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Regret

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Several Minyans have expressed regret at having missed the 26% move in the market over the last nine months (I have allowed for not picking the exact low). If this is how you feel, I respectfully recommend that you shouldn't be trading (Mr. Practical has recommended not trading at all no matter what).

I say that you shouldn't be trading first from a psychological point of view. A trader must have the mindset of not looking back, but looking forward. This does not mean that she shouldn't use historical data, nor use past performance (losses and gains) in deciding how much risk to assume going forward. This means that regret is an emotion (like all emotions in trading) that is more than useless, it is counter-productive. Emotions cause mistakes and one mistake could erase several right decisions.

Secondly, this mindset illustrates a complete lack of understanding of trading. Trading is about risk. If someone said to you that the market has a 50% probability of being up 25% and a 50% probability of being down 50% over the next six months, would you go long? Those that went long near the market lows, first are few in number: by definition the masses do not participate in market moves. Second, they took a certain degree of risk that was perhaps imprudent; looking back ignores this point.

Timing is important, but it is important for investing not trading. When markets get extremely undervalued (which it wasn't on the lows using normal measurements), some cash can and should be allocated to equities. When markets are overvalued, cash (or bonds) should be increased relative to equities.

Some may disagree, but I believe Minyanville is not about "trading" the market, but about education. I am a trader, but I trade completely differently than most others. I believe I have an edge; if I didn't I wouldn't be trading. I use my trading examples to help others understand risk and apply it personally to their situation.

If you are a trader and it helps, great; if you are not a trader, I believe that these things can apply to investing and saving.



No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

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