This article was printed in Alan Hull’s weekly newsletter ‘ActVest’ for Active Investors in March 2005 (available from www.alanhull.com) and is reprinted here with Alan’s permission. I had
pleasure of being invited on a friend’s yacht to sail in a race on Sydney Harbour yesterday. On board, as one of our motley crew, I met a top ranking corporate executive from one of Australia’s largest banks, who we’ll call ‘Phil’ here for purpose of this article. After race ended and after being told of my trading experience, he told me he has a large stock portfolio, many of which are speculative resources stocks. He said that he’s excited by all money he’s making and wondering how long this has been going on?
As would be expected, ‘Phil’ also asked me for some “hot tips” for more stocks to buy. He was surprised with my reply when I told him Daryl Guppy’s standard response of “Tips are for waiters” and that I thought he was asking wrong questions. (Daryl Guppy is a well known Stock Trader and International bestselling author - see www.guppytraders.com)
Rather, I explained he should be asking: * How much longer will this last? * When it finishes how will I know & what will I do? * How do I find out about Technical Analysis and Money & Risk Management? * What’s a Trading Plan and how do I put one together and follow it? * How and when do I add to stocks I already own? * How should I structure my portfolio regarding individual stock risk, sector risk and total portfolio risk? * What’s my exit strategy for each stock I own? * What’s my exit strategy for my whole portfolio? * How do I keep accurate records and monitor my performance? * What am I going to do to learn more about myself and my own psychological weaknesses (many of which I may not even realise I have) that can make all difference as to whether I win or lose long term?
‘Phil’ was genuinely surprised that I had taken wind out of his sails – luckily it was after our sailing race together, but hopefully before he loses his own financial race.
In January at http://www.prweb.com/releases/2005/1/prweb193459.htm I issued a worldwide press release to caution unprepared novice investors and traders of potential pitfalls ahead in market. My wife Angela and I lost our waterfront home on Sydney Harbour in 'Tech wreck' of 2000, so we speak from hard personal experience.
As complete novices in market in 1999, we doubled on paper a large stock portfolio in only six months.
Then in less than a year we suffered catastrophic losses in tech stock crash of 2000 and beyond: * We were set back more than 15 years financially and emotionally * We were forced to sell our waterfront home – very same house we had set as a goal soon after arriving in Australia as new and penniless immigrants in 1979. We began renting what I called a ‘dog box’ - as housing market then rocketed. * Angela was working as a retail assistant
I have a First Class Honors Degree in Civil Engineering that didn’t help. In fact I have since come to understand that it actually helped to work against me. With our experience of riding some of largest waves (up and down) in market and having lost hundreds of thousands of dollars in process, we know more than most stock traders in world of pitfalls that await unsuspecting novice traders and investors. We have since greatly appreciated being exposed to successful methods taught by expert traders Alan Hull, Daryl Guppy, Jim Berg, Dr Van Tharp and others to trade profitably and with better risk control.
The forum for serious investors www.stockmeetingplace.com is only chatroom where you will find Daryl Guppy. We recently received following response from a fellow Australian trader Nathan Unger on that site (see below): “...thank you for sharing. Your comments on this subject are very insightful, and rightfully so considering your near trading death experience, per se. Failure is always such a difficult moniker to be branded with, for it involves us having to acknowledge that we were wrong. Of course, acknowledging our mistakes means that we must swallow our pride – an admittedly difficult feat for many traders. Grappling with our own motives amidst psychological matrix that is stock market is, to say least, a bewildering struggle. In an almost paradoxical fashion stock market can create whelps out of us through both our losses as well as our victories. We are unnerved when we lose and must somehow muster courage to tentatively re-enter markets. Yet, potentially even more dangerous are unbridled successes that often distort a trader’s perception about their ability to regulate further success – successes that work to chide future admission of failure. Who would have thought that winning could actually become a setup for losing – a conundrum of worst kind? I know of no other occupation that has ability to masquerade as both friend and foe and then make you think that you can tell difference. Your experience is, I believe, a treasure worth perhaps more than sum of your losses. It reminds me of how most seaworthy vessels have typically been known to be ones that have weathered most devastating storms. Yours is a stellar effort, my friend. I will most certainly be purchasing your book.
