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This chapter is from the book

Winning Versus Losing

Because of the corporate and market scandals of the last decade, it is understandable that the general public equates “winning” with simply abusing the financial market system. October and November 2008 are the latest to leave the public feeling abused and on the outside looking in. However, there are disciplined men and women trading in the markets with the utmost integrity who achieve spectacular returns year after year. Examine their beliefs and self-perceptions so you understand what keeps their earnings honest. However, before you examine others’ perspectives, take a moment to consider your own. How do you approach investing?

For example, does this describe you? At the end of the 1990s, just when you were feeling good about yourself because you were more secure financially, the dot-com bubble burst, and by the time it was over, you had lost a significant amount of money. The same thing happened again in October and November 2008. You found yourself angry with the analysts, experts, brokers, or money managers whose advice you had taken. You didn’t do anything wrong except follow their advice. Now you doubt that you will meet your investment goals or retire. You’ve held on to your remaining investments believing that they will eventually turn around, but deciding how to invest your 401k monies is paralyzing. You still believe that buying and holding is the way to go. You’ve now begun to think that winning in the markets is just plain dumb luck.

Or, maybe you view your money world like this: Sure, you lost some cash in the bear market and sure you lost more in October and November 2008, but, win or lose, you enjoy the thrill of investing in stock in the hopes of making a profit. Investing is entertainment for you. Plus, you like to boast about your investments for the admiration of others. You know you can be depressed and angry when you lose, but you also know that when you win you feel terrific. It’s a great high. Because your main goal is to invest for quick profits, you’re going to keep on doing what you’ve always done. After all, there was one time a few years ago when trading off a “hot tip” made you a nice profit.

There is a much better way to think about making money. How would you feel about embracing this perspective? Your approach is objective and rational. You have enough confidence in your own decision making that you don’t seek out investment recommendations from others. You’re content to wait patiently until the right opportunity comes along. Yet, you’re never too proud to buy a stock that is making new highs. For you, buying opportunities are usually market breakouts. Conversely, when you recognize that you are wrong, you exit immediately. You view a loss as an opportunity to learn, move on, and save your money for another day. What good is obsessing on the past going to do for you? You approach your trading as a business, making note of what you buy or sell and why in the same matter-of-fact way that you balance your checkbook. By not personalizing your trading decisions, you can make them without emotional indecision.

That is a stark contrast in perspectives. The first is that of a generally a market loser; the latter is that of a potential market winner. Don’t be in such a hurry to choose the winning approach until you’ve found out just what making such a choice entails. On the other hand, I hope you’ll find in trend following trading the inspiration to step up to the plate and go for it without fear or reservation. And don’t be shy about it. You have to want to make money. You have to want to get ahead and be successful, the critics’ condemnation be damned. Speculation, as von Mises has noted, is not only honorable, but a lifeblood. Profit-seeking speculation is the driving force of the market.5

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