Wednesday, February 11, 2009

Day-Trading as a psychological mirror

Anything in life can serve as a mirror for one self.

Everything I do, every situation can teach me about myself, IFF I'm interested to look.

Surprisingly, even share trading, 'day trading' can teach me ! Not something I would have picked as a psychological tool to give me insight about myself.

This is how it happened:

I bought $15K worth of shares at 15 cents a share.
The price dropped to 12cents.
I bought 5K more of shares, at a good low price.
The price dropped - a LOT.
I stood open mouthed gaping at the computer screen: "this can't be real, this is not possible" - there is a word for this kind of reaction: "denial"

Now the value of my shares had plunged to half.
If I sold now, I would loose 10K.
"No way ! I'm not losing half my money ! It'll get better !"
I remembered the old adage, the common wisdom: "If you don't sell, you haven't lost anything yet !"
I remembered wisdom from the old hands: "You just got to ride it out, in a few years it will all spring back !"
"Phew! Yea, you're right, I'll wait it out".

The price dropped to 30% of its original value. If I sold now I'd lose 14K.
That was not acceptable. This can't be happening to ME ! I don't lose $10K ! Only other people do that. I NEVER make a loss ! I'M different from THEM ! Ha !

In the last two years I'd made a nice income from day trading, paid for travel and stuff. I was like a rabbit in the headlights of an oncoming car, mesmerized and frozen in denial and unbelief.

The price dropped to 10% of its original value. I had 2K left of the original 20K I paid into the system.

Ouch!!!! ouuuuuuuuuuuuuuuuuuuch !
That hurt.

"You've been too miserly to spend that 3K on new windows for your flat, you've been too stingy to spend money on a new shower and hot water system.
You thought 100 times about helping Mz M in country B, and you didn't donate anything to charity XYZ.....
But look at yourself: Now you are shovelling it out by the truck load ! 20K ! My God ! Just imagine what you could with 20K !" Such were the thoughts that flapped around my mind like vultures.

"Imagine you put that 20K on the house loan, you'd really make a big dent on the repayments".

Ok so I turned the tables a little:
I said to myself: "Image you didn't do anything and like a good little vegemite you put the money on the house loan and thus you took the safe and secure option.
OK I'm imagining: You know what ?
If I had done that, I would tell myself something like this: 'You could have made 20K extra, and paid off 40K by now ! You didn't want to risk it did you ? Too scared. You always go for the safe and boring option don't you ?!"

I got a traffic fine $270 or so. Ok not nice, but no big deal. "Get some perspective old boy," I told myself, "if I can blow 20K out the door, then $270 is ....well .... not nice but I can cope..."

So then I sat back and took stock: was it worth it ?
Actually you know what ?
That lesson was worth it ! I probably wish it had only cost 5K and not 20K, but that's life.
Overall, on balance I am happy with what happened.
I learnt something.

I learnt about my pride. Pride that would not accept a loss of 10% ($2000) and thus made me hang in there till I had lost 18,000 !

But most of all: I am happy I didn't just sit in fear and NOT try it. I tried, and I learned.
And it was worth it.

And you know what ? The story is not over yet.

As I sat on the floor, having lost 90% of my investment, a thought, like a beetle, crawled across my numbed brain: "The remaining 10% ($2000) is hardly worth keeping, not compared to what I used to have ! BUT, I'm going to use it with abandon."

I felt as sense of freedom, of wild abandon, - I had hardly anything worth investing, but by Jove I was going to use my newly learned lessons to start again !

"I'm going to use it as seed fund to start again. I'm going to rebuild !"

I had to say goodbye to the $20K !
I had to watch as the red figures on the screen said -89% or -91% .
I watched as I started again with a cost basis of 2 cents, - of what once was 15cents.

I wasn't willing to wait for years. The company might no longer exist in a few years.
I didn't feel like hanging around waiting for things outside my control. Whatever small and slim control I could exert, I was going to do it by Jove !

Something inside me changed.
The cautious scared rabbit had left.
A more impersonal, perhaps more ruthless - if that means: less timid - 'me' emerged from it all.

I didn't expect share trading to teach me all that.
....and...... I'm not finished yet.....
Excuse me, have to place a new 'open order' for 1.7 cents.....

'day trading' is a term that refers to buying and selling shares based on the price changes that happen WITHIN one day. It can also mean trading shares for a short term, days or weeks. Trading is different from investing for the longer term. Traders are hit 'n run types, who make a profit on the small fluctuations in price during a day or a few days.
Investors wait for the tide to come in an out in long slow cycles. Day trading is
a bit like generating electricity from the motions of the waves of the sea, the minute by minute, second by second changes.
From now on: Gross profits from future trading of that 20K: a percentage will go to worthy causes...

Later a friend said:
you rock !
My reply was: I never expected to learn all dat stuff from trading stock...
Her reply: you took the opportunity to learn. you saw what life offered you.

I replied:
thank you, it was quite an interesting ride....
usually I'd just walk away from the mess and say 'f*** it!',
not worth to bother about 2K after you once had 20k.
but now I'm clawing it back.... 2.5k now... but the next wave could wash it out, or move it to 3k .... we shall see.
7Aug09 Friday Melb, Oz: today I realized, this way of thinking was not restricted to my share-trading. It was a part of me.
And being a part of me, I saw that the same principle operated in other areas of my life.
Instead of money, the same thought processes applies to how I view years of my life.
"The last 3 years were a waste, a write off" - i.e. in share trading terms: loss of value.
"But I can't cope with the idea of having wasted 3 years of my life. I'll just keep beating myself up about that."
So another 3 years pass.
"Oh my god, I've wasted 6 years...this is really unbelievable... oh my god etc..etc..."
And now the 'awfulness factor'  is much greater and and so I beat myself up even more.
It becomes 9 years and so..... and so on...........
Until one day, I simply write it all off, and start again.
The turning point came when I just accepted it.
"Ok I've lost 12 years... of nothing much done or achieved. Ok." no more beating up of self.
That was the turning point.
So I see now:
The way I behaved in the share-trading scenario was not an isolated once off event, it was an expression of how I behave and think in certain circumstances. 
And then I found out a secret: only after the turning point, I found, that one never really loses any years anyway.A 'loss' is only a loss if you don't learn, only a loss from a certain angle.
It can also become, and it always was, a gem....
Just like in a story, the most dire situation turns around and the hero comes out on top...
and so i see once again: all things have a higher and a lower aspect. 

23Sep09 more thoughts on the above:
Looking back on my life I notice an interesting pattern: 
Something bad would happen, (relationship break up) and it took me a year or two to get over it. 
Then I regretted the wasted time of the relationship and the wasted time getting over it. 
This time of regret was still unproductive. 
After a while I'd look back and think: "Gosh, I've wasted time getting over it and now I've wasted another two years regretting the two years" 
Then I had problems coping with the wasted of four years. 
So I spent another 3 years beating myself about that and so on and so on... 
it seems silly, it was, but it was what I did. 
I didn't SEE clearly because it was years and years , and spanned more than a decade in total. 
Only the sharetrading fiasco showed me the psychological mechanism of how that downward spiral worked. 
I didn't understand what was happening to me in the relationship issues, so it took shares, money, figures, numbers to really bring home the point and make the point. 

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