Lemons…Or Lemonade?
You might as well pretend
as though Friday never happened.
The main reason: Volume in the Naz was
804 million shares, the skimpiest since July 3.
The secondary reason: This was the
first day off a prior low…as such, it doesn’t offer any information of
meaning.
For those of you medium-term traders
whose accounts have underperformed the averages thus far this year, it is
tempting to look on the happenings of ’00 as depressing, a lemon.
Perhaps you were too slow to exit some
of the leaders as they came under distribution in early January and mid-March.
Or perhaps you were too slow to
recognize the accumulation going on in numerous growth stocks in early February.
Only you know for certain what it is
that contributed to your account’s downfall.
In my own case, ’91 was the first full
year in which I traded a semblance of the strategy that I use today.
It was a successful year for my
account, and went a long way toward bolstering my confidence.
‘Ninety-two, however, was an entirely
different story.
Early that year, every winner of mine
from ’91 began forming these perfect tops.
Home Depot, Costco Wholesale,
Fifty-Off, Surgical Care, etcetera.
And I just sat there and watched,
clinging tightly to every last one of them, stubbornly refusing to let go.
I was trying to combine trading and
investing, which you obviously cannot do.
I thought like a trader in ’91 and
thought like an investor in ’92.
Luckily, for me, stocks moved at a
slower pace back then: There was
no direct access to ECNs, no Internet, and slower dissemination of news. That
limited my underperformance that year.
And so when the dust settled at the
end of ’92, my account was down 5% or 6% and I think the S&P was up 5% or
6%.
In the spring of ’93, I studied the
mistakes I had made from ’92.
Even so, I needed one more trade to
convince me that trading and investing are akin to oil and water.
In the spring of ’93, I bought
Microsoft coming out of a base. But instead of limiting my loss, I watched it
drop 20% before I exited.
That was the turning point, the
mistake that helped me see the light from which I’ve never looked back.
In life, we all know how important it
is to learn from our mistakes.
In the market, this is even more
important, since continued mistakes can lead to financial ruin.
Do you know exactly what your mistakes
were in ’00?
Or are you at a loss to explain
exactly what it is that you did wrong?
If the latter, you should be spending
less time stressing about the past and more time pinpointing where you went
wrong.
Analyzing your past trades is one way
to do this…e.g. was the stock showing solid accumulation before entry? Was the
base correct (you did enter just as the
stock emerged from a base, didn’t you?)
The point here is to make the most of
the present situation, which should find you in a 100% cash position and with
ample time on your hands.
When given a lemon, make lemonade.