The Lesson I Learned Makes This My Best Trade

It was January of 2006, my second year of actively investing in the market after venturing on my own into the financial world in January of 2005. Prior to that time, I had merely watched the indices fluctuate to factors such as economic news/earnings/ hype. After my father had shown me the statement to my mutual fund he had kept for me when I was young with the hopes of using the profits from the fund to pay for college. Yet, after reviewing the gain/loss statement, my net fund value of only $16,000 had stayed $16,000 for five or so years. I decided to take matters into my own hands. The idea of someone else managing my money kept me awake for the following fortnight.

It was during winter vacation that I started to read any market book I could find my hands on. Luckily for me, the first book I ever read was “How to Make Money in Stocks” by William O’Neil. And ever since, I have grown my library to about 73 texts/novels pertaining to the market—of which I have read 64 in total, front to back. Funny how when you become addicted and engulfed in the markets, you do not even realize the number of novels you have read until you actually counted them (as I did for this article.).

My performance was well, as I managed to turn an account of $16,000 to almost $60,000 by December of 2005. Statistically speaking, most traders blow up and lose it all within their first year of trading the markets. And it was this statistical number that doomed my performance later on in my neophyte trading career. By early 2006, I felt this game called the “stock market” was too easy. I believed I was above it all, and had let my own emotion guide my trading for the rest of the year (big mistake).

I began to wake up each day at the peak of my portfolio around 5 am. I could not wait for trading to start and make the next sixty thousand. I even began to wear my tie and shirt with more pride—believing, somehow, that by making $60,000 from $16,000, I was above everything else; it was as if I was “untouchable”. What I had no realized was this was the beginning of the deterioration of the quality of my fund, as I had begun to take larger risk. I was thinking now in terms of “how much can I make” on every trade instead of thinking “what is my drawdown?” I went in so far as mathematically calculating how much I could make by 30 years of age at this rate of growth in my portfolio. I began to think that I could achieve billionaire status within three or four years at this rate—in other words, I was a typical yuppie getting too caught up in my own euphoria to realize what was happening.

The matter was furthered by the interim commodity boom which I had also anticipated in late 2005. By May, however, my head had grown so large that I did not foresee a top in the group. It was a blur, the first half of the year, which goes to show you that you do not need to be drunk with alcohol to pass out without any recollection of the events that recently occurred. I was drunk with my own success, and unable to maintain my composure as I had promised to do under these circumstances.

Then on 5/12/06, the event occurred. The commodities bull market essentially stopped and the money was flowing out of the sector. My portfolio went down hard that day and I can’t remember if I blinked at all the whole day. I do remember that I never sat down. I typically stand all day, but on that day I was power walking in circles. Freeport McMoRan (FCX) went from $70 a share to $54 a share within a week or so. My stop loss system should have enabled me to leave the losing trade. However, I was too prideful at that moment in my life. I had over a 400% return annualized, and I said to myself “This is the correction, the emerging markets and their demand will keep all of the commodities up, and I should average down. This market is not going any lower!” I even recall screaming that last line. I was wrong, as stocks such as FCX went lower to 45 before catching a bounce. But by that time, I had over –leveraged my losing positions and essentially blew out my gains—I had been completely blind to reality as my emotions took over completely; I was essentially a different person at that point than when I had started out investing.

In my last ditch to save my gains—I did a “all on the table trade” on one stock—JOYG CALLS. All 400 calls for the stock to go higher as JOYG were consolidating for a few weeks. My eyes had seen “buy”, because I was seeing the charts with my heart. The end result was that the options expired worthless and I had drawn my account further down.

By June, my account was worth $5,000 dollars below my original net value of $16,000 that I started with in 2005. This is perhaps the hardest article I have had to ever write. To admit that I had a breakdown in my account—but I did realize the importance of emotional control and objectivity. Much of my rebound has to be owed to Ari Kiev and the success of his two books: Trading to Win, and Hedge Fund Masters.. I also took four weeks off from the markets to incorporate a solid trading plan. More importantly, I had realized that the markets are dynamic. They will do what they want, and as an investor, one should never have the audacity to say “I believe the markets have been doing so and so, and I expect a rebound of so and so”-or some other statement similar to that.

Always enter a market without your predisposed conceptions and view the tape as it is. Never see what you think will happen, rather see what IS happening and work with what IS going on in the present instead of predicting the value of the future. The present is the Future—this concept stipulates that without the present, there is no future. You make the future through decisions made today. Thus, to believe in luck and fate is superficial. You make luck through hard work. Own up to the outcome and own up to the decisions you are making. That was the key take away from my blowing up.

The “blow up” was my best trade because it has taught me to really see the markets as it is and to maintain composure, and better yet, to live from moment to moment and trade to trade. Never get caught up in the result, rather focus on the vision of where you are and focus on the steps required to achieve the vision—indeed this is one of the concepts taken from Ari Kiev. A stock picker is as good as how he enters/exits the markets with discipline and objectivity. A stock may go up 40-100 points and down 20 points, but if you maintain an unbiased perception of the market, you will not be the one investor to stay for that 20 point drawdown. This article was indeed hard for me to write, as committing yourself and owning up to the fact you failed is the toughest thing to do for me, and I also believe it is for most people as we, humans, have the inclination to block out malicious events in our lives in order to preserve our own pride. I will have none of that. By writing this, I make myself vulnerable and admit and own up to my mistake. But this is not the end, and never is. Through breakdowns, we see breakthroughs in life. And as you read this article, the general public, I commit to my vision and promise to the world that I will come back strong and reach my goal of $2 billion net worth. You may laugh, and you may criticize at the awesome number I have presented before you. But that will not deter me from my vision. I stand by it, and I promise it. So this, is why, blowing up in 2006, has been my best trade.

I leave you here with one quote I have taken away from reading numerous books:

“Screw Ego, Making money is more important” – it is candid, but it gets the job done.