Trading Lessons from a Reformed Idiot

Have you ever done something so stupid that you really never wanted to discuss it again… ever… ever, ever, ever?

I’ve previously discussed some random lessons learnt so far. Today I have a shameful story to share with you, and its roots are in a dark, dank and rotten place… no, not parliament. Let me explain.

When I was younger, better looking and a little wild-eyed I took a few thousand pounds (currency not TNT) and, after some thorough analytical research, which resulted in quite a few stupidly late nights, I proceeded to turn my little pot of savings into over £100,000 in a little over a year.

I did it by trading crude oil options. All of this was intelligent, well-thought-out, well-researched and as such I will gladly take full credit for it. It also took an extraordinary amount of time and a sprinkling of stress to manage what were a collection of trades. Thankfully, I wasn’t trading futures, which are inherently more stressful.

What I wanted to talk about today was what I did AFTER it dawned on me how smart I was. Yes, indeed I was better, smarter and more super-human than Superman. I could literally create money out of thin air. Look, see it’s easy. I just did it.

My head swam with ideas of greed and self-importance. Just imagine if I had placed £10,000 pounds, or £50,000! I might never have to work another day in my life.

My calling was clearly towards trading or central banking, although central banking is far easier as it takes no special talent to create money out of thin air.

I was clearly a gift to humanity, and beautiful women everywhere should now want to engage in senseless love-making with me. Actually if I’m going to be honest with you, I didn’t give a fig about humanity. What can I say I was 21.

I also never told a soul about my success. Heck, I was living in what amounted to a long-stay backpacker accomodation. What was I going to say to my roommates? Hey buddy, how was your shift pulling pints at the pub? By the way, I just made a hundred thousand big ones… I myself was still somewhat shocked.

I made a number of somewhat more “careless” trades and investments over the course of the next two years, which wiped out any remnants of the money I’d made in that trade. From super-human, to super broke!

Suffice is to say, I thoroughly regret those two years. I’d rather sit through a root canal or have testicular surgery than repeat this. I was a total idiot.

To put this into context, this little episode took place at the same time that I had begun buying gold as a safe haven store of wealth. I could see that the masters of the universe were gearing up to destroy our monetary system and had begun acting accordingly, albeit with meager capital.

That same amount of money which I lost would today be worth over $1M if I had simply bought gold with it. So I have regrets, but regrets don’t serve me particularly well. Instead there are a some lessons to be had from my folly.

Lesson 1: major trends in motion are something that can make you rich just by getting on board and holding for the duration.

My fundamental analysis was entirely correct, and if I had continued to use a fundamental approach (something I’ve found I’m good at) rather than trying every silly little trading trick, or following every little technical pattern to determine what to do, I would never have lost that first little pot of money.

Lesson 2: Focus on what you’re good at.

In my case, I’m not a particularly good technical trader. It stems from the fact that I’m far more interested in fundamental analysis. It’s not that one is better than the other.  Clearly there are investors who excel in both camps.

Lesson 3:  Trading and managing trades is very time consuming, and can be quite stressful.

As such, I no longer trade in this fashion. It is one reason why I prefer buying LEAPS in the options market as opposed to having to manage short term-trades where greater day-to-day attention is required. Where this is not possible, either due to liquidity or pricing, I stay out of the market altogether, or in rare situations I find a very adept trader to manage the trade for me.

Lesson 4: Coming right back to my comment at the beginning of this article about management; whether it be buying a stake in a listed company, participating in a private placement, or placing my capital with a fund manager or trader, it is vitally important to know what you’re doing and why you’re doing it. Have a plan.

– Chris

“If I look at the next five to ten years, the interest payments on the government debt in Japan and the fiscal deficits will become very burdensome, and that will necessitate monetization,” – Dr. Marc Faber


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