Does Trading often Work?

We used to be investors. The word “investors” has been replaced with “traders” in advertising. This was a purposeful self-serving shift by brokerage firms to make you think you are stupid if you don’t actively trade. In fact, it has been proven to be the opposite. Misinformation, psychology, greed and fear are the weapons of mass distraction for the trader. “Oh, but I am oblivious to all that!” Probably not.

Investing on the other hand, always works. You become the casino when you side with the market. How can I say it always works? Well, the truth is that it always works if you can say that good assets go up in value over time. And they always have. Many, many people lose out on fortunes by believing, “this time is different.” No, good assets go up. And if they don’t you won’t be worried about your portfolio because something awfully bad has happened. Your focus will be spent protecting your potatoes. Dread is not a strategy. You can’t plan your life with a fear in mind, unless you want you live off the grid and talk to yourself. If you tuned into financial media and they all said what is true , which is buy quality assets and hold onto them, they would be out of business.

For those who lose patience and can’t stand watching the market go down . They begin to “self-medicate” by always having to “do something” when the opposite is true. “Doing something” is yelling at your broker, selling out, buying hedges, options, short selling etc. Those are all a mess. As Tom Petty said, “the waiting is the hardest part.” When you trade, brokerage firms make money. When you don’t trade they make very little and may eventually charge you an “inactivity fee.” As if inactivity needs to be punished! You should be rewarded for patience. Patience is the hardest and most important investing muscle you can build.  A good advisor should spend most of their time coaching himself and clients on patience.

There are people who make a living playing Blackjack or betting on horses. But the numbers are tiny. You need the perfect emotional makeup, stamina, intelligence, and thousands of hours of practice, and you still probably won’t make a living. You also must give up a home life, hang out in smoky casino’s and have a big bankroll. It has been shown that people grossly exaggerate their wins over losses. Traders buy into the same fantasies. They underestimate the time and focus trading demands. So, yes, theoretically you can win at the horses, blackjack etc. But it is a one in a million chance. Trading stocks is the same. Day trading, active trading are used by people to self-medicate. And when you hear that term it is almost always not good. Almost no one* makes money but most people doing it will claim they do. So why are they pulling out of their driveway every morning on their way to a job? Day trading stresses marriages and once the marriage goes, the non-trading spouse may be able to make the day-trader take the full losses of bad trades when dividing the assets.

This has been a tough year for the markets. Nasdaq is down 28% and the S&P down 17%. The Dow is “only” down 7%.  

Last 10 years             S&P  10.83%

                                    Nasdaq   14.8%

                                    Dow        10.28%

Inflation seems to be moderating a bit most notably at the gas pumps. That would be good if it holds. Consumption is slowing, sad, but it has to in the short term. Interest rate raises are going to slow down. Hopefully that will start today after the Fed meeting. They won’t lower rates but may lower the rate of rising.  That should be worked out, meaning no lowering or raising, by mid-2023.  For years the Fed has had no way to lower rates since rates were near zero. When rates peak the Fed has lots of room to drop rates in the future. It seems like no matter what is happening, the market is most moved by these rate hikes, rate declines. Like Pavlov’s dog.

When there are a lot of events going on that move the market, that also means there are a lot of chances for one of them going away and starting a recovery. I believe that will happen next year.

Look at this link to a chart that shows year by year returns for the S&P. You can see how long people had to wait from peak to trough and back, to the ever growing peak. scroll down a bit to see year by year.

The great news in this? You don’t have that day trader or that crypto guy at work coming over to your desk every hour to tell how great it all is!

Merry Christmas and Happy New Year!

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