This is why we trade.
When the world goes to heck in a hand basket and seemingly cataclysmic events swirl around us completely out of our control, we remain the “captain of our own ship.” The value of our house may decline. The business that supports our livelihood may suffer anywhere from minimal to major damage. Our 401K may start to look like a 201K. Politicians on all sides blather on attempting to assess blame as far away from them as possible. Talk of the next Great Depression may become more common. Yes, the perception may be that it is all imploding down around us.
This is why we trade.
Not because it’s cool or fun, or an interesting hobby. Not because we have all of these fast computer and lots of data and an endless array of tools and techniques to work with. Not because we enjoy exchanging ideas with other individuals regarding the latest and greatest methods and techniques. Not because we enjoy telling our friends about or latest conquest in the markets or draw comfort from commiserating with others regarding our most recent losing trade.
We trade because trading is the only business that allows us the opportunity to make money regardless of the events that go on around us. Granted we must be on the right side of those events – or at least not be on the wrong side for very long – in order to prosper. But that is a given. Unlike true gambling related endeavors, if we make a bad bet, we can with as much haste as possible, pull our bet off the table and wait for a better opportunity.
Many who consider themselves to be “red-blooded Americans” have an aversion to selling short. Too much risk, too much uncertainty, and doggone it we like it when things go up not down. And in a perfect world that would be great. If you dare take your hands from over your eyes and survey the current state of affairs the odds are good that you will conclude that this is presently not a perfect world.
But you see, this is why we trade.
When those things around us are good we can take a long position and
prosper. When those things around us head south we can sell short and do the same. Wait a minute. Doesn’t that make us “evil speculators?” Not by any sane definition. By any sane definition we are simply people who prefer to shape our own destinies rather than rely on others to do it for us. We are simply people who when faced with adversity would prefer to take responsibility rather than sit around and whine and complain that no one is bailing us out. People who trade are the true capitalists. And while some seem to be taking great glee in disparaging capitalism these days, the fact is that those people are fools.
Freedom – not only freedom to live as you choose but to make your own way in the world – is the single greatest “entitlement.” Slowly but surely this right seems to be slipping from our grasp. More and more the “powers that be” attempt to assert greater control over the everyday lives of others. And I am talking about politicians from both sides of the political spectrum. This more than anything explains the great unraveling that we are witnessing today. And we also must recognize our own culpability in all of this. Perhaps if we had looked up more often from our big screen TV’s and laptops and iPhones, we would not be where we are. But we are.
Which of course, is just one more reason why we trade.
Somewhere in the past two decades too many people came to the conclusion that because we now have high technology that we are somehow impervious to the economic cycle. So let me be the first to say, “Welcome back to reality.”
Still, this is why we trade.
Unless and until they close down the exchanges and simply have government set the price for everything, we have the opportunity to continue to live a decent lifestyle. Until the income tax approaches 100% (somewhere, some politician just read this and thought, “Why didn’t I think of that?”), we can take steps to continue to make money as other avenues dwindle. No politician is going to solve the current state of affairs. Only “the people” can do that. And this week some of those people actually stirred from their slumber.
The “Current Crisis” versus “Past Crises”
How this current market decline will work out in the end is a subject of great debate. I will spare you my “prediction”. I do so simply because if I lined up all of the predictions I have made over the years as well as all of the predictions that I have heard others make over the years it would start to look a lot like those endless miles of government red ink.
And this too, is why we trade.
By not being fully locked into the “buy and hold” mentality we retain the flexibility to take advantage of new opportunities as they arrive and to cut our risk significantly when things get too volatile and unstable. And if we trade with an eye towards minimizing risk, we find ourselves losing only a small amount even when we are spectacularly wrong in our market opinions.
Which – oddly, is a good thing.
Which is just one more reason why we trade.
Summary
Contrary to what you might expect me to say at this point, I believe that there is absolutely nothing wrong with investing a portion of your money using a long-term buy and hold approach. If for example, you want to put a portion of your income into a mutual fund or ETF and let it ride for the long-term, by all means go ahead. But also remember that if you do so with all of your money then your portfolio is essentially like a ship at sea without a rudder. As long as the wind and tides move in a favorable direction you may eventually reach your destination. But the fact remains that you are trusting outside forces to control your own destiny.
By taking the time to develop and/or learn a small handful of trading techniques, entry and exit techniques, position sizing, money management and risk control, you afford yourself the potential to stand at the wheel as the captain of your own ship charting your own course in even the most turbulent waters.
As I said, this is why we trade.
Jay Kaeppel
