Everything I have learned about managing my own and other’s money over the past decade and a half has taught me to avoid short-term trading (i.e. day trading) like a plague.
Yet, like a forbidden fruit trading has always enticed me.
Trading Rock Stars
A couple of years ago I visited the offices of a $7 billion macro-oriented hedge fund for some due diligence.
They were quantitative and discretionary macro traders. Their trading floor was divided in half.
The quants sat on one side of the room and looked appropriately geeky and mathematical as they stared at their trading screens. Their job was to make sure the computerized trading programs they developed were working properly.
On the other side of the room were the discretionary traders. They were more laid back. Chatting with each other. A guitar leaning against one of the trading desks.
It looked more like a hangout than a trading floor. Their job was to trade based on their individual macro philosophies. They were trading rock stars, pulling down millions a year in compensation.
I met with the firm’s founder and chairperson. His skill set appeared to be selecting talent, because I found his macro views to be overly simple and politicized as if he got them from the Wall Street Journal.
I left that hedge fund thinking why I couldn’t I be a discretionary macro trader. I’ve managed money long enough, spent years meeting with top hedge funds to learn how they invest, understood macro. How hard could it be?
So when I quit my job, I determined I would try my hand at trading.
My Life as a Trader
I set up a trading account and transferred an amount of money that if I lost it all, it would sting but it wouldn’t financially devastate me. Then I started trading. Gold, silver, interest rates, volatility, futures, options, future options, etc.
I kept at it for six months. Not every day, but I put in enough time to come to a straightforward conclusion.
I suck at trading.
Here’s the problem:
I really, really hate losing money. Even on paper.
That’s a serious handicap for trading because even though my intermediate term macro view was correct, I couldn’t stomach the losses that it required for that view to be rewarded.
You see, in the very short-term there is absolutely no rhyme or reason to why securities move as they do. They bounce all over the place. It is completely random. And when they bounce the wrong way, then that is money lost.
Losses cause pain. Emotionally, sometimes physically.
Losses lead to rash decisions aimed at stopping that pain.
Losses cause one to see patterns where none exist and to double down to try to make back what has been lost.
So I quit trading. I was down 20%. A fair price to get trading out of my system.
Why You Should Try Trading
I think there is no better way for individuals to learn how difficult investing and trading can be then by setting up a small account and buying some individual securities.
The account should be small enough that if you lose it all, it will not devastate you.
Then see what happens. Watch how your body and emotions react.
The future never looks more unpredictable than when you are staring into that unknown abyss with skin in the game.
Then after you have had enough of a short-term trading fix, go back to the boring, long-term, low fee, diversified stuff.
And consider yourself lucky that you got trading out of your system before you did something stupid like wager all of your retirement savings on Apple at 700, gold at 1700 or Bitcoin at 240.
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