Financial Tip of the Week #2 – Look out for money morons
This week’s financial tip comes to you from an inspirational conversation I had from someone at a July 4th party a couple weeks ago.
I was sitting at a table, sipping on a drink that was way too fruity for me to casually admit to people I don’t know, and the people around the table turned the conversation to finance. Seeing as that’s my area of study, and I spend way too much time a good amount of time blogging about it and reading up on it, I perked up my ears and followed the conversation.
Before I get into this, there are things you have to know about me.
- I take an academic’s view of finance, in that markets are highly efficient, you can’t trade better than a computer, and you’re sure as shit not going to pick stocks to beat the market.
- I’ve got a bullshit radar that makes me seem like a veritable Nostradamous.
- I’m above average intelligence, which means most people sit next to me aren’t as smart as me. WHICH IS NOT THE ONLY MEASURE OF VALUE IN A HUMAN! I’M JUST SAYING I’M BRIGHT.
So, with these in mind, you can imagine where my mind went when the person next to me goes off about what an amazing trader he/she is. Here are some “Facts” that were given during the conversation:
- This person has made $400,000 over the course of an 8 minute trade.
- This person trades over minutes, hours, days and months.
- This person had a margin call for $3.7 million dollars.
- This person has a “direct line” to Fidelity (a stock brokerage firm).
- This person seems to know EVERY financial instrument trader in the town where I was celebrating July 4th, a city with a population of roughly 1 million people.
- This person makes trades and expects them to be executed in 30 seconds. THIS PERSON CONSIDERED THIS TO BE “FAST”.
At this point, you can probably imagine that my radar is going off much like Beatrix Kiddo from Kill Bill, Vol. I and II. I was literally biting my tongue to keep my stupid fat mouth shut, because this was a family gathering and frankly I wasn’t about to spew hate on America’s birthday. But let’s go through why this person was spewing vast amounts of bullshit that wouldn’t come close to matching the monthly output of a McDonald’s cow farm (does McD’s even own their own farms? I digress…)
- I’ve traded in the past. I’ve traded A LOT in the past. And let me tell you, it’s REALLY easy to brag about the big wins you’ve had. But it’s tough to bring up the losses. It’s possible (though doubtable) that this guy actually made $400,000 in one trade. But I guarantee you that it was bookended with trades that were so far in the red they could be from the 1985 USSR.
- I’ve never read about any trader that was successful, over time, with such wide swings in periods. You either scalp, or swing trade, or invest. I can’t imagine having all those trades going at once.
- A MARGIN CALL FOR $3.7 MILLION? AND HE COVERED IT? How in the HELL do you make a mistake that bad, and then claim to cover it?
- Oh, you’re SUCH an amazing trader that you have a direct line to Fidelity? Let’s call it out for what it is: they make money when you trade, regardless of whether you end up winning or losing that trade. Of course they’ll let you think that. Derp.
- This person was name dropping worse than a staffer social in Washington, D.C. There’s no way one person knows 100 different people and can cite biographical information about each one of them at the drop of a hat.
- Anyone that knows ANYTHING about trading can tell you that there are computers that are way smarter than you, designed by people way smarter than you, on the other end of every other trade you make. You might beat them once, maybe even twice, but you’re sure as shit not going to make a living out-trading computers. Sorry.
So, when at family gatherings, work socials, or hanging out with your best friend bubba down by the creek, be sure to be wary of those who possess magical powers and abilities with money. More often then not, you’ll disappointed and find a very pathetic man/woman behind a VERY obvious curtain.
Keep trying to crack the code,
Paul AndrewsFollow me on social media!