Cold … Hard … CASH

Posted on May 5 2015 - 9:30am by Sharpe Trade

It has been 18 years since I started trading. It will soon be 19 years. And I’ve learned a few things in that time.

The market is out to kill me.

That’s it’s job.  It is an auction.  And people are not ‘friends and buddies’ in an auction.  It doesn’t matter if it’s a stock market, or a car auction.  Each participants entire goal is for their own monetary reward.  Not the other persons.

Keep that in mind.  The market … is an auction.  

Buyers. Sellers. Market making. A price is agreed upon for that split second. Then other buyers. Other sellers. More market making. A price is agreed upon. Still more buyers. Still more sellers. Even moreAuction market making. And another price is agreed upon for that brief moment in time.

Rinse.

Repeat.

It is an auction filled with people who think they are smarter than me. Some of them are smarter than I am. It is an auction of people filled with people who are looking to gain experience and put a few years behind them. And some of them have been in the markets longer.  It is an auction of individuals and institutions.  Some of which have reams of well-educated teams, analyzing more data in a day, than I can possibly read in a month. It is an auction, to which everyone has showed up with more money literally my mind is capable of conceiving of; and could decimate me.

For years, when I first started, I made all of the newbie mistakes. One could even say that I was a victim of the Dunning–Kruger effect (more on that in another entry). So it was worse than actually making newbie mistakes. I actually thought I was ‘hot stuff’.  

Things began to turn a corner when I realized …

Oh wait a minute … after some time, my account is supposed to be going up!  Huh.   I’m not supposed to be dumping more and more money into an account, because I’m addicted to getting into the next trade, like a crack addict seeking a fix!

So I decided to sit back and think about how I had performed.

And the answer was that I didn’t know.  That … in and of itself … was an eye-opening revelation.

I couldn’t have told you how I did. No idea as to my performance. Oh, sure, I could have told you about that one ‘great trade’ I had ‘that one time’. What I think might be another ‘fantastic trade’. I could have rattled on and on, about all of the stochastics, and indicators and support and resistance and ‘mood’ of a market. But in truth I really didn’t have one idea what I was doing.  Not really. Because the whole point of investing? Was that after some time, my account was supposed to be going up.

Things turned a corner, when I began to look at low-effort, safe ways to make sure the money that I did have left … grew.

In 2002, I started, at almost the perfect time when one looks at the markets as sheer dumb luck would have it … at the power of dividends.

I began to realize that I could turn to stable instruments and receive regular cash payments.

Oh wait a minute … that means that my account could grow with cash deposits!  Instead of losses!

What a novel concept!

Oh, I made all the same mistakes other people do, when they turn to dividends.  I looked for the highest yield, rather than compounding stable yield.  There were other mistakes. But a lot turned the corner for me that year when I realized the entire name of the game was to make money. Last month was a lean month around these parts for dividend payments.  It’s just the way my own personal payment calendar has worked out.  Not a lot came in to the till’.  May looks to be a much better month with more dividend payments scheduled.

We’ve had a flacid market here as of late.  European indices are flying higher, as the market is barely up 3% here in the States.

And during time periods like this, it’s nice to see those regular dividend payments rolling in.

Cold … hard … cash.

2 Comments so far. Feel free to join this conversation.

  1. NewLife May 5, 2015 at 10:35 am - Reply

    Newbie mistakes. I’m guilty of still making them far too frequently. Exactly like you described.

    You’re right about dividends,too. Looking back at all my mistakes, it’s great to see that getting paid a couple hundred bucks here and there on my longer term holdings at least paid for a good chunk of commissions. With all my mistakes, I was actually up 1.5% at the end of last year mostly due to those dividends, actually! When people who know I trade ask how I’m doing, I often tell them, “this won’t sound impressive to you, but having not lost a lot of money knowing the mistakes I’ve made, I feel I’m doing pretty well.”

    I’m still in the game.

  2. Dan Shy May 5, 2015 at 10:43 am - Reply

    That IS pretty good. Don’t take a thing away from that. First few years I started … I did .. I think … losses to the tune of $15,000.00

    And as investing is a perpetual game, that doesn’t stop? If you were to compare my beginning years, and your beginning years? You are _CLOCKING_ me. Of course … I have a few years since then. 🙂 But still, comparing time periods … don’t take a thing away from yourself.

    it’s one of the most difficult lessons for me to impart to other people

    DONT LOSE MONEY

    :).

    if an investor doesn’t lose money. Say like my year in 2013, I did what? 4%? Then the 20% on top of that the year after that … 24% … then if I drawdown, I’m drawing down from 24%. I recoup, and move forward.

    It’s so difficult to impart that lesson of not losing money, because people just see a six month performance, and that’s it. They fail to realize that if an investor is up 235% for his entire career, then if he draws down 8% in a six month period … if he goes defensive, it’s not really that big of a deal.

    D

Leave A Response