Tuesday, June 16, 2020

Trading and Persistence: the lethal combination

The Way of the World:  People with enormous persistence are usually rewarded:  they do hard things, go to medical or law school, build sterling careers, build businesses, become sports stars, etc.


Traders with enormous persistence -- get crushed.  The art of trading is to keep losses small.  This is exceedingly difficult for one with drive and ego, for one who doesn't like to admit they were wrong, and then worse, capitulate, take a loss.

Doctors usually have big egos, and are especially prone to failure as traders.  Ironically, doctors are attracted to market speculation like children to hot dogs on the Fourth of July.......it may be that there is a part of the brain that continually puts out the message:  "you know more than anyone else about everything....because you are a doctor."

Why these notes?  We heard the story of a doctor who made a killing shorting Wayfair.  The doctor projected it would go to 0, so kept shorting it at 80, then 40.  You know what happened next: rebound, 100, 130....now 200.  Last update was that the doctor was committed to a long-term short on the stock.

We told the storyteller there was no such thing as a "long term" short, stocks tend to rise over the long term.

We also relayed that a short position in a volatile stock should be covered with long calls.  That was about 100 points ago.  The trader, being a doctor, of course knew better.  "Nothing done," as they say in markets.

It's a sad story, and didn't have to be.

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