The Worst Thing That Can Happen To A New Trader

I’m going to tell you one of the most painful things about my life.  It’s not the acute “fuck, I broke my arm” type of pain, nor the soul crushing type that comes with losing a loved one or wondering how you will get your child’s next meal.  No, this is a pain born of luxury, the luxury of not having to worry about the real problems of life.

Still, it hurt.

It was a slow burning discomfort that built year after year, decade after decade, in such a dainty and covertly refined way that I ended up making a friend of it.  A friend I fed, nurtured, and wore around my neck like an invisible amulet with excusatory strength.  Then one day it in a moment of utter despair, at the nadir of my brittle ego, it turned on me and revealed itself in all its retarded glory.

And then I realized the true nature of the pain.

“Brian, I need you to go with this gentleman up to the front office,” said my second grade teacher Mrs. Carron.  “He wants you to do a test with him, kind of like a game actually.  You’ll have fun and be back here by lunch time.”

And with that I followed some Vince Guaraldi-looking guy (look him up) down the hallway, past the teachers’ lounge, and into the belly of the beast.

The front office was not generally a place most second graders wanted to find themselves in.  There was nothing good in the front office for a second grader.  The lesser of two evils was a trip to the nurse’s room; the other option was the principal’s office, where in a pre “let’s not allow school official’s to beat the hell out of our children” California, a giant wooden paddle hung on the wall.

But as I followed my new beatnik friend we passed by those two less than desirable options ending up in a small side room that I never knew existed.

“Brian, my name is Mr. Fluglebinder,”-not his real name-“and I am from the district office.  Today we are giving all second graders a test of sorts.  This test will show us if you should be put into a special program we call “MGM.’”

I later learned that MGM stood for “Mentally Gifted Minors,” a new State funded program that attempted to distill out from the general population those students who showed early sparks of genius and then encourage it by segregating them into separate classrooms with specially designed curriculums.

It was later renamed “GATE,” which stood for Gifted And Talented Education.  They should have just saved time and called it “DWGBUIHS,” or Dorks Who Get Beat Up In High School.

Anyway, my memories of the specific questions asked of me that day are hazy at best.  I am pretty sure one of them was “who wrote Romeo and Juliet,” and another had something to do with a lion.  I remember thinking that the test was very easy and that I answered the questions with little effort.

I do know that out of all of them I only missed two, which I was led to believe was pretty good as I was asked to join the MGM class.  I remember even at that early age feeling a smug superiority wash over me as I heard my teacher and Mr. Dobie Gillis (look him up) marvel at my performance; contrasting it with most of my classmates who had struggled to get even half of the answers right.

That was the moment in which that the idea, which would later in life cause me so much regret and remorse, was first implanted in my mind.  The idea that without trying, without any effort on my part, that I was in fact innately smarter, naturally more insightful, and ultimately gifted beyond the norms of the common man.

And I loved it.  I loved that feeling.  The superiority.  The illusion of control that it brought.  And I fucking bought into it hook, line, and goddamn sinker for the next thirty years.  And it was the worst thing that ever happened to me.

Of course reality continually attempted to interject itself into my fantasy.  In around fourth grade a strange phenomenon began to occur as my classmates started to score just as well as I did on their tests.  I won’t bore you with the long and laborious double-think process I went through for the next three decades after that, suffice to say that I found many delusional ways to preserve the idea that just by the act of breathing I knew more than 99.9% of mankind.

Initially that same attitude pervaded my attempts to make money in the markets.  I have previously detailed my first ever trade, in Altos Computers, but besides the quaintness related to the time, it was not a trade of any note, ending in a scratch.

After that I vaguely remember buying a stock possible named Cherokee that had invented some sort of caffeine gum.  That too was a trade of no significance in which I broke even.  It wasn’t until my third ever trade that I was able to infuse my self-decided view of life superiority into the markets.

This would have been about 1986 or so, and one of my roommates, a relatively older guy at the ripe age of twenty-three, worked as a computer programmer.  He told me that the company he worked for was going to be chosen as the standard desktop publishing software for $IBM.  He insisted that this was going to be huge for his company and that the stock was cheap at its current price.

Having a year’s worth of stock market knowledge under my belt and possessing the gift of intellectual superiority over the masses I decided to buy five-hundred dollars’ worth of the stock.  It was a relatively unknown company that goes by the symbol $ADBE.

One week later $IBM did in fact announce that $ADBE would be bundled with all their computers.  A week after that $HPQ did the same thing.  In the following two weeks any computer manufacture worth its salt did the same thing.  In one month I turned five-hundred dollars into five thousand eight hundred dollars.

I was working as a bellman at the time making minimum wage plus tips, and in one month $ABDE made me more money than I could make at that job in six months.  And it was the worst thing that ever happened to me.

As a second grader I had no context to know that I was only smarter than my classmates because I had matured sooner than them.  Because I was more curious.  Because my parents took more initiative in reading and teaching me things early on.  Instead I thought it was something innately inside of me.  Some Mozart-like divinity that would propel me to greatness throughout the course of my life without having to open a text-book, study for a test, or prepare for a job interview.

As a virgin trader that same lack of context existed.  I thought that making money in the markets was easy.  That it came without studying charts.  Without learning risk management.  That I could just roll out of bed on Sunday, read some stories in Barron’s, and with that pick stocks that would allow me to retire before I was thirty.

But just like in life, that is not the way the markets work.  They may temporarily reward the lazy, the egotistical, and the unprepared, but right when you are about to crown yourself the next Paul Tudor Jones, your bill will come due, with brutal interest.

The worst thing that can happen to any new participant in the market is for them to make a shitload of money on their first trade.  It sets them up with a false confidence that can drive them to trade bigger and bigger until such a point that they have all their discretionary capital at risk, and that is when, not unlike the “sevening out” in craps, the markets will wipe them out.

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  • Top Binary Broker

    Ugh…. Same story here. First trade was a massive position in Anadys Pharmaceuticals. 13,000 shares and I woke up to a buyout on a Monday morning…. Weirdest feeling.

    Worst thing that can happen to a new trader. Fully agree as I have given most of it back and have yet to come anywhere close to trading with realistic goals in mind.

  • Jeff Watson

    Wow, you were gifted, really? In school they thought I was retarded, and even told me so in second grade. The teacher told my mother that I should be put in a work study program so I could learn to make french fries. I even flunked HS chemistry although I ended up getting a PhD in it some years later, Never used the degree, ever.

  • Roy

    I can think of something worse, immediately losing 25% of your money then skyrocketing to a 50% gain in a matter of days. You lose a lot of money then get it right back plus a shitload. That can really mess with a trader’s head since you learn that you can lose a lot then come back no problem.

  • http://twitter.com/micah_tan Micah Tan

    True enough. I knew exactly what your post was going to be about from the title…

  • http://www.linkfest.com/ Druce

    Altos – Ron Conway! Was hoping you would say exactly that…Was not disappointed. Worst thing is to get lucky and make a lot money with a bad strategy… and then always play 3-4 suited or hit on 15 because it’s your lucky hand. It may be better to be lucky than smart, but bad habits are hard to unlearn and will eventually kill you.

  • http://twitter.com/HarryWanger Harry Wanger

    Just watched the ’99 film “Rogue Trader”. Funny how his first trade on the futures floor gained about $2k and high fives all around. Then reality starts sinking in and before you know it, the genius trader bankrupted England’s oldest bank.

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  • NoNameIdiot

    Add to your contemplation whether the Adobe trade was insider trading.

  • DaveyNC

    Well, that was pretty close to home. The father of one of my best friends, a teacher, once told me that if I worked half as hard as his son did in school, there was no limit for me. His son now has a Ph.D and I am basically starting my life all over again.

    Not that school is necessarily the road to wealth, but it sure looks like a better choice right about now.

  • http://www.pointsandfigures.com pointsnfigures

    winners curse

  • brucyy

    Excellent post .

    I remember actually loosing my first 5 trades , including one particularly nasty loss. Still got hooked .But it was only when politicians and do-gooders started to describe market as the ultimate evil thing that i really wanted to go pro.

  • Matt

    No shit there I was…I had a very similar experiance growing up, even through college, making blind guesses at a good feeling on the NYSE. What a pompous dick. I made 1000% on my first trade, a penny stock that ‘popped’. It took me a long time to undo that B.S.
    Great post!!