Don't Let an Opinion Knock You Out of a Trade
The first rule I was taught when I became a floor trader was to shut my mouth and keep my ears open. There was more to be learned by listening than by asking questions.
Looking back through my experience of more than three decades, I must say it ranks up there in the top three pieces of advice I ever received.
During my time on the floor and in the early part of my career, I observed how great traders became really great.
Most, if not all, had about average intelligence.
In fact, everything about them was average — their clothes, cars, houses... you name it.
You would never have known you were around a person that pulled down seven-figure gains each year unless you were told.
However, when they got into a trade, they were anything but average — they were laser focused.
They spent many hours thinking through every probability of what could go wrong, and only after thinking it through would they execute the trade.
I observed how these great traders were able to concentrate and stay on point... once they made up their minds, nothing could sway them from their positions.
In fact, the most at peace I ever saw them was after they entered the trade.
They would often joke around, take long lunches, and walk around the traders’ lounge without a care in the world.
You see, by that point, the success of the trade was already a done deal. They spent all their time doing their homework and concluded that whatever they bought, barring some major catastrophe, was money good.
One of these traders took me under his wing and became my mentor. He let me hang around him and watch how he went about sizing up a trade.
I remembered that first rule: I kept my ears open and mouth shut.
One morning I arrived early to the trading floor and saw my mentor talking with a few other traders. I quickly walked over to him and asked if I could have a word in private.
The previous day I had watched him get into a big position based on the short-term direction of interest rates.
If the position went his way, my mentor would stand to make at least $500,000 (which was a lot of money back in 1983). If not, he would be in the hole for at least half of that... $250,000.
I told him how I had just heard on the radio that Salomon Brothers’ head of research, Henry Kaufman, a.k.a. Dr. Doom, had just predicted that over the next few weeks, interest rates were going to go in the opposite direction of his trade.
Back in the day, Kaufman’s words could move markets, and his statements would be printed up in every media outlet. So this was big news.
After I told him, instead of the blood draining from his face or panic taking over every fiber of his body (which is how I would’ve reacted), he just smiled.
He told me to relax because this trade is like money in the bank.
“But what about Dr. Doom’s forecast?” I asked.
He just shrugged and said, “Everyone’s entitled to their opinion... but I’m not going to let someone else’s opinion knock me out of my own trade.”
For the next few weeks, I watched how this trade progressed. After a blip down due to Kaufman’s remarks, the market stabilized and started to go in my mentor’s direction.
Two months later, he unwound the trade and pocketed more than $750,000 in profits. I remember that number very clearly because he told me that was the biggest gain he had ever made.
The thing I learned that day was to stick to your own research and analysis, and not listen to what others have to say.
In fact, the great traders I have met throughout my life... almost every person... never traded or made a major investment based on someone else’s forecast.
The next time you hear a guru forecast the future, keep in mind what Warren Buffett had to say: “Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future.”
All my best, Charles Mizrahi Twitter: @IWPeditor Charles cut his chops on the trading floor of the New York Futures Exchange before moving on to become a wildly successful money manager on Wall Street. And with more than 35 years of recommending stocks under his belt, Charles has knocked the cover off the ball, compiling an amazing record of success and posting gain after gain for his loyal readers. He is the editor of Park Avenue Investment Club and the Insider Alert newsletters. Charles is also the author of the highly acclaimed book, Getting Started in Value Investing.
All my best,
Charles cut his chops on the trading floor of the New York Futures Exchange before moving on to become a wildly successful money manager on Wall Street.
And with more than 35 years of recommending stocks under his belt, Charles has knocked the cover off the ball, compiling an amazing record of success and posting gain after gain for his loyal readers. He is the editor of Park Avenue Investment Club and the Insider Alert newsletters.
Charles is also the author of the highly acclaimed book, Getting Started in Value Investing.