An alternate market experience 2 comments

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To me, it is always useful to get an understanding of how other peers have invested or traded on the stock market: their thought processes, their journey, the results. By living their investment lives vicariously, one can get various perspectives other than the one that he sees in the mirror every day.

This is especially important when one is in a bull market as we are undoubtedly in now, a bull which has sustained itself through the last three years. Although I am not an advocate of market timing in its purest form (ie. straight disposal into cash), I see the need to attenuate my optimism about the market once in a while, through articles such as "The 10 worst stock market crashes", which remind me of the potential downside, and of course through my HotStocksNot blog itself.

Way before I started penning down my thoughts and investing experiences in my blogs starting June 2005, there was a fellow market investor/trader who had started a daily trading journal in Shareinvestor.com's personal pages. I just read about it today on that forum, and, visiting it, was astonished to find that it numbered 2000 over posts (not all by him of course --- it also included comments from readers).

The journal was started in late August 2002, and the author was meticulous in documenting his everyday trades, his rationale, his emotions, the results. Most of it was about pain and anguish, as he assumed trading positions primarily based on outside recommendations from gurus (eg. Wave Trader) or black boxes (newsletters, charting systems etc), or by short-term forecasting (of expected results and other market events, what the market would be like the next day etc) and more often than not had to close out these mainly contra positions at losses.

If one remembers the late 2002-early 2003 market, it was one of gloom and pessimism as the market searched for a bottom. Valuations went lower when it seemed they were already at bargain basement prices. It appeared to be the primary reason for the author suffering such a bad spell (in a good market, the novice can seem like a genius), because he operated mainly on a contra, even intra-day, basis, given that he was undercapitalised. He himself acknowledged that trading in mid-term and long-term time frames, facilitated by reasonable levels of personal capital, offers greater probability of success.

Mark my words, he is no fool by common definitions. He writes well, is able to articulate his trading history and emotions, and by his account was in the IT industry and studying for an MBA. His trading journal provided an avenue for him to cross-analyse his own trading decisions, and he was honest about his losses. It is not my intention here to stand on a pedestal and mock him or debase his trading record. Instead, my intention is to highlight the fact that even an intelligent person can suffer in a bad market if he is too anxious to attain quick gains.

To be fair, everybody got killed during that period. I myself probably lost 20-30% of my trading capital on paper over that period. But by trading frequently, the above protagonist of the journal probably exacerbated his situation. As noted, he had to, because he had limited capital. Furthermore, he had got addicted to the adrenaline of trading, and had the compulsion to trade more when he lost money on earlier trades in an effort to make back the money. As in a boxing match, when one is getting hammered, the best strategy is actually to cling/hold the opponent to limit further blows from his punches.

It was a sad tale of a bear market not giving any leeway to an addicted trader who seemingly knew his own problems but still fell into potholes. He ultimately lost $70-80K in his trades in a matter of weeks, was retrenched admist a restructuring economy, and had his credit lines cut. He was a married man. Although he eventually found a new job, his disastrous trading experience had so traumatised him that he was unable to bring himself to participate in the bull market starting in mid-2003. His dreams of developing his own trading system, after paying tuition fees in the market, had come to nought. There his trading journal ended.

Those with access to Shareinvestor historical archives can check out the thread titled "The Trading Journal" to get the full story. There're plenty of amazingly detailed advice from fellow forummers, some of which are obviously from professionals and accomplished traders. Those were the days, when Shareinvestor was a closely-knitted community and one could truly learn stuff.