• Things I’ve Learned from the Stock Market

    by  • October 11, 2011 • Health and Family, Job and Career, Lifestyle • 11 Comments

    These are a few of the lessons I’ve learned from studying trading in the stock market over the last month.

    If I wait until everyone else is doing it, it’s too late to get on board.

    I can’t react based on what’s happening right now. I need to be aware of what’s going on around me and be receptive to signals and trends.

    The greatest success comes after a trend is established, then a signal occurs. That’s the time to act.

    I can’t react to every signal. It’s healthy to wait for confirmation. But signal without action yields nothing.

    No matter how strong it seems, my will alone will not start a trend.

    Everyone is lying to me. Sometimes they’re intentionally trying to get me to do something stupid. Other times they just don’t know that what they’re telling me is crap.

    I have to have an opinion. The stronger my opinion, the happier and better off I’ll be. My opinion won’t always be correct. But there’s no other way to exist with purpose. I must accept this.

    I won’t be right all the time. I’ll be wrong almost as often as I’m right. And this is a great thing.

    Change takes time. Trends take a few attempts to reverse.

    Defining moments are only so in retrospect.

    Milestones are important.

    I can only be successful in the future by studying, learning from and embracing the past.

    Success means losing small and winning big.

    I can’t change the world alone. Support from others is essential.

    Timing is critical. Being right at the wrong time is the same as being flat wrong.

    Once I’ve done something right, don’t fiddle with it. I’ll destroy it.

    Nothing lasts forever. Moments aren’t really single moments. They’re more a set of moments related by focus.

    I am entitled to success.

    An opinion without patience and fortitude yields failure.

    It’s healthy to take breaks. Focus is a renewable but not a durable resource.

    I can’t wait for permission. I will only be granted permission when there’s nothing left to gain.

    No single person brings all the ingredients to the table.

    Other people’s advice is beyond worthless, it will always go against me.

    Always have a Plan B.

    Growth is the result of enduring a thousand small deaths from each of which I emerge stronger.

    There is always more going on that I can take in at once. To be successful I must align activity at the micro level with activity at the macro level and vice versa. Going against the trend reduces risk taking or speculation to pure gambling, and I will always lose at gambling.

    Amateurs play to be right. Professionals want results.

    Clues are everywhere. You just don’t always know what they’re clues to until after they’re no longer immediately helpful.

    The results of my actions will seldom, if ever be visible immediately.

    There’s no absolute definition of success. Success means setting goals for myself and achieving them.

    Greed fuels failure. If I set goals too high I am doomed not only to fail, but to lose far more than I gain.

    Miracles and heroic moments do happen. They happen all the time. And I am neither a hero nor a savior.

    Burn your boat. Progress through achievement is the only acceptable outcome.

    Change happens when I least expect it.

    I must enable myself to see what other people see. But I must not allow their vision to become my own. They don’t know any more than I. A stronger resolve and more insightful interpretation of events is my only potential advantage. I must exploit it to win.

    There are always more than two potential outcomes. If I limit myself to binary thinking, where everything is black or white, right or wrong, fair or unfair, strong or weak, positive or negative, … then I will usually be at a disadvantage.

    Circumstances are NEVER what they appear to be on the surface. Driving forces and motivations (both positive and negative) must be understood in order to determine direction.

    I must be willing to finish anything I start.

    Photo credit.


    I had an unhealthy relationship with money until my early 30's. I write about how I developed a healthy relationship with money. I share ideas about personal finance that have helped me to break the cycle of living paycheck to paycheck and achieve greater financial freedom.

    11 Responses to Things I’ve Learned from the Stock Market

    1. January 6, 2012 at 11:28 am

      Someone shared this with me, it is an interesting article. What made you choose this topic?

      • Mr Frugal
        January 8, 2012 at 4:43 pm

        Hey Chris. Thanks for reading. I hope your fund is off to a great start for the year.

        I felt it was important to share some of what I’ve learned from my study of trading.The more I learned about trading, the more I felt that the recommendations about psychology and money management are just as important to personal finance as they are to trading.

        For example, position sizing and different strategies for managing exposure the risk. I learned a lot from Van Tharp on this. The same guidelines apply to personal finance. Buying more house or car than you can afford is a thrill when you sign the contract. But when you can’t afford the payments anymore, and you realize that you over-committed yourself, that’s not so fun. The same bad practices that can lead to blowing up a trading account can blow up your personal finances as well.

        Would you add anything to this list? Are there lessons to be learned from trading at the macro level that aren’t as common to short-term trading?

        Thanks again for reading. Best of luck.

    2. October 16, 2011 at 7:16 am

      With the greatest respect, this all seems a bit nebulus. Success in trading is all about beating the market. Without showing that you’ve beaten the market averages or well constructed portfolios over a significant period of time, how can we, or you for that matter, be sure that these are things you’ve learned and not things you think you’ve learned?

      • Mr Frugal
        October 16, 2011 at 12:32 pm

        Hi Ash. Thank you for taking the time to share your thoughts.

        These are just my thoughts. Honestly though, they’re not even original thoughts. They’re all bits I’ve gleaned from various books and my own experiments. I would urge you to not take any of these ideas as facts. Take them into consideration if you find them valuable to you in some way. But they’re by no means meant to be the basis for your own paradigm.

        That said, what is your philosophy about the markets?

        • October 16, 2011 at 1:09 pm

          Hehe well whatever works, works. If you’re making money, keep doing what you’re doing :) My Philosophy? Hmm, with the markets basically being controlled by professional speculators and HFTs, trading is a game I’m just not willing to play. I’m young but I’m more of an oldschool value investor with an addiction to healthy dividend paying stocks. Don’t get me wrong, I’ll buy more if I think a stock has become undervalued and sell it if it’s getting a little too hot just to take the profit, but I never go into a new position with a short term mindset. I guess it’s all about playing to your strengths. I don’t trade because it’s not a good match for me, whereas you might be able to have more success and enjoyment taking that approach.

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    5. October 13, 2011 at 2:14 am

      Interesting list of observations. What I like most is that you have a list. Everyone would have different list, but the value is in the exercise. My blog articles are my list of things I’ve learned in 25 years of investing. Anyone who wants good information on a variety of investment management topics can find it here:

      • Mr Frugal
        October 13, 2011 at 9:37 am

        Hi Ken. Thanks for the comment.

        I’ve learned so much over the last month that I wanted to get it all down on paper (so to speak). It’s been an incredible learning experience. The market has a lot to teach us.

    6. Mr Frugal
      October 12, 2011 at 2:18 pm

      Hi Ann. Thank you for your comment.

      I’d reword some of your statements.

      It’s not “seeing what he wants to see”. It’s “seeing what’s actually there, not what you or other people want you to see”. This is no different than the amateur inventor that announces to the world that they have discovered some new phenomena vs. the academic that researches and discovers new phenomena, but then conducts empirical research to prove his theory before releasing it to the world as fact.

      And I’d disagree on the checks and balances. The checks and balances are there. Gamblers lose their money in the stock market. A handful of hedge fund managers make billions in the same market. The check is the direction of the market when you’re money is in it. The balance is that for ever buyer there is a seller. And the ultimate measure is the balance of cash in your trading account.

      Let’s look a little deeper.

      Let’s take probabilities for instance. Think of boxing. Put Mike Tyson in a ring with the captain of the math club and the probability of winning clearly favors Mike Tyson. Put Mike Tyson in the ring with Evander Holyfield and the calculation of probability is more interesting.

      Both boxers are heavyweights. Assume both boxers have the same win-loss record, let’s say 30 wins and 2 losses. Who would you pick to win? You probably couldn’t say with confidence either way.

      Now assume that Tyson’s two losses were in the first two fights of his career, whereas Holyfields two losses were his two most recent bouts. Who would you pick to win?

      Now take into account pundits making predictions one way or the other. Would you listen to them? Do they really know better than you might? They don’t get paid to be right. They get paid to talk a lot. Does what the pundits say really have any bearing on what might transpire during the fight? If you say yes, are you saying that because you have been influenced by the commentary? Or are you saying it because you feel that one or the other, or both of the fighters might react one way or another to the commentary. Either way, is there any way for you to confidently calculate probability based on the commentary of the pundits?

      Regardless of what you estimate the probabilities to be going into the fight, now assume that the fight has started. Assume Holyfield lands an awesome hit to Tysons left mid-section. How does that affect the probabilities? What if you knew that Tyson was sore on that side from a fall earlier in the day which bruised his left side. It might affect him. It might not. You might know about his bruise. You might not. Whether or not you know, would it have any effect on the outcome of the fight? No. Would it impact your ability to anticipate who would win the fight? Probably not.

      You probably think I’m talking in circles at this point. And that’s kind of the point. None of these factors provide the ability to anticipate the outcome of the fight one way or the other. My opinion as to the relevance of these factors doesn’t make them any more or less relevant. Anticipating outcome on any of these factors is pure gambling.

      So, after talking about all that stuff, here we are again, right where we started, with no ability to anticipate with confidence one way or the other who will win the fight. We’ve dismissed everyone’s advice, ignored the trend of recent losses, and ignored the win-loss record (which I think would fall under your notion of success indicators). But is that a bad thing? Each one of those things didn’t give us any actionable information. No matter how much I want any one of those facts to be a significant indicator, they simply aren’t.

      If I had acted based on my “lessons learned”, while everyone else was busy picking a side to win, with or without money riding on it, I sat objectively on the side. Had I put money on the fight I may have won. But I would have just as likely lost. None of the information I had actually gave me an actual edge.

    7. October 12, 2011 at 4:17 am

      This is a curious list which leaves the author on an island, dismissing everyone’s advice, trends, appearances, probabilities, even indications (like success) that his methods are working. This leaves the author sort of making everything up, seeing what he wants to see, without checks and balances. Some of them are so spot on though, like “greed fuels failure,” Change happens when I least expect it,” “Always have a Plan B” and lots more.

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