Random Thoughts: The Legend of Eddie Mush
The trading gods aren't known for their humor.
Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter.
Get in the Ice Box!
--Sonny LoSpecchio, A Bronx Tale
It's a tweener day for yours truly: After spending yesterday moving the kids into our new home-a dream that took 43 years to come true-and before heading into tonight's midnight flight to Iceland (for my bachelor party), I've got a Hump Day stacked with all sorts of good stuff.
While my meetings will run throughout the day, we'll circle back to MVHQ (Minyanville Headquarters) for a webcast this afternoon at 4:15 p.m. EDT with the incomparable Peter Atwater (the event password is "buzz"). We'll be talking Moods and Markets, which happens to be the title of Peter's excellent book, as we eyeball the end of the summer and tackle this most interesting environment.
I cannot in good conscience head to Reykjavik without paying homage to the elephant in the room. It's not Google (GOOG): The Runaway Short (which we've been documenting in real-time on the Buzz & Banter -- click here for a free trial)-that is just a symptom, not the cause. I'm talking about the one and only Eddie Mush-the kiss of death. The turner of tides. The cardinal sin.
On July 26, while attempting to kill time on the road, I wrote on Twitter, "Ask me any question and on my word I will answer honestly without editing." It was an innocent thought; I've got nothing to hide and don't fib as a matter of course, so I threw it out there. What followed was a spitfire exchange with topics that ranged from Europe to The Raiders to Jim Cramer.
And then the question hit: "Is your trading account +10% or more this year?"
I hit the four keystrokes before I could stop myself. +55%.
As soon as they appeared on my iPad, I felt a distinct twinge-that sense you get when you know you just did something wrong. (I've developed a friendship with a Minyan in Hawaii who practices Buddhism. He taught me that we always know right from wrong and when we misstep, our body, mind, and spirit are no longer in alignment. That awareness was the genesis of one of my favorite sayings, that "anxiety is the friction between where you are and where you feel you should be.")
I immediately knew it was a mistake. I even told myself that I should stop trading for the remainder of the year. I know better than to tempt the trading gods. I've been doing this long enough to know that things like that aren't ignored by the universe.
My initial foray back into risk was on-the-margin successful; I pushed my performance another 5% higher before the inevitable happened. Relaxed discipline here, post-rationalization there, and voilà, my YTD P&L is now well off its highs (it's still snazzy, but don't look for me to communicate numbers until the year is over). This is not a mistake that I will soon repeat; it's a lesson that I will learn from.
There is a reason we have our Ten Trading Commandments.
Respect the price action, but never defer to it.
Our eyes are valuable tools when trading, but if we deferred to the flickering ticks, stocks would be "better" up and "worse" down and that's a losing proposition.
Discipline trumps conviction.
No matter how strongly you feel on a given position, you must defer to the principles of discipline when trading. Always attempt to define your risk and never believe that you're smarter than the market.
Opportunities are made up easier than losses.
It's not necessary to play every day; it's only necessary to have a high winning percentage on the trades you choose to make. Sometimes the ability not to trade is as important as trading ability.
Emotion is the enemy when trading.
Emotional decisions have a way of coming back to haunt you. If you're personally attached to a position, your decision making process will be flawed. Take a deep breath before risking your hard earned coin.
Zig when others Zag.
Sell hope, buy despair, and take the other side of emotional disconnects (in the context of controlled risk). If you can't find the sheep in the herd, chances are that you're it.
Adapt your style to the market.
Different investment approaches are warranted at different junctures, and applying the right methodology is half the battle. Identify your time horizon and employ a risk profile that allows the market to work for you.
Maximize your reward relative to your risk.
If you're patient and pick your spots, edges will emerge that provide an advantageous risk/reward profile. Proactive patience is a virtue.
Perception is reality in the marketplace.
Identifying the prevalent psychology is a necessary process when trading. It's not "what is," it's what's perceived to be that dictates supply and demand.
When unsure, trade "in between."
Your risk profile should always be an extension of your thought process. If you're unsure, trade smaller until you identify your comfort zone.
Don't let your bad trades turn into investments.
Rationalization has no place in trading. If you put a position on for a catalyst and it passes, take the risk off-win, lose, or draw.
The mechanics of the swing should always trump the results of the at-bat. Please learn from the error of my ways so you don't have to pay that price yourself.
Good luck today and may peace be with you.
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Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at email@example.com.
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