Do Not Be a Gambler. Be a Trader.
On Thursday, April 23, 2020, at around 4:15 pm ET, my phone rang and I saw a California number on it. I picked up the phone, thinking that maybe one of my family members who lives in the state was calling me. No, it was the friend of a friend. My friend, who lives in L.A., had introduced us a few nights earlier because this person wanted to get some trade ideas from me. He had an account of around $400,000 USD and he’d been entering and exiting positions without much of a plan. He was doing some day trading, he was doing some swing trading, he was doing a little of this and a little of that. And all without a plan. Yikes!
In our first chat, I was terrified by what he told me and how uninformed he was. He showed a pure gambler’s mentality with absolutely no trade plan or risk management in place. The platform of his broker, Ally Invest, is not a direct-access one, and his orders had been getting filled with a time delay and at random prices. I was concerned, but he did not seem to mind my concerns at all. He was primarily looking for the
next big idea that would make him rich, and he was incorrectly thinking that I might have some hot bit of insider information on a stock!
As I answered his call, he anxiously asked me what I thought about Intel Corporation (ticker: INTC). I looked at my platform, and saw that INTC had reported earnings and was down, trading at $57, -7% after hours. He was desperate, he was long, and with the use of margin he was holding a position worth $1.2M. He asked me, “Intel is a good company, yes? It will come back up, yes? I am down $80,000, what should I do?
” I asked him what his original game plan was. He advised me that he did not have one. He thought Intel must be a good company so he decided to gamble on it. That was his plan!
I did not know what to tell him. Everything looked bearish on INTC’s chart. The market was weak. We were in a global pandemic bear market. I told him that I really did not know what was best for him to do. It was not that I did not want to help him, I honestly did not know how to help him get out of the mess. If I had told him to accept the $80,000 loss and come out post market, what if the next day the stock bounced? What if I had told him “no
”, wait on it, and then INTC traded even lower the next day? I honestly didn’t have any advice for him.
The next day, INTC’s stock recovered some of those after-hours losses. I messaged him to ask how he was doing. He said that his broker liquidated half of his position, and he came out of the trade with a $20,000 loss. He blamed the broker! He did not realize that the
problem was not the broker but his own mindless, “strategy-less” gamble.
These stories are quite common. I hear them all of the time, and every month at least three or four emails that I receive are about these types of situations. A good example is from March 27, 2020. A person in Singapore emailed me that day. She was short the market and had got stuck in a rally that had occurred around March 26, 2020. She was down $20,000 on a $57,000 account. She was planning to add another $50,000 to double her position. She had no idea what she was doing, and she was trading from a mobile app.
I did not know what to tell her about her specific predicament but there is one very important rule I always share: do not average down; do not send good money after bad.
Trading attracts people who are the most prone to gambling. That is why it has such a high failure rate. It is not that the game is rigged against you (which to be fair, perhaps there is some truth to that, just a bit though). Trading has such a high failure rate quite simply because people who should not trade, trade.
Gamblers are doomed to lose in the stock market; nothing will save them in this game. Aside from war, I sincerely believe that trading is the most dangerous human endeavor possible. It truly is the most self-destructive activity you will ever see.
To end this section on a much more positive note, being part of an accountability group is a great way to
keep yourself accountable and in line. Even if you are not part of an online community, make sure to have a mastermind group of people supporting you. Talk with your mentors and be open to their ideas, especially when you find yourself doing things in the market that you know you shouldn’t be. As I wrote in Chapter 9, self-confidence is great, but self-awareness is more important.