What are People Thinking?!?!?by JimPunkrockford on September 6th, 2008 at 11:58 pm |
(11 votes, average: 3.82 out of 5)
Loading ...I have recently joined a couple of web sites that track real peoples real portfolios and am shocked and appalled at how poorly people trade. The web sites in question are Covestor and Cake Financial. For those of you that are not familiar with these sites; the idea is that you sign up and give these sites the ability to track your real portfolio. So your real actual portfolio is there in front of the world for everyone to see, along with actual trades people make. The idea is that people will be able to follow the actual portfolios and trades of good traders and profit from their trades. Unfortunately the sites completely fail at their objective (at least so far) due to technological limitations and poorly designed metrics for gauging investor performance, but that is not what I am bitching about here.
My gripe is how utterly bad people trade. Now that I can look into real peoples portfolios, I want to reach thru my computer screen and grab some of these people and smack some sense into them. The most commonly bought stock among Covestor participants over the last month has been Freddie Mac! WHAT! And the fourth most bought stock was Fannie Mae. Granted Covester participants are probably younger and are trading very actively, and not holding these positions overnight as to avoid getting wiped out when the Feds nationalize these things. Unfortunately many people hold long positions in these stocks right now. Why would you take the chance on your stock getting nationalized by holding a ticking time bomb of a stock over a weekend? But again, I am off point.
After sifting thru a bunch of random peoples portfolios I see some very common mistakes being made over and over. The first common mistake is people holding on to losers’ way too long. Many peoples largest holdings are down 50-80%! Has anyone heard of a sell stop? This is not an isolated problem, many, many people are riding bad stocks down to zero. Please people do not do this, take a small loss before your bad trade becomes a long term investment.
Another common mistake is people holding momentum stocks. You might be saying “holding momo stocks, why is that bad?” Because people are holding last months momentum stocks. People need to turn on CNBC every now and again or read a blog, anything. Basic material stocks are now out of favor, sell them, China is now out of favor with the momo crowd, you need to sell. Clearly if you’re an investor these may be great investments, but if you’re a trader and the momo stock you have been riding to great profits starts to rollover, you need to get out of Dodge.
How about diversification? 75% of portfolios have 3 stocks or less. Really? Now if you’re a super active trader and getting in and out of positions then fine, but the transparence of these web sites allow me (or any user) too see that people are not actively trading these. They are holding just 3 stocks.
Look I am sure that people that are hardcore enough to be reading in this forum are not the same people that are making these mistakes. So please don’t take my tone like I’m telling you how to trade. But do remember, next time you are at a party and you tell some douchebag that you’re a trader, and they comeback with some stupid response like “dude traders don’t make money, 90% of all traders lose”, that idiot is right, most traders do lose and after looking at how they trade, they deserve to lose.
lol…There is this one guy over on Covestor that always gives me a hard time, telling me, “Technical Analysis doesn’t work. Its a sham. Must do fundamentals only.”
Then I look at his account metrics, and the dude has been losing money, for like years. I can’t believe he would step out and talk shit, with losing account metrics, to a man who account sits at a new YTD high…
I digress. Good post. Most people suck at investing because they can never overcome the limitations of their psychology, imo.
September 7th, 2008 at 3:10 amI think you have to also take into account that most people on that site will have tiny account sizes. Smaller than 100k. The guys with 500k+ account sizes are not bothering with proving to the world how well they can trade. They just trade.
Think of all the TIM followers who have jumped on board that site due to him using it. Some do really well, but most will not. Not dissing TIM, just saying.
The only reason to be on that site, is if you are an educator, the rest are dumb money looking for cheap thrills at how much others make.
Covestor also uses a stupid algorithm that shows ridiculous returns which are not real, so it really is pointless in terms of monitoring.
September 7th, 2008 at 6:56 amIt’s nice to see how the herd is shuffling along. It makes me realize how far I’ve come in my own trading. But everyone starts out a virgin, only to be homo-hammered by the market at some inevitable moment.
September 7th, 2008 at 3:41 pmI think you have to also take into account that most people on that site will have tiny account sizes. Smaller than 100k. The guys with 500k+ account sizes are not bothering with proving to the world how well they can trade. They just trade.
ShortBus I’d say there’s quite a few HERE that fit that same bill. Or at least me : (
As far as size 200k down from 300k at the 2007 peak. Egregious I know!
I’ve been trading for about 5+ years and had been successful up until this year. A little thing called a BEAR MARKET stopped Me. Fortunately I have another (partially) successful career as a graphic artist to pay the bills.
September 7th, 2008 at 3:47 pmI’ve learned many lessons over the years but it wasn’t enough to keep me from getting fucked when the market broke. So I guess I’m still an unsuccessful trader trying to figure it out. Hopefully I’ll be able to learn from observing the best traders here and iron this out.
What percentage of people here really be qualified to say they are SUCCESSFUL TRADERS?
Shortbus - I agree completely with what you said re covestor, TIM, and their algorithm. Have you seen their new ad campaign? Go to their homepage.
http://www.covestor.com/makemoney
“Peter made money following Warren”
How is that legal/ isn’t it asking for trouble/ horrible idea?
September 7th, 2008 at 3:48 pmAnon - here’s some tips that helped me out -
- “Do the opposite”
- “Never make bets you can’t afford lose”
- “Never make a bet where if you lost twice that, you’d be ruined”
- “Never say “it’s different this time”
- Never place a trade on the fly. If you haven’t thought it through just miss it.
- DEFINE THE TRADE. I am buying here because of _______. I will sell because of ______. I’m doing this to make money. If I lose money, it will only be ____much, and I am ok with that. If I lose 1$ more, I will cancel the trade. I am so confident that I am right that I think that for every 10 trades, I should only have to sell 3-5 at a loss. I am so confident that I am right that for every 10 trades, I should be selling at least 5 for a profit, which is a multiple of what I risked initially.
- The market will always be open. I have literally decades to trade it. No reason to blow my load now.
Finally, you need to accept that you are down 66%. Even in the most optimistic market, I wouldn’t COUNT on tripling my money (turning 100 –> 300), so you must aviod the temptation to make big bets in an attempt to get back where you started faster. It just isn;t going to work that way. Be patient, 100k compounded is still a lot.
September 7th, 2008 at 3:53 pmI think I found my new trader name.
You will now refer to me as “Really B Qualified”
The unsuccessful trader formerly known as “Matt”.
September 7th, 2008 at 4:21 pmGood stuff there Danny, really important and spot on.
As for some of the talk about portfolio sizes, I must put in my two cents. Anon, if you have a day job, you should not be trading 200K of your own money, IMO. And nobody should be trading 500K of their own money unless they are fulltime balls to the wall professionals that have made multiple millions trading their own accounts in the past.
When we look in on other traders, like the voyeurs we have become on the internet we should realize how really hard trading is. It is not exactly a zero sum game but short term trading means that when you win someone else has lost. Everyone here seems real high on The Fly, do you really want to wake up everyday and out trade that guy? He is an animal!
Anon any lessons you can learn from trading can be learned by trading 20K just as well as by trading 200K. Take some time and instead of doing research for your next trade, do some investigating on a great hedge fund where your extra 180K can grow while you become a better trader.
Just my opinion, and for disclosure, in a previous life I used to be a financial planner, beating into peoples heads that they must be more fiscally responsible.
September 7th, 2008 at 4:30 pmDanny thanks for the advice. Just to clarify, I’m down approx 33% from the highs. 300 down to 200. It would take 50% gain to reach the highs though. By no means am I shooting for 50% gains in a short time. I just need to right the ship without loosing any more from here.
- “Do the opposite” THIS ONLY APPLIES SOME OF THE TIME.
- “Never make bets you can’t afford lose” I DON’T
- “Never make a bet where if you lost twice that, you’d be ruined” NEVER
- “Never say “it’s different this time” THIS IS AN OBVIOUS BIG ONE AND ALSO QUALIFIES AS “NOT ALWAYS TRUE. IT’S OFTEN DIFFERENT AND YOU NEED TO ADAPT.
- Never place a trade on the fly. If you haven’t thought it through just miss it. HEREIN LIES THE SECRET. YOU CERTAINLY NEED TO UNDERSTAND EVERY TRADE IF WE COULD ALL JUST FOLLOW SOMEONE’S STEPS WE’D ALL BE RICH.
September 7th, 2008 at 4:56 pmOne huge factor that determines how successful someone will be at trading will be the amount of capital that they start with.
I’m sure there have been many would-be great traders who started under-capitalized and lost it all, or enough to cause them to quit, before they ever hit their stride.
Trading is just like any other endeavor. Generally, the more you practice it, the more you research it, the more time you spend with it, the better you get.
Most traders don’t start with a big enough cushion to absorb the inevitable mistakes and strokes of bad luck that come to all who attempt to become traders.
September 7th, 2008 at 4:57 pm“- “Do the opposite” THIS ONLY APPLIES SOME OF THE TIME.
- “Never make bets you can’t afford lose” I DON’T
- “Never make a bet where if you lost twice that, you’d be ruined” NEVER
- “Never say “it’s different this time” THIS IS AN OBVIOUS BIG ONE AND ALSO QUALIFIES AS “NOT ALWAYS TRUE. IT’S OFTEN DIFFERENT AND YOU NEED TO ADAPT.
- Never place a trade on the fly. If you haven’t thought it through just miss it. HEREIN LIES THE SECRET. YOU CERTAINLY NEED TO UNDERSTAND EVERY TRADE IF WE COULD ALL JUST FOLLOW SOMEONE’S STEPS WE’D ALL BE RICH.”
1. Do the opposite - nearly always true, and you need to accept that it is. When you get a visceral feel to do something, at least for me, I’ve found it’s better to do the opposite.
2. It’s never different this time. That is absolutely undeniable and undebatable. From the telegraph, to railraods, to the telephone, to the internet, to chinese people needing fertilizer, many revolutions have changed America/World and it still didn’t justify the high valuations. All of those had bubbles in the stocks, which made a lot of $$ for trend followers of the day. A stock like BNI made buffet style holders rich. It made momentum traders rich. But it also suffered decades of nothing. Tell that to the people who bought the bubble because it was different this time. Railraods were huge you know.
September 7th, 2008 at 5:29 pmThe FNM-FRE holders will be getting the homo hammer of death on Monday.
September 7th, 2008 at 7:42 pmWoodshedder, how much capital would you consider adequate for aspiring full-time traders? 200K, with half of that kept in a safe interest bearing savings account?
September 7th, 2008 at 7:52 pmFor aspiring, full-time traders, probably 100K, though 50K may be enough if you have someone will allow that to be leveraged.
It really depends on how much money you need to live.
If you can pull 30% a year, every year, you’ll be a rock star. Problem is, I don’t know many people with a 100K bankroll that are prepared to live on 30K a year.
With a decent sized bankroll, a few years of experience (at the very least), you can probably find a prop shop that will let you place your bankroll as risk capital, and may give you as much as 10-20x leverage. Now, with 1 million to trade with, you’ll only need to do like 15% a year to feed your family. If you have a banner year, you can roll the extra percentage gains into your risk capital, and leverage more.
If you really want to trade for a living, develop your edges, and then find someone who will let you trade with their money.
September 7th, 2008 at 8:08 pmIn my case, my trading really became able to support me only when I reached the point when I didn’t need it anymore. For example my other investments had come in and I had enough money on hand that trading profits were no longer necessary, at that point my trading became easy as pie and the money I no longer needed was much easier to get.
I say this because I believe you are at a psychological disadvantage if you know in your head what percentage you are trying to achieve every year to support yourself. If you do not have these pressures of defined goals hanging over your head you are free to just trade as well as you can, rather than shoot for a certain percentage.
So maybe take part of your budget and make that money to live on for the year and trade with the other half with no predetermined “must” make goal percentage. I think that way you will be able to just trade well, rather than always worry about hitting your goal.
Woodshedder would you agree?
September 8th, 2008 at 3:08 am