Investing demands that you be aware of what is on the stock market’s fashion plate. What is in vogue, so to speak, and what is not. You don’t need to transform yourself into some sort of “fashionista” but, at a minimum, you must pick a side and know which side you’ve picked.
In the most simplistic terms, the investor’s universe is split into two camps: fundamentalists and technicians; right brain and left brain; stuff we like to trade versus stuff we don’t like to trade; and so on in endless progressions. The philosopher Buddha said, “We are shaped by our thoughts. We become what we think.” With deep respect for this religion, I would add my own embellishment that we trade our own beliefs.
Having said that, it’s been interesting to go back over my journals and realize that a number of similar key dichotomies exist which must be acknowledged and understood. Polar opposites, if you’ll forgive the pun. A number of these have recurred over decades, and my beliefs about each one at a particular time had a profound influence on my trading at that moment. I think the challenge is twofold. One is to recognize that these “pairs” actually exist in our personal trading. The second is to appreciate which way you are leaning – or should be leaning – within today’s markets.
In essence, it’s like acknowledging your split personality. It’s one thing to get confused between word pairs like draft (air current) versus draught (fresh beer served from a cask). So you catch a cold standing by the door at the pub – so what! If you fail to acknowledge and itemize personal dichotomies in your trading and then don’t adjust your beliefs to reflect market realities, the consequences are more dire than catching a cold or drinking too much.
As I said earlier, the first step is to recognize what these pairings might be in your trading. Yes, this is an overt sales pitch to keep a personal trading journal. I know of no better way to unearth your beliefs. Once you have accomplished this, you must be brutally honest with yourself and ask if you are leaning in the right direction for the present market. Let me give you a few examples from my own journal:
- Bullish / Bearish: I lean naturally to trading the bullish side of the market, but there have been times when I’ve had to consciously lean the other way.
- Methodology / Intuition: I am relatively disciplined in my trading methodology, but in the past I’ve had periods of profitability that have been driven more by my intuition than by my methodology.
- Strength / Weakness: Once again, I tend to trade strengthening equities, although in a number of past markets, I’ve leaned the other way to buy weakness and have done very nicely – thank you!
- Intermediate Term / Short Term: I’m a position trader and will generally hold equities for weeks to months. But when the market presents certain short term opportunities, I will lean the other way temporarily.
The bottom line is that trading has built into it a requirement for personal insight, brutal honesty and an ability to change – all driven by the present market conditions. As John Templeton once advised, “Work at being humble.”
Trade well; trade with discipline!
-- Gatis Roze
