Saturday, October 31

The Comforting Lies they feed you in the market all the time

Why do people think that there is no money to be made in trading? I don’t. I believe there is substantial amount of money to be made in trading. If people thought at 20 per cent return on a steady basis is wealth building over time, what would they say to 200 per cent?
Boggles the mind, right? And when the mind boggles, it tends to reject what seems ‘unreasonable’. But ‘reason’ is in the mind too, right? So if we take the mind out of the equation, the ‘ún-reason-able’ is really an exercise in taking the mind out of the way we look at things!

Sounds heavy? I agree it does. But if you re-read that passage a few times you will get to where I am going with all this.

Let’s see what creates these ‘unreasonable’ perspectives in the mind. For simplicity, I will just call them “Comforting Lies”. What are the common comforting lies that are fed to you from every nook and corner in the markets? Take a look at the following list (which is by no means exhaustive, but you should get the idea)

  • Money is made over the long term
  • Trading never made anyone rich (or, show me a rich trader)
  • Fundamental analysis is the ONLY way to go
  • In trading, you win small and lose big, very big
  • Believe in the power of compounding. Look at Warren Buffet.
  • Mutual funds are the best way to invest for anybody

And so it goes. It is also repeated ad nauseum by its acolytes on each and every forum. It has now got to a level that saying anything to the contrary appears to be blasphemous!! So, I am going to say it out real loud – Trading, when done properly, will make you TEN times what you can as an investor and that too, over shorter periods of time. Yes, you read that right. Ten times. And I am just being conservative here! More on this later.

It is not as though I don’t believe in the long term or in fundamentals. I do. Completely. But I don’t subscribe to the Comforting Lies that I listed above. Those are deceptive and many of them are designed with ulterior motives. For example, the mutual fund industry is a gigantic one and growing every year. Do you think they really want (or can afford to) you to be thinking for yourself? Hell no!

Because, if you start thinking for yourself, then, gasp, you may start doing things by yourself! And then what would happen to the planned inflows into the mutual fund coffers? No Sir. Nobody from the MF industry wants that to happen.

The only guys who probably love trading are brokers – but they do so as it is commission-generating. But they too don’t want you to think too much. For, you might then stop going back and forth and start playing the big moves. What would that do to commissions?

Another comforting lie is that fundamental investing is the only way to go. This appeals to most people because through their formative lives they have been in touch with some aspect of fundamentals (schools, colleges, reading etc). It also, more importantly, appeals to the rational side of everyone — we always want to know the ‘reason’ of why we should act in a certain way. No one ever comes across technical analysis in their formative lives.

So it is seen as something alien, something that needs to be learnt afresh (and therefore an extra burden). None of the jargon within technical analysts appears familiar and the mind tends to reject what the mind doesn’t know!

So it is easy to believe, when lied to, that fundamentals are the only way. I can go on about every comforting lie this way.

Why do I call them ‘comforting’? Because, what that word connotes – you can just chill, relax, do nothing. The market is all about doing something, right?

You have to buy when you got to, you have to sell when you got to and in between those two, you have to keep deciding whether to do it or not. That is a whole lot of work! Extreme dis-comfort! Who wants that, when I can have the comfort of giving my money to mutual funds and relaxing (they show those images on TV, don’t they?), when I think I know what the fundamentals are (truth: you know zilch), when I am told that money is made over the long term (no one showed you the proof that it cannot be made over the short term; did they?) etc. It is easy to believe the comforting lies and that is why those are put out so often.

It keeps the people lulled, in a sense of complacence that they are being taken care of – by good brokers, by good fund managers at MFs, by the efflux of time, by being in what they think are good stocks etc. etc.

Wake up guys. This whole thing is a business. Brokers are in it for the commission. Mutual funds are in it for the AUM, so that they can get their salaries and bonuses, the media is in it for TRPs and advertisements. No one is watching out for you.

Instead, you are just an element (albeit an important one) in the game. And the important thing is to play the Game!

So long as you live within the ambit of Comforting Lies, you will continue to remain where you are in the markets, making very little progress if at all. You will rationalise it somehow so that you can live with it and go about your normal life. You will then ascribe big success in the market to ‘other’ factors – like Luck and network and money and superior ability etc. But you won’t lift a finger to see whether you could have some of that success for yourself.

Why? Because you have already convinced yourself that the comforting lies are the truth! Where is the link to trading in all this? Think of this:

-The millions who take the ‘comforting lies’ approach to trading will fail

-A large portion of this group will quit in disgust, never to trade again

-Another portion will become ‘permanent dabblers’, screwing around forever

-But a small portion, a remnant, will tire out of the lies and finally seek truth

But some changes are occurring now. The new breed of traders is not as conservative as the earlier breeds (myself included in the latter list) were. They are happy to flash their wins on the social media and declare that they are making 7-figure income from trading. It started with one or two guys and now has almost become a regular thing! More power to them, I say! If you have made it, where is the need to be apologetic about it?

One of the reasons I feel this is happening now is that the environment has become ‘trading-friendly’ which it was not earlier. People in the past used to look down upon those who were into full-time trading. In my training programmes, when I used to declare that 500 per cent returns are possible, attendees would look agape as though I had lost it!

Now people are coming out and showing that they have made considerably more than that! The narrative is changing. The ones that would still want to be in the Comforting Lies zone will choose to troll those declaring such resounding success. I have no idea if they are true or not, but if a guy is showing you his trading account or willing to do it live in front of an audience then that should say something about the truth or veracity of those claims. The trolls may be largely those that are envious of the ones who report success.

The new lot that has entered the market now are all trading. Quite a few will go back to what they were doing earlier once life returns to normal. But there will be a large number who will remain, having discovered a new world of much higher returns.

The days of Comforting Lies are being numbered, I feel.

Credit: Stocks-Markets-Economic Times

Leave a Reply