WHY IS TRADING SO HARD
OR
WHY CAN’T WE ALL BE “MAUD’DIB”
A while back I had a lively conversation with one of the regulars here, let’s call him B, about the difference between Trading and any other business. His point was the “stress” level of running a regular business was the same in both instances. Of course I disagreed, and still do, undoubtedly, he still disagrees with me. I guess the “to each his own” viewpoint could apply in this case, but there is a difference between this discussion and many others that the “to each his own” axiom could apply. We are discussing Trading and not whether to open a “Sports Clips” or “Dominos” franchise. In today’s environment, losing thousands of dollars, including ones retirement savings, emergency account, etc. is very easy. With the advent of Online Brokers and the memory of everybody and their brother making big bucks “online trading” in the Nineties, the reality of losing one’s shirt in a couple of weeks or even days has become not just a possibility but even inevitable in some cases. We have discussed this before, but it may be time to put a bit of a different spin on the subject to help all to gain a clearer understanding of what we are up against, in terms of how this can play out emotionally. So with this said let’s look at an example everyone can relate to, that of being a “Cabbie”
The Cabbie
Most Cabbies operate in a fairly competitive market. In the US they have to continually market their services, they have to be where there are fares to pick up, and have the ability to drop them off in a timely fashion. The fare price is usually the same between providers, and in some instances regulated by the Gov’t. They have the cost of Maintenance on the vehicle, fuel, insurance, licenses, and of course their salaries. Within this scope they also market to bring in more fixed business rather than just relying on random fares. For instance when I blew out my left calf muscle trying to push start a friend’s car, for the next 5 months a private taxi had contracted with my insurance company to bring me back and forth to the Dr. and therapy appointments. The cabbie knew exactly how much they would make for each trip, and by calculating the costs and income they can estimate their profit. This is very simple, and apart from the Gov’t regulations, very straight forward. The cabbie can also increase profits by looking in the seats for “Lost Change”. So there you have it, a service with known costs, and known profits per length of trip.
Now let’s turn this on its head.
First, you are a cabbie, but you never know how much you will make per trip, also, there are some trips that you will end up paying the customer and additional Gov’t fees. So think of this, the last fare that you took looked really good, well dressed, business type and he was picked up across from Lex van Dam’s place in the city. So as you stop to drop the fare off, you look at the meter and it says you must pay the fare/client 200 bucks and the Gov’t 95cents, so you fork over the money. Now how do you think you would approach the next fare, all happy and positive, ready to “rumble?” Not very likely, so you pick up your next fare and low and behold when you drop this one off the meter says they must pay you 800 bucks and of course the Gov’t gets its 95cents. So it goes, until you hit a time when you have five or six fares that you have to pay out, and of course the loss is immediate, and not of a five year or so horizon. How would you react, how would this affect your personal life? If you came home not only with an empty pocket, but lost money for the day, again I ask how would this affect your personal life???
This dear reader is the point, you never know how a trade will turn out until you book the profit, and that makes it different than the average money making endeavor. According to statistics, the majority of new businesses fail in the first five years, well that is about five years longer than it takes for a trader to Fail/Blowup. In trading there are no actual price negotiations, for example, a dog walker with Ten dogs hails a taxi and the driver negotiates with the “walker” for a higher rate because of the dogs. You can’t say to your broker,” well the price is 1.0867, I really don’t like the 10 announcements coming out today, so I will buy at that price but you have to guarantee me 100 bucks”, hah, have fun with that. Also once you put a trade on, you can’t take it back, whether you are profitable or not, at this point at least, it is out of your hands. This loss of control of destiny (Profit or Not) can, if not controlled by the trader, result in serious damage to ones Psyche, and a string of losses also can do even more damage. That is why we keep telling people, “be careful, this is different”, “Your job is to defend capital” “The losses and gains can affect your emotions, causing a serious unbalance in your thinking if you let it”. But some people do not listen.
Professionally, I come from an automotive repair background; I have been a technician, service writer, service manager, and finally an entrepreneur, running my own foreign car shop. So I know the stresses of running a small business. But it is still very different than trading. If I wanted to increase my Mercedes customers, I would run a free service special, with fliers placed on the windows of Benzes in front of our local Macy’s, Lord and Taylors, etc. I would scrape so much business off of that old windbag Braman, that I laughed all the way to the bank, oops, sorry, reliving the old glory days. In trading, who in the world are you going to market to ??? How do you increase sales and profits ??? You see, we told you it was different.
Now of course if you live in one of the areas of the U.S. that is an economic shambles, Ohio, Upstate New York, Detroit, I can imagine the killer stress trying to run a business when there is no business, but at some point you need to say “Let’s go somewhere else where we can make a buck”, so it’s not the business it is the area/environment. So no “Trading” comparisons can be fairly used in this type of circumstance.
Now having said this, it does not mean that it is impossible to trade retail; you just have to recognize that this is totally different than anything you have done before. You must be prepared to learn many lessons about yourself that you thought you would never learn. Unfortunately there is nothing that can prepare you for this; the only way to learn is to do. Like learning to play a musical instrument, you can have all of the theory you want, but until you sit behind that ’58 B3 with the 142 Leslie, you will never know if you really can play. So you learn to trade small amounts to control the losses, this helps us to get acclimated to the different world we are in, without worrying about blowing up. Done properly, you will learn many lessons that will; over a period of time help you gain perspective and consistency in your trading.
The Ever Learning VIPER
