StrategyTrading1

Having discovered that Mutual Funds were just too boring for me, I went to Charles Schwab & Co. and opened two accounts. I rolled over my money from the funds to a Schwab IRA, and opened a second, margin account, and funded it with a few thousand dollars that I really couldn’t afford to lose.

I was confident that I possessed the skills to “beat the market” and, for that matter, beat the fund managers who had  previously been handling my money. Confidence, like faith, can be based on wishful thinking as well as fact. To this day I remain confident, proved by years of trading experience, but also tempered by experiences that give me caution, experiences that remind me that over-confidence can lead to recklessness and large losses. Am I talking about you, too?

When I first opened the Schwab accounts at my local branch, there was no Internet, Jimmy Carter was The President, and interest rates were in a Bull Market, along with precious metals prices. It was an interesting time to jump into the market, but upon reflection, when is it NOT been an interesting time to be in the market?

The plush Schwab office contained a number of comfortable chairs, counters for writing up orders, and monitors with the market scrolling by, trade by trade. I learned that this was the ticker tape, now become electronic, and it was not only fascinating, but almost riveting.

I wasn’t the only one who thought so. Seated in the chairs and milling around were a group of mostly retired men, I fondly call them The Schwab Mob. There was a core group who seemed to live there, and others, such as myself, who floated in from time to time.

But, we all had one thing in common - a fascination and love, or hate, for the market.

I learned to sit with the Mob, and read the tape -” tape reading”, as it is called. I learned the stock symbols and the volume shortcut symbols, and I began to get a “feeling” for the tape. I read up on how to “tape read” and began to make simulated mental trades. One quickly learns that these patterns of price and volume movement can and do have a “mind of their own” .

I found out that I was much more interested in this numerical challenge than reading lengthy and boring financial statements. And I came to the bizarre conclusion that I would rather own a stock that was going up than a stock whose product I understood. Many years later a book by the guru Peter Lynch proposed an opposite strategy, that one ought to first understand the company then buy the stock. I became somewhat skeptical of this approach, used by 99% of all stock investors as the basis of their buying and selling decisions, when I found that the companies that I loved the most had stocks that seemed to go down, and ones I had never heard of, were the ones going up.

There was one “Mob” member, whose name I have forgotten, who, so “they” told me, only bought stocks, but never sold them. He appeared to be in his 70’s, and seldom spoke. It was said of him that he was very rich, precisely because he never sold any stocks, that this strategy was the secret to his wealth, and that we could all learn something from him. Apparently, he had the patience of a mighty tree, still standing after years of big storms.

The more I thought about this “no sell” strategy, the more I realized that one would have to make a very careful buy decision, knowing that the stock to be purchased would be one’s companion for life. In later years, Warren Buffett embraced a similar philosophy.

For me, however, I just didn’t have the patience, and couldn’t take the dips and drops that any stock inevitably takes. I found out that the higher a stock soared, the more inclined I and almost everyone else was, to buy more of it, and at the very peak of the price wave, the news about the stock was always great, the financial reports a beautiful thing to behold, the volume strong, the price action a joy to watch, and it was at this precise moment in time that the stock began to drop, along with the wealth of everyone who bought it, and the drop picked up steam until almost everyone who had any sense sold it, except for a few brave or clueless soles, who may or may not have done the right thing.

My afternoons at Schwab taught me many lessons. It was the beginning of a long road of learning and discovery. And, it lead me to the conclusion, included in the header of this site, that “It all seems easy when you’re making money.” I learned that real lessons, real knowledge and real progress come, not when things are going well, but when a large trap door opens under you and you fall head, or tail first into it, and you never saw it coming.