but still too many puts and not enough calls. Diversification is something that I am doing better with, as I currently have 20 options, a couple of ETFs (one long and one short) and a single stock long. I should mention that all options are dated in January except one in December.
Where I need to improve in option trading:
- Get rid of greed. That has cost me most of the gains I had enjoyed.
- Learn how to play both calls and puts at the same time.
- Educate myself concerning number two above concerning option strategies. Wrapping my head around the trades I see some Slopers make is almost impossible for me. (See Forrest Gump quote earlier.)
- Quit letting my bias get in the way of success. Trust the charts and fundamental analysis and stop talking myself out of good trades.
- Learn how to take a loss. Stubbornness is not a good trait for a trader. Admit I am wrong and move on to the next trade.
There are more improvements needed, however this is getting to be a way longer confession than I thought it would be.
This Time it IS Different
Many years of mistakes, lots of regrets, and many lost dollars later, I am finally putting the painful knowledge to use. This time, I have developed a small but growing set of rules (which I highly recommend every trader do). I am following the knowledge and wisdom of respected fellow Slopers as well as some other successful people that I admire and trust. I am trying to learn as much as I can, as well as develop “edges” that you hear people talk about. Is it easy? Most definitely not! Is it more fun now that I am “doing it right?” Yes, it is! There is a peace now in trading that I never had when I was gambling like 99.999% of the public still does.
Well, there you have it. The confessions of a very unsuccessful trader. Maybe you can learn from my mistakes without wasting a decade or two.
