Beer Muscles
One of the tricks investors play on themselves during a brutal bear market is looking back and thinking “I KNEW this mess was going to happen. I knew when it would start, and why, and everything”. And they usually play this trick on themselves close to the end of the pain, and always with the power of hindsight (magnified by self-delusion). It’s a flaw in the human psyche called hindsight bias. You can google it.
When I first started trading on the exchange floor over 30 years ago, I began on a heater. Making money right out of the gate. I put on huge options trades in Glaxo (went long), Sainsbury’s (went short), and SAP Software (went long)……….and each one hit bigger than the last. Big directional trades, and in about 2 months I was up about +$200,000 and I was barely in my 20’s. BUT…………it was the worst thing that ever happened to me. I had beer muscles. I thought I could predict the future. I thought I could repeat this feat over and over. Hindsight bias.
So what did I do? Continued to make big directional trades. “Hell, let’s turn $200k into $500k!” I put on a big long position in Nestle, and got killed. Made similar trades in Sanofi, AstraZeneca, and Glencore……….boom, boom, boom. All losses. Inside of 5 months I had round-tripped……my $200k profit was a -$50k loss. I learned the hard way that nobody can consistently predict the future. Turns out my original winners were pure luck. Fortunately I had a kindly British trader take me under his wing (after laughing at me) and set me on a better path. He taught me a process which was profitable and repeatable, but wasn’t so deranged that it relied on me predicting the future.
I remember him telling me “you can make money trading, but it takes time and discipline. Not fortune telling”. Think of it this way: someone is going to win the lottery. They are going to beat the odds. But that does not mean that they should go on a worldwide tour telling other people how to win the lottery. It’s not a repeatable process.
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