The Greatest Myth About Trading

Elementary school can be a brutal place if you are not careful.  It’s not so much the possibility of being bullied, shunned, or made fun of as much as it is the fear of being “branded.”

Yes, this is the place where if you didn’t play your cards right, you could end up with a nickname that would scar you for life.

Enjoy your grilled cheese sandwich a little too much at lunch one day, well guess what….your new name is “cheese.”  You might as well just get it tattooed on your forehead because it is going to follow you wherever you go for at least the next 20 years.

This nightmare scenario became a reality for a guy I knew named Chris Stevens.  To be honest, Chris wasn’t really a friend of mine.  In LinkedIn terms he would have been considered a “2nd degree contact,” meaning I was acquainted with him, but really only hung out with him because one of my good friends was friends with him too.

Back in the 70’s they had this weird annual event called the Presidential Fitness Council Test, where elementary school kids would be tested to see how many push-ups, pull-ups, and “line straddles” they could do.  Arnold Schwarzenegger was even Chairman of the Council for a while.

The winners in each grade would get a medal and a certificate signed by the President. There were always a couple of pre-pubescent über-athletes at each school that took it seriously, but most of the kids just sleepwalked through the process, doing enough of each exercise to be deemed respectable.

The test started out okay for Chris.  He got through the line straddles with a decent score and was able to post a reasonable amount of pull-ups.  But it all fell apart at the push-up mat.  He did seven.  Seven measly push-ups.  I still can’t figure it out to this day.  He wasn’t a weak or scrawny kid, but for some reason that was all he did…..seven.

I’m not a religious guy, but I will swear on a stack of Pumping Iron DVD’s that I never heard anyone call him “Chris” again after that.  He was simply known as “Seven.”

There was no committee meeting to decide it.  No decree from on high.  Just an instinctual understanding from all those who knew him that this numerical scarlet letter was to be his new and permanent moniker.

The transition through intermediate and high school did nothing to erase its hold.  Just like with Norm on Cheers, in any room he walked into, the occupants would simultaneously raise their heads and shout “Seven!”  And eventually, in some twisted linguistic derivation, the nickname ultimately just ended up morphing into “Sev!”

Sev was a solid guy, but not too smart and the one thing I remember about him (besides the push-ups), was how on one 4th of July he tried to pull a stunt that would have made the Jackass crew shudder.

We all had few packs of firecrackers, and like any normal young male pyromaniacs we were trying to see what the “coolest” thing we could do with them was.   One guy threw some in a hole, another put a few in a tin can, and still another chucked a whole lit pack into the air at once.

Sev thought he could do everybody one better, and decided he was going to light one and drop it in the gas tank of a car.  Like I said, Sev was not the brightest guy, and since I am actually writing this post you can infer that his plan did not work out, but it was one of the riskiest things I ever saw anybody do.

Risk is something that most people associate with trading.  In fact, to the public at large, you are often likely to get the response, “isn’t that risky,” when you tell them that you trade for a living.  However, I think that is one of the biggest myths about trading, and I assert that trading is no more risky than most other jobs.

When I ran my own business, on the first of each month, the moment I woke up I was 60K in the hole.  That meant that in order to just “keep the lights on” I had to generate 60K in revenue each month, even before taking a dime out for myself.  And every month that I decided to keep my company going, I had to take the risk that I would not meet my nut.

Trading has no operational costs (or very minimal ones), which makes the decision to pursue the endeavor a relatively risk free one.

“Yeah, but where else do you have the possibility of losing more money than you started the day with,” is the lame rebuttal I often hear.  Really…?  These people obviously have never run a business.   If one of my employees damaged a client’s merchandise or backed a truck into a parked car I could easily lose more money than I started the day with.

Trading has no operational risk.  No employee is going to hurt his back and jack your workman’s comp rates up.  No douche from OSHA  is going to unexpectedly show up at your office and tell you that you are not in compliance with a new law passed the previous week and are on the hook for a large fine.  And you are not going to have a piece of equipment go south on you that you have to drain your bank account to replace.

But that is only for business owners right? What if you do the “dance” by getting a four-year degree and going to work for a solid blue chip company?  Well in some ways that is one of the riskiest things you can do.  Now you have turned over the fate of your continued employment to some mid-level management asshats or fair weather board of directors. Take a look at how many people took that “safe” path to corporate security and got tossed out on their ear when the economy imploded in 2008.

Trading has no asshat risk.  Nobody will even come into your trading room and tell you that you are being downsized, or that the macrame conglomerate you work for is going out of business after 75 years because the board of directors couldn’t resist getting involved in arbitraging high risk CDO’s.

At the end of the day, trading is one of the rare businesses where only you decide the amount of risk you are willing to take.

The reason that most people go off the rails and blow their account out is not because there is any outsized risk associated with trading, but because the barriers to entry are so low, they are able to jump in feet first without really knowing what they are doing (or they are a seasoned pro who lets their ego get the best of them).

Being a pro football QB is risky.  Being a firefighter is risky.  Being a jet fighter pilot is risky. But the average Joe can’t just jump into those positions without a shitload of training and without attaining a high level of competency.  And thus the risk is less for a Tom Brady, for a fire Captain, and for a Top Gun pilot.

Trading gets a bad rap due to the “Sydney or the bush” portrayal it has received in pop culture and OWS type propaganda.  It’s perception has been “Gekkoized.”  But in reality it may be one of the safest professions if you do it properly and make the choice to keep your ego in check.

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  • jdm

    Everything you write is true (and cleverly formulated too, like that “Sydney or the bush”), but It is completely incomprehensible to those outside the trading culture.

    When people ask me for investing advice, my first question is “how much do/would they look forward to reading a company’s annual statement?”. The point is not that reading a 10-k is important in and of itself – for example, do technical investors (I’m not one) even care about them?. The point is that investing well involves, like anything else, a “paying your dues” stage. This is when you takes your lumps and learn how to survive. Or not: go back to mutuals or savings accounts.

    … oh, yeah, like So-crate’s said, the more you know, the more you know you don’t know. Don’t let your ego get anywhere near your investing activities. 😉

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  • AT

    Solid work as usual. Thanks.

  • Chrishar

    BC – you’re always producing laugh-out-loud material – thanks for another great post. See you in the #DTBC…

  • jimbo

    There is risk. The chance of losing money is risk and traders lose their money and their clients money. If he means something else, it didn’t come across.

    • Brian Lund

      Double meh…..

  • Brian,

    Your stories make my day. Nice clean writing and you improve my vocabulary: asshat. My new favorite word. Asshat. Thanks! I will carry it with me where ever I go.

    So….what happened to Sev and the firecracker?

    Cheers mate,
    Brad

    • Brian Lund

      Thank you sir, for the kind words and for your consistent support. Greatly appreciated.

      So when Sev went to light the firecracker, we all backed WAY far away. As a 44 year old now, I suspect that he was actually pretending to do it, but at the time, I thought he was 100% doing it.

      I know for sure that the gas cap was off, so even if he was just flicking the lighter next to it, that was EXTREMELY dangerous.

    • Don

      I agree with Brad 100%.

      I’ve been reading blogs since before most people had Internet access and your material is more consistent, more educational and more entertaining and any other single source I can think of.

      Any this piece is astoundingly timely for me.

      Thank you sir!

      * and now a firecracker tip *
      1) two open tin cans, one (a) slightly larger than the other (b).
      2) punch a hole in the bottom of (b) that will hold a firecracker.
      3) put no more than 3/4 inches of water in (a, the larger one), open end up.
      4) place (b), open end down, inside (a) with the hole up.
      5) insert a firecracker in the hole of (b) with fuse up
      6) light fuse and move away.

      This will launch the small can about 100 feet in the air.

      • Brian Lund

        Thanks for the nice words Don.

        I remember one 4th of July, my buddies and I were taking soda cans, which used to be made of tin, cutting both ends out, and duct taping them together. If you punched a small hole in the bottom can, squeezed some lighter fluid in, then dropped a tennis balls down the tube and put a match to the hole, you now had a cannon.

        We were doing this for a bit until some of the father’s on the street saw what we were doing. They started yelling…

        “Hey, what are you kids doing there? Bring that thing over here.”

        Of course we all thought we were in trouble. But 10 minutes later there were six fathers in my dad’s garage “working” on the cannon to try and make it shoot farther.

        Great times.

        Thanks for reading man.

        -B

  • mortongould

    .trying to benchmark risk is a fool’s game as it’s all relative …I don’t see your point at all….and please, learn to edit as well….now I see why you like altucher..cheers!

    • Brian Lund

      Thanks for the pro tips Morty.

    • ch

      The most ridiculous comment here… move along chief….

  • Highgamma

    “trading is one of the rare businesses where ONLY YOU DECIDE THE AMOUNT OF RISK YOU ARE WILLING TO TAKE”

    What’s most interesting about that statement is that most newbie traders take on way too much risk when they are allowed to decide for themselves. Perhaps you’ve explained it by showing how most people don’t seem to even understand the concept of risk.

    • Brian Lund

      Yeah, I mean at the end of the day, you have to take on risk to make reward, but trader have the unique ability to decide the amount of risk the want to take. Newer traders go full risk off the bat instead of increasing it as their skill increases.

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  • Cam

    Wow, very well done. I definitely be forwarding this to skeptics to take a look at…

    • Brian Lund

      Thanks man, appreciate your support.

  • DaveyNC

    Spot on. CanNOT get my family to grasp the concept that working for a company and having a single source of income is one of the riskiest things you can do.

    • Nils

      Heh and some also have their whole retirement tied up in that same company.

      • DaveyNC

        Enron employees, anyone?

      • Brian Lund

        Bing-fucking-go!

      • Brian Lund

        Actually that is a GREAT point Nils….I should have added that.

    • Brian Lund

      You can never get “civilians” to understand Davey…lol

  • we has Presidential Fitness in the 80s too.

    I was the f’n KING of the Shuttle Run.

    ShuttleRun isn’t a very good nickname though…

    • Brian Lund

      Kid Shuttle Run….:)

  • viktor

    Brian,

    Thanks for posting this article. Out of curiosity and for tax purpose, do you set up an incorporation for this trading business or do you just trade under individual account?

    • Brian Lund

      Just as an individual with the “traders” designation, which allows you to write off all your losses instead of the standard 3K.

      • Evan

        How would one go about getting that designation? Is it difficult?

      • Brian Lund

        Not sure I understand the question Evan.

      • Don

        Traders in Securities (Information for Form 1040 Filers); “… mark-to-market election must be made … ”
        http://www.irs.gov/taxtopics/tc429.html

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Brian C. Lund

Brian C. Lund

Great father. Good friend. Decent trader/writer. Lacking husband. Solid drummer. Sometimes funny. Often A-hole. Terrible poker player. Too smart. Punk rock. Work in an ice cream shop.

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