Wednesday Wrap: Tough Love

courtesy Carl Richards (@behaviorgap)

courtesy Carl Richards (@behaviorgap)


The wild ride in speculative corners of the market continued today as cashtaggers placed their bets on whether or not we’ve seen a short term top in some of the highest fliers of recent days.

Meanwhile, some very smart people in the StockTwits blogosphere have been weighing in on the madness and the unlucky souls getting caught in the crossfire.

Howard Lindzon (@howardlindzon) put up a blog piece last night that has many people nodding their heads in agreement. Here is a snippet where he stresses personal accountability:

There is no such thing as a pump and dump and the government is not smart enough to steal from the dumbest person in America. No one puts a gun to your head to buy a stock that’s already up 800 percent or 1 percent. You are the ‘Fat Finger’.

If you can’t understand the catalyst that will move an investment in your favor, you are the catalyst of someone else’s profit. Even if you understand the catalyst, you will be wrong and must have a plan.

Wall Street is pretty good about cleaning up the ill prepared.

At times when individual stocks are moving far outside their normal standard deviations of volatility, risk management becomes Job #1. At times like this, only one person can manage your risk for you –> YOU.

Kid Dynamite (@KidDynamiteBlog) further tackles those blaming “manipulation,” “HFT algos,” “short sellers,” etc with this nugget:

Although I disagree slightly that Wall Street isn’t a game: stocks like $PLUG in the last few weeks are indeed a game: it’s a poker game of fear and greed – a video game played for real money. Of course, human psychology is hard to evaluate perfectly: it’s hard to tell when that greed will turn to fear and the trend will reverse. No one said it was easy.

Own your mistakes. Learn from them. In the words of Joey Knish from Rounders: “I’m giving you the playbook I put together off my own bad beats.“

Instead of blaming losses on “bad luck,” when done right luck rewards the well prepared. Friend of StockTwits, Carl Richards (@behaviorgap) does a deep dive into luck and its weight in our performance and self-image:

What sets off the lucky fool syndrome? Psychologists call it the self-attribution bias. It means we’re inclined to take all the credit for things going well, but we have no problem blaming outside forces when things go wrong. On top of our bias, we have a very difficult time separating skill from luck.

Take some time to read through these three excellent blog posts this evening as you plan your attack for the rest of the week/month/year. The time invested in absorbing these messages may indeed be the best investment you make all year!

Wall Street and Casinos: Are They Similar? (howardlindzon.com)

Trading Rule #9 — Blame Is For Losers (Kid Dynamite’s World)

Avoiding ‘Lucky Fool Syndrome’ (Behavior Gap)

Trade ‘em well!
~ Sean McLaughlin (@chicagosean)


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