The Boatist

Sailboat Ownership, Translation Work and Tales of Minor Adventure

Retire early, be passionate, don't worry, die poor

Wednesday, December 19, 2012

The Zen and Tiger Trading Method


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.

 



 

3 comments:

  1. ...and the beast has woken from it's hibernation...
    Go, Horacio, go! Write, write, write! That's why I got hooked to your blog... cause your a writer.
    As for stocks... I made a pseudo portfolio a few years back (thought lithium ion batteries would be the oil of the future) only to see to my fav stock disappear (ener1). So I bought a pad with a loan and now I cant sell it anywhere close to what I bought it for (loosing most of my down payment) and am getting taxed to hell for it. In fear of loosing the rest of my savings (getting kicked out of the euro, back to the drachma worth crap), I spent it on a sailboat! And will probably get taxed up the yinyang for that too. Plus my salary is getting chumped.
    To conclude... write the dang book quick!!!! I need all the help I can get (lol)
    Cheers!

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  2. Whoops! I already told you all this in the making money for free post. 'Gotta get over it.

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  3. Oh come on now Pete, somebody hand me a napkin, I'm drooling from the compliments.
    Well my friend, a lot of people went to take a poo behind the bush where a rattle snake called globalization was having a siesta. You see, I didn't get around to the part about how I bought another house (well, I sort of borrowed it from the bank) and now I'm on the chaingang doing my time and carrying two houses.
    Hang in there, things will get better before they get worse.

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