The Zen and Tiger
Trading Method
How it all began
In 2008 I
was a successful translator dreaming about early retirement. I lived in an ocean-side townhouse with a large pool, drove a Mercedes and sailed
a 39-foot sailboat. I was debt free and had about forty thousand euros in the
bank.
That's the
year the global financial crisis swept over the industrialized landscape like cold thick
fog. At that time, I was a mere spectator and not too alarmed, like most people living in small countries where palm trees grow. I was an overworked freelance translator
who had made a name for myself and my wife was a school teacher, a civil
servant with a decent income. What could possibly go wrong?
Undisciplined
Thinking
I had never
bought or even considered buying stocks. Not that I was
adverse to investing or to taking risks, I was simply more attracted to
real estate. I had already bought and sold three properties that had
contributed substantially to my lifestyle. However, making money in real estate
in 2008 would be paramount to flogging a dead horse, and I knew it all too well.
Real estate was dead, but here was a golden opportunity knocking at my door in the form of cheap shares. What a lucky guy I am, I thought. Shares
were freefalling as fast as panicky stockholders were running for cover. The herd mentality had
taken over and the erratic stampede was raising a huge cloud of dust.
At the
time it made sense to believe that stocks would fall only so low, specially bank stocks, much like the notion that housing could only climb so high. I was a firm believer in a linear
cost/benefit law. I was dead wrong!
Having obtained
a degree in philosophy and having dabbled in psychology, sociology and political
science, I fell under the illusion that I could think through a problem from an
abstract perspective. I built up this false confidence from my successful real
estate ventures. I neglected the fact that the housing market is so easy to predict with reasonable
accuracy, when compared with the stock market, that it’s almost child’s play.
If stocks
were dirt cheap, it was time to buy. I happily transformed my 40K into a portfolio spread
out over utilities, banking, industry and technology. A few months later, I was
feeling smug and smart sitting by the pool having a sundowner watching my shares
inching their way up the chart and telling my wife how much money I had
made on that particular day. That was the life - making money for free; early retirement was now
just around the corner.
The Disaster
My short-lived
success was what I’ve now come to recognize as a rebound, nothing more. I had bought shares at a fraction of their
peak value, patted myself on the back when they rose on a minor rebound and then watched in
great dismay as my 40K quickly dwindled to about 20k in a little over a year.
Losing 20K is
not the end of the world, but it was definitively a blow to my self esteem. Psychologists
say that trading can have the same perverse effects as gambling. They say that
addicted gamblers are obsessed with recouping their losses and, to a lesser
degree, in urgent need of the emotional high that comes from being dealt a winning
hand, even if they lose three times for every time they win.
I say this
because when I got over the dismay, I vowed to recoup my losses and even start
making some money. At the same time I was well aware of the risk I was running if
I allowed emotions to lead me straight to the shipwrecked future
of so many gamblers.
To prevent that
sort of disaster, I sat down and began writing what I entitled “The Golden Rules
for Successful Trading.” I didn’t just pick these rules out of a hat; after
all, that kind of stupidity is what led to my initial 20K loss.
I was
pissed and ready for a fight. If I could decipher Kant’s “Critique of Pure
Reason” back in my university days, I could surely crack this nut. I donned my
rusty academic cap and got down to work. I had no interest in buying “how to”
books simply because I had already learned the most important lesson: the
market is a dynamic ever-changing force that must be understood intimately.
Perhaps it’s
not that simple. What I can tell you is that I wanted to create a new paradigm
rather than get bogged down in what everybody else was already doing. I wanted
to see the market from a fresh and clear perspective. I don’t doubt the “how to”
books have something useful to teach, but to me that seemed like learning to
walk by reading about it. That’s a poor analogy, I know, but that’s what I felt
and it paid off.
For months
I studied the market and, just as important, took notes about news articles
and, in particular, about opinions by the so-called experts and corporate
executives. I was shooting for an A+ grade and nothing less would do.
The Shocking Truth
You may
already know about the shocking truth, but I didn’t. I knew about the real
estate market spin, but that’s child’s play compared with the finely oiled
machine running the stock market.
The stock
market is structured like a knowledge pyramid:
·
At
the bottom we find independent investors, the small fish, like me, who depend
mostly on the media and financial reports for information;
·
Next,
there’s the media made up of three basic types of journalists: Experts who are
extremely dangerous because they’re selling an angle; Mouthpieces who are less
harmful because they’re mostly repeating what the experts said; and twits who have
nothing to say except reporting the day’s or week’s gains and losses.
·
Higher
up, we have politicians, famous economists and analysts, rating companies and
other highly toxic movers. Just in case you didn’t know, the world’s largest
investment bank Lehman Brothers was rated as healthy not long before it
collapsed. Wonderful.
·
Lastly,
at the pinnacle we have large shareholders, CEOs, CFOs and other ego maniacs who
will do pretty much anything to amass more wealth and power, including telling
the biggest lies in the world.
Rising Above the Clutter
If you’re
reading this book you’ve probably read or heard plenty of headlines that go
something like this:
In the summer of 2012: “analysts are issuing upbeat predictions, with at least two saying
Apple will top $1,000….based on forecast Christmas orders.” (shares go up);
Two months later: “Apple is facing increasingly fiercer competition from a number of
rivals threatening its forecast sales growth….we must keep in mind that iPhone and iPad sales are
Apple’s largest source of revenue and profit.” (shares
fall);
Here we
have a perfect example of analysts proving that they’re either a pack of dummies
or a bunch of liars. You decide, either way it makes little difference. Nevertheless,
this is just one of the many excellent scenarios for making money…or losing it,
if you don’t follow the golden rules.
Although we’re
still in the introductory stage, I now feel compelled to give you a peek at the
first Golden Rule: all deceitful politicians, reporters, analysts, economists,
rating companies, CEOs, etc. are, in most cases, your best allies.
Yup, you
heard me right. It’s a fact. Once you’ve become acclimatized to media clutter,
once you’ve learned to listen to double-talk, once you’ve learned to assess the
impact of news reports, once you’ve learned to compare reality with the circus
show, once you've learned to interpret the clutter to your advantage you’ll have taken your first step toward The Zen and Tiger Trading
Method.
I know what
you’re thinking: “that name is really kitsch and just plain stupid.” Modesty
aside, I think it’s the greatest title ever given to a book about trading.
Hopefully, you’ll agree with me by the time you finish the book; ideally, by
the time you finish the next two paragraphs.
Zen can
have a lot of meanings depending on who you ask and on whether they’re drinking
tea or beer when you ask them. For our purposes,
let’s just simplify Zen by saying that it’s attaining “absorption” or a “meditative state.” If you don’t learn to absorb information and
to serenely and unemotionally meditate over that information, you may as well
stop reading right now. If you do keep reading, we’ll look at this crucial
aspect in greater detail further on.
What do
tigers and traders have in common? They stalk their prey and strike at the perfect
moment; any other time will lead to failure and wasted energy. Either way, a
high failure rate will lead to a starving tiger and a broke trader. You may
have absorbed and meditated over all the vital information only to strike out
by failing to buy or sell at the right time. Timing is everything. All the
golden rules will be useless if you hum and haw rather than push that buy or
sell button. It’s that simple.
