For most of my life, I traded the news.
Actually, my wife did the trading and I gave her my brilliant insights about what we might want to trade. She’s a buy-and-hold investor, otherwise known as a “buy-and-hope” investor.** Every once in awhile, maybe every year or so, I would have some “fabulous” idea of something to buy. Usually because I’d read about something in the Economist or connected two things that aren’t super obvious. Hardly a great investment plan.
Fast forward to the future. I read Tim Ferriss’ blog a lot. He’s an ardent advocate of hacking your life to get more out of it. Unlike me though, he’s got lots of money, very little time, and needs to leverage his time. I have less money, more time, and less real need to hack my life. I remain ever hopeful though that I’ll need those skills soon.
Tim suggests books by other authors from time to time. One book that sounded interesting was What I learned Losing a Million Dollars, by Brendan Moynihan. The story of Brendan’s early hubris in the commodities markets makes for a fun tale (at his expense). But the trading advice can be summed up very simply. Spoiler alert: don’t bet the farm, let your winners run, and cut your losses early. My wife and I had been doing two of those three things. The whole “cut your losses though,” that was a new one. I mean it made total sense to ME, but I only get 48% of the voting rights.
Now fast forward to the height of the Ebola panic. CNN’s website lists a number of pharmaceutical companies with promising drugs. “Investment Bonanza!” I shout (to myself, in my head, where no one can hear me). I get permission from the wife to invest in one of these companies. The stock is up, the product sounds promising, and I can use one of these new-fangled “trailing stops” I’ve just heard about to keep me from getting screwed.
One of the patients died who was being treated with this experimental drug. The stock takes a nose-dive, and my trailing stop kicks in and we lose a little money, but not that much. Hey at least I was on the right side of the ethnical equation. I was betting the guy would live, as well as hoping to make money! It would have been just a little horrible to short the stock in case he didn’t make it.
That experience made me want to find out more about investing. I went from “news” trading to fundamentals trading to technical analysis…well ok I pretty much looked at TA for about five minutes and yelled “BS!” and moved on. It looks too much like reading tea leaves and palm reading.
Rules-based trading, with hard numbers and out-of-sample testing is very important to me. I consider myself a “quant-a-be”. I’m not a real “quant” because everything I know is self-taught, and I’m just never going to go back to college for four years of a statistics degree (or whatever those people major in).
Sometimes at night I even dream about bar charts. That’s a little weird.
But hey, I have some good ideas from time to time. Even without the fancy financial pedigree. Which is why I call this blog “throwing good money after bad”.
** She’s coming around though, and we’ve parted with some real dogs and even some profitable long-term trades after they dropped below thresholds. Progress!