Thursday, 28 May 2020

CATCH THE KNIFE THREE TIMES : OUR LITTLE ADVENTURE WITH GREEN PACKET [TRADE OF THE WEEK #36]




Outcome
Gross Profits, Combined : RM30,975
Duration : Four days


To be a very good trader, there's no avoiding this moment. We need to prove that our abilities are down to skill, not luck.

One specific ability is to capture winning trades at the very moment a stock or warrant collapses. When there is peak fear, or massive dumping of shares at any price, we must go in if the circumstances are just right.

Being a contrarian is not in the saying; it's the doing. And this is what we consider to be the highest of high stakes trading, which means that if I can't execute this skill properly, we would never get ahead of the competition.

To most of us who are familiar with trading business, we call it 'catching the knife'. It's the thing that happens when a stock suddenly takes a precipitous, nauseating dive; do you go in? If so, when? And at what price? And how do you know that it's not going to drop another 20%?

No amount of fundamentals research can equip us for this. It's just the market offering a quote, and us contemplating whether to take it. This is trading at its most pure.

To carry out this mission, we have to rely on our historical understanding of price volatility, on sentiment, and how the herd behaves.

If there are mental maths to fiddle with, we have to do it quickly in our heads, because the whole idea-to-execution phase can take seconds. A small timeframe, but for big money.

It's the holy grail of price-volume analysis; we are supposed to be able to trade just by looking at how prices behave in real time.

If we were to truly simplify this technique, we'd simply call it : sensing fear, to make money. That's pretty much what catching the knife is all about.

Most people think they can do it; most get hurt. We spent years honing this skill. We had some deep cuts too.

To prove that this piece of skill is not a fluke, we didn't do it once. We did it three times; still want to call it luck?


THE BACKGROUND

Green Packet Bhd has been busy reinventing itself. From its past as a P1 WiMax provider, through some financially troubled times, shareholding and management changes, and the whole lot, it is back and it is in great form.

Its platform, Kiple, promises to be a one-stop shop for every company's e-solutions needs. It's also been tailored to meet exacting specifications brought about by COVID-19 and the ensuing Movement Control Order.

Oh, and it's been on a relentless marketing blitz. You couldn't have missed it. We have read about 5 articles in one week; some we couldn't figure out if they were impartial business stories or straight-up advertorials. Am not even sure if anyone cares, as long as the right names were mentioned...


Wait ah, zoom in a bit.... and boom!


Hit us in the face like a ton of bricks, this one.

It's fair to say that so many things are happening here, making for a compelling story no doubt, and we are keen to see if all this talk translates to earnings over the next few quarters.

If it doesn't... well, there's nothing new there.

But in the meantime, with new retail traders nowadays scurrying about like termites out of hollowed woodwork, the market does what it does best: go totally nuts over the stock. We are also humble bugs; this is a stock that we can trade.

So we answered the following question, which we assume is about trading the stock.

READYYYYY

Now for GPACKET's stock and warrant, which tend to do very weird things that we will briefly touch on right now.

These are the terms of GPACKET-WB, the associated company warrant.


The mother share - GPACKET's stock - had shot up like crazy in mid-May as KipleMania took hold. This left a gaping chasm between the mother share and its warrant, or at least the price in which the warrant is supposed to be trading.

Theoretically, the warrant can get you a free lunch. This was something we discussed in the VIP Group, as our members offer their views:




The basic arbitrage idea is this:

1) Buy GPACKET-WB

2) Convert immediately by paying 40 sen per share

3) Once paid, you get GPACKET shares that was paid for below the market price. This was during a time when GPACKET was trading at RM1.20 in the open markets, while the total conversion cost (warrant price + exercise price) was just 80 sen or so!

4) Once you get GPACKET shares, sell them in the open market and get that price difference as pure fat profits. Literally green packets of duit raya!

But this is where you need to hold your e-horses and do some temperature checks.

Even if you call up your broker and sweet talk them into expediting the warrant conversion for you, the conversion period (the time between confirmation of conversion and receipt of newly quoted shares) can take anywhere between 10 days and two weeks.

The warrant conversion process, as kindly shared by a VIP member


Two weeks of constipation, lost sleep, and over-active perspiration for the promise of free profits? Some may take it, but we wouldn't.

We know enough about the stock to understand that it's being hyped over the moon, hence we do not trust the price movements. But that does not mean we can't trade it.

THE STORY OF THE FOUR TRADES

So what we ended up doing were four very distinct trades, at different phases of the price moves.

1) TRADE 1, 15 May - GPACKET, trend trade

2) TRADE 2, 15 May - GPACKET-WB, catch the knife

3) TRADE 3, 19 May - GPACKET-WB, catch the knife

4) TRADE 4, 20 May - GPACKET, catch the knife

You may have to squint a bit at this chart, but these were the exact points where we bought and sold GPACKET, for Trades 1 & 4.

5-minute chart, GPACKET

As for GPACKET-WB, Trades 2 & 3 look like this. Note that we made good profits on the warrant precisely because we were able to 'catch' it near the intraday lows at the time of entry.

5-minute chart, GPACKET-WB


TRADE 1, 15 May 2020, GPACKET

Very simple trend trade where the five-minute chart clearly indicates a stepladder pattern. From the way the stock behaved, the way it easily broke past the RM1 barrier from the day before, and the constant buying interest during the morning session, we deduced it was worth a shot.

It didn't take long for the target to be hit. We conservatively took profits before the midday market break, at 1.19. This was a textbook trade, and we achieved modest profits.

In the afternoon session, the stock actually hit RM1.27, or its daily limit up level. We didn't stick around for the fun and games; GPACKET then collapsed to RM1.10 before rebounding to close at RM1.20.

It was crazy volatility, and one that we were not surprised to see. This stock was moving all over the place.

We personally wouldn't be able to stomach these big moves. As you may know, GPACKET eventually moved to as high as RM1.65 in the next couple of days. And just as quickly, it collapsed to 90 sen in the subsequent couple of days.

If we had stuck around, we'd have lost our shirts. But we figured that many would have been stuck at the peaks, purely due to chasing this thing all the way to the top.

Almost immediately, we considered ways to utilise the knife-catching angle. It's called that because it's not for the fainthearted, and those who screw it up get cut. Real bad.

TRADE 2, 15 May 2020, GPACKET-WB

Recall that there was a ridiculous valuation gap between the warrant and the mother. GPACKET was heading up to RM1.20 by midday.

Conventional thinking would suggest that GPACKET-WB was massively, gobsmackingly, undervalued - hell, it was at 52 sen!

If uncle pays 40 sen to convert, the total cost is only 92 sen woi! Surely can sell back at RM1.20, pocketing the 28 sen per share profit!

Right? No, we don't think so. Our comment stands, to this day.



Here's an easier way to think about this conundrum.

It's not the mother share rising and the warrant needing to catch up. Look at it in reverse.

Our thinking : precisely because the warrant refuses to rally up and narrow this ridiculous gap, the following are not just plausible, they are likely.

1) The warrant's movement indicates that it's the mother share that is destined for a price decline.

2) The warrant's movement is clearly controlled by somebody or other high volume players.

3) Don't trust the prices... healthy skepticism is how you don't end up losing your shirt. Or lose your shit.

You may have noticed this very clean, very controlled price move. Look at the rising movement in the 5-minute chart for GPACKET-WB... before all hell broke loose!


From 9:20AM to 3:10PM, GPACKET rose 27%.

Then, in a span of five minutes, it fell 23%. 3:10PM to 3:15PM.

So why does this happen? We won't mince words here : the market was being suckered into chasing the warrant due to that 'premium narrowing' angle. During this price ascent, the big players had a field day selling into the rally. DISCLAIMER : Pel is not one of those big players ya *halo emoji*

And of course, when the price collapses, everyone rushes for the exit. This provided us with the first knife catching opportunity.

With a price collapse of such magnitude, we figured that we only had to get in near the day's lows, which marks a complete wipeout of the previous rally. When something falls by this much, this fast, there was a good chance for a temporary price recovery.

The second critical aspect is instinct. By looking at the feverish selling, we were able to reasonably estimate when the panic selling is overdone. That's when we bought a thousand lots.

It felt like eternity, but it only lasted 56 seconds. We made RM4,000 in profits.  Boom.


TRADE 3, 19 May 2020, GPACKET-WB

On this day, GPACKET went ballistic (again). It peaked at RM1.65, then spent the next 40 minutes falling to RM1.20 at the low end of the price move.

That's a 27% decline in just over half an hour.

Obviously the reaction is predictable : people running for the exits again! And with this script repeating itself, GPACKET-WB falls from 46 sen to 30.5 sen.

This was another peak fear phase, and we sensed that RM1.20 might be the end of it for the mother share.

The swiftness in the warrant selldown was suggestive of another panic phase - the selling was noticeably quick and noticeably indiscriminate. There was a finite time window to catch it and aim for a recovery.

As is usually the case in knife catching, the preference would have been to buy into it at the bottom of the selldown, for example an obvious support point such as 30 sen in this case.

There was ample buying between 30.5 and 32 sen levels to confirm the existence of buying support, and we happily pulled the trigger just above.


For a 16-minute trade, this one reaped tremendous rewards. Again.


TRADE 4, 20 May 2020, GPACKET

We don't really plan these things out. This would be the fourth trade in a span of five days, but there is just no way to pre-plan something like this.

If there's opportunity, we capture lah.

It's like being a market maker of last resort. If there's a selling demand to be met, we'd come in and provide our services. This practice needs to be precise; a single wrong move and we'll end up holding the bag as the rest of the sellers run for cover.

In the worst case scenario, it might be us who turns into the panicky one. We have been the suckers, many times before.

Here's a closer look at T4.

5-minute chart, GPACKET

Again, the stage was set for a selldown. A big clue here is the long green candle on the left side (9:00 AM, Wednesday). GPACKET's stock actually showed some promise there, having jumped from RM1.04 to RM1.10.

But alas, it was not to be. False breakout.

The failure to rally by 9:05AM was as clear a sign as any  that this thing was heading down. And sure enough, in the next 15 minutes the stock went under, breaching the all-important RM1 support point.

Our thinking was that the real buying opportunity is not just below RM1; it's near the bottom of whatever new low this stock is heading towards.

It begs the question; if we can't see the bottom, how to know when to jump in?

The answer lies in subjectively interpreting the real-time price moves, and taking calculated risks. To simplify things, we were accepting the possibility of two potential outcomes:

1) That 90 sen may prove to be the bottom

2) That it may even head lower, perhaps to 80 sen.

Because this is a world of imperfect information, we decided to jump in anyway around the 90 sen mark. A move against us is probably not enough to do lasting damage, except for a temporary ego bruise.

Price-volume analysis. Decide. Pull the trigger.

The key here is fully accepting all possible losses.

As we contemplated GPACKET's potential recovery, mainly by browsing Lazada for frivolous items to buy,  some little clues start emerging.

At around this time, GPACKET-WB stabilized near its own intraday lows. For a warrant that's well known for massive liqudity, there was huge buying support there.

The much less liquid GPACKET was doing pretty much the same; the market essentially is taking its cues from the warrant's movement too. If felt like longer, but the move from 90.5 sen to 96 sen took just five minutes.

The most important thing here, as it would be in all knife catching situations, is this:

The best entry point determines the highest profitability.

This is not dollar cost averaging. This is not playing it safe. This is about sensing peak fear, assessing the price-volume characteristics of the stock (or warrant) at this peak fear phase, taking calculated risks, and making the trade.

Pulling the trigger was the hard part. The rest of the day was pleasant. The stock recovered to above RM1 levels, and the position was disposed one it becomes apparent that there was a strong selling resistane at RM1.04 levels.

And oh, the position was a fairly large one. So exiting this came naturally; a general rule is that if the position is big enough to lose sleep over, any excuse to take profit must be considered.

The move was worth a 7% gain, and a five figure profit.

Four trades. RM30,000 in earnings. 

Not bad lor...

Tuesday, 12 May 2020

SINOTOP : LIQUIDITY BREAKOUT PRINCIPLE GETS US RM36,000 in 2 HOURS [TRADE OF THE WEEK #35]


Outcome
Gross Profits : RM36,732
Return on Investment : 37%
Duration : 2 hours



We have done this before. Similar situation, different stock, same outcome.

This time, not only were we fully prepared, we went for the jugular. Hence the freakishly large profits - by our standards.

Preparation comes from experience, and from sensing certain market signals. A lot of this is a combination of instinct and rote learning; with price-volume analysis, you simply have to put in the hours. Watch the markets, identify the peculiar movements, and be ready to jump in.

Having been in a similar situation before means that we can act just slightly faster, with slightly more conviction. Once our breakout signal was triggered, we were very keen to go all in to capitalise on these kinds of extraordinary opportunities.

In high stakes trading like this, there is no playing it safe. The assumption of high risk means that the payoff has to be decent enough to be worth the trouble.

Going for the jugular means the difference between getting a 'modest' profit of RM1,000 and truly extraordinary five-figure profits.

37% yield. Two hours, excluding the midday market break. In by 11:00AM, out by 3:10PM.

Approximately RM300 received per minute. Or RM5 per second, if you dig the math.


LIQUIDITY BREAKOUT : AN EXPLAINER

History does not repeat itself, but it sure rhymes.

Below is our playing field. That price spike on 27 April 2020 was the day we traded this.


SINOTOP daily chart

We define liquidity as the synthesis of price and volume of a stock.

Then think of a breakout as a feedback loop. Higher price brings in trading volumes, which drives up prices.

Then, before you know it : boom, the stock jumps 10% in a day. We call that a breakout, driven by incoming liquidity. Hence the term.

An extraordinary outcome carries long odds, and that's where the payoff potential is the highest. It's like Leicester City winning the Premier League, or Tan Sri Muhyiddin defying expectations to jump the prime ministership queue.

When you manage to get ahead of the curve, at the very moment the extraordinary event is occurring, that's when a trade can deliver massive profits. Si Kitol would know what we're talking about...


THE TRADE

For starters, read up on our earlier posts on GETS, SEDANIA, and SCNWOLF. They are very similar to what happened here with SINOTOP.

When we encounter these kinds of situations - or to be precise, when we think we are encountering them - we get an acute sense of déjà vu.

Having lived those past lives, we would have a general view of how a similar trade is supposed to play out. It is like writing a script for the market, which is something we encourage you to try out.

Having a script is just another term for scenario analysis, really. A simple example of a chain of events that would validate our views:

A = liquidity breakout

B = short term price fluctuations

C = stock price breakout <go for the jugular>

D = volumes come in to chase (the latecomers)

E = stock price hits the stratosphere

In this simple script, A would be the trigger for us to look into that stock. In the best case scenario, A leads to B, and to C, and so forth, culminating in E, which is the outcome everybody wants in the stock market.

Correctly identifying liquidity breakouts is the pathway to riches. We have been obsessed with this for years. Sometimes we nail them, and sometimes they are just fake-as-f movements.

As it turned out, A eventually led to E in SINOTOP's case, because it turned out to be exactly the best case scenario.

We'll denote the letters by their respective time periods. In this discovery process, our thinking and trading are guided by these succession of events.

SINOTOP's five minute chart, 27 April 2020

A = Liquidity  breakout, 10:05 to 10:30AM

Not normally known for making fast moves, SINOTOP suddenly jumped from 15 sen to 24 sen in half an hour. That's a 60% rise; you'd be lucky to find a single stock that does that all year long.

There wasn't much selling resistance here. It just very easily broke that 20 sen mark, where you'd think there would be some selldown pressure. But no.

We watched the movement with intent. Was there a justification behind it?

Looking into the filings, there was this seemingly innocuous announcement on 23 April. Maybe that was the clue.

But at 10:30AM on the 27th, a bigger question looms: after that sixty percent jump, does it stand a chance to go even higher?

And even more crucially : would we be out of our damn minds if we think there's a chance?

Another hurdle in these kinds of situation is something you have to get some mental practice on: envisioning the seemingly impossible.

As we have said before, there's always a probability for everything, however remote it may be.

Either this thing was going to fall apart, or it may skyrocket. But it will likely happen fast, possibly within one day. At least that's what the bulk of our collective experience tells us.

But we got our first clue already for SINOTOP : the stock didn't even fall back below 20 sen, which would have been a likely indicator of the breakout fizzling out. It just stayed there between 20 and 24 sen, although on very low volumes.

B = short term price fluctuations, 10:30AM to 12:30PM

We then decided to give it a shot, having accepted the possible losses. Our first entry was at 23 sen, with some more minor buying at between 22.5 sen and 23.5 sen.



As shared in our VIP Telegram Group

The parameters were mundane, sensible even. 25.5 sen is the assigned target simply due to us practising the 2:1 reward-to-risk principle. With these parameters, we were risking a 1 sen per share loss for a 2 sen per share gain.

But of course, if this thing suddenly skyrockets, we probably wouldn't have to rush to take profit at 25.5 sen. That was the idea and - although we hate using this word in trading - the hope.

Of course, as it so often happens, SINOTOP went down after our purchase. We had extended ourselves to the tune of 150,000 shares by this point, meaning that a one sen decline would lose us RM1,500. Not pretty.

For the next hour and a half, the stock flattened out at the 21.5 to 22 sen range. Our assigned stop loss of 21.5 sen was hit, so we trimmed the position by 60,000 shares. We absorbed the losses.

But simply due to the fact that the stock failed to completely collapse, we decided to hold on to the rest. The market closed for midday with the stock being somewhat of a dud.


C = stock price breakout <go for the jugular>, 2:30PM



At the 2:30PM market reopening, SINOTOP suddenly jumped with no explanation. In a span of five minutes, the stock flew past our initial buy range and target price.

From our real time interpretation of the movement, it was all the signal we needed. We couldn't doubt ourselves at this point, because we were about to go all in. (Editor's Note : even when we do go all in, the stop loss remains sacrosanct. Usually during strong rallies, we'd upgrade the stop loss price, sometimes to a point where it becomes a profit lock-in price)

So not only did we replenish that entire 600 lots position, we acquired several thousand more lots prior to the target price being hit. It took a couple of minutes.

We had courage in our conviction because we've been through this situation before. With the liquidity breakout, our expectation is for the stock to rally further, and hard. Forget that earlier 60% gain in the stock price; in this kind of trade, SINOTOP can gain another 60%.

D = volumes come in to chase (the latecomers)
E = stock price hits the stratosphere, 2:35 to 3:10PM

We positioned ourselves early, and we got to ride the wave from the start. That wave really came from a sudden influx of trading interest and volume, but only once the stock had its breakout from beyond the 25 sen mark.

Recall the feedback loop:

 Higher price brings in trading volumes, which drives up prices.

When the script in our mind is playing out in real life, we stopped having doubts. The steps to be taken were very clear. We also knew when to get in, and how to get out.

No time to second-guess. No time for buyer's remorse; a normal occurrence when you're suddenly holding hundreds of thousands of newly acquired shares. Focus and clarity are crucial. There is no 'happiness' or 'fun' when the stock is skyrocketing; our primary focus is to exit this trade appropriately.

In that thirty-minute period prior to 3:00PM, there was a rush to buy the stock. It shot up like crazy. 28 sen. Then 30 sen. Any possible resistance points there? Just like when SINOTOP was at 20 sen, any supposed selling pressure was obliterated by the sheer buying.

No selling pressure at 20 sen, then none at 30 sen. It's a microcosm of history rhyming itself.

And so it got to the point where we sold everything. It took multiple orders so as not to disrupt the price move.  SINOTOP was trading in small lots with each price increments - 300 lots at 32 sen, then 400 lots at 33 sen.

We firmly sold into the rally as our targets had already been met. We managed to exit at 34 sen, even though the stock hit 40 sen right after. No matter; we don't waste our time trying to time the peaks.

400,000 shares sold.




There's one last piece of this puzzle that we didn't elaborate on:

If we were clearly out of our damn minds to trade a stock that was up 60%, how much more insane does one have to be to acquire close to half a million lots of a totally illiquid penny stock?

POSITION SIZING, WITH ABSOLUTE CONFIDENCE

In a counter whose normal buy and sell queues are about 400 lots each, it's never easy to build a large position.

Relative to those 400 lots, our sizing ended up being 10 times larger. 4,000 lots, or 400,000 shares.

It means that each 0.5 sen movement is equivalent to RM2,000 in profit, or loss. A single sen move is worth RM4,000.

We sort of bent the truth here: we didn't have absolute confidence. It is nearly impossible to, but we were confident enough to ride this out.

Conviction-driven courage is what it takes to build large positions. After the position is built up, it's stop loss management all the way.

To get to a point where such position sizing doesn't make you want to vomit - and to stand a shot of making RM30,000 in 2 hours, you simply have to work your way up. There's no special sauce that we can share. It takes years of blood, sweat, tears, and other secretion of fluids.

Year 1 : get comfortable with holding 200 lots.

Year 3 : 800 lots

Year 5 : 500 lots

Year 10 : 3,000 lots

Nobody said it was easy. But do you see the payoff?

Sunday, 3 May 2020

TRADING LESSON : WHY IT'S OKAY TO BE WRONG



We do not live in a society that tolerates indecision and wrongness.

Every time, the mark of a 'true' leader is to boldly stick to one thing and carry it through no matter what. A leader who changes her mind halfway is not seen as bold, even though it's arguably a much more difficult thing to do.

The phrase 'no matter what' already puts our minds in a corner. It means that come hell or high water, we have to deliver. Damn the costs. You want to suddenly decide to do something else? OK, you're fired; we'll get the guy who will follow the game plan.

We fear getting things wrong. Even worse, we fear admitting that we are wrong. There is no performance bonus for the person who says "Oops, sorry guys, I guess we fucked it up at the start". But this is precisely the corrective action that is needed.

We totally understand that in corporate culture, we have to always paint a rosy picture in our business plans or financial projections.

But when that plan totally becomes useless in the face of economic realities - like say, an impending recession - the projections become about as useful as getting a haircut to relieve high blood pressure.

In the business of trading, we have to change our minds a lot. It's a necessity, and we get things wrong every single day.

Sometimes our plans don't work. Our views can be flawed, or ill-conceived. We sometimes say and do completely dumb things.

These apply to trading, but life is like that too.

BIAS V.S. FACT

When we trade stocks, we have to formulate opinions about a lot of things. Is the stock undervalued or overvalued? What's going to happen tomorrow for crude oil? How does Trump's tweet affect the stock market? Is the index shooting up or collapsing tomorrow?

We get asked a lot about any of the above. And to be truthful, the answer is always this :

I'm not sure, and I admit that I'm not sure. But I have some ideas.
 
Obviously, we have opinions about literally everything. So what we do is to admit that they're just opinions. We do not limit ourselves to the possibility of completely being wrong and changing our minds, and quickly.

So here's a two step plan to make better trading decisions.

1) Embrace your bias

Is the market going up or down tomorrow? How we'd answer : "Our bias is for the market to....". There is no sure thing. We'd assume one thing, but we don't put too much weight on that particular assumption, because the future is fuzzy.

And if anyone has an issue with this, it's fine... it's not their money that we are putting on the line.


Snapshot from our private Telegram channel

2) Always think in probabilities

In simple statistical terms, if you're looking at how stocks will perform tomorrow, there are only three possible outcomes.

Up
Down
Flat

However, the probability is not 1/3 (33%) each. Sometimes the price is unchanged (flat), but due to the inherently volatile nature of stocks as an asset class, they are more likely to go either up or down on a daily basis. Ignore this part if you're yawning to death : the rate of change in stocks tend to follow bimodal outcomes.

Just like anyone with a remotely political opinion, we always have our biases in the financial markets. What is more interesting is if something completely different happens. We assign probabilities to multiple outcomes, because we are not anchored to a single, unbendable, thought.

OK, the stock didn't do what we expected. So how does this guide our next trading decisions? Us being right with the initial opinion has its own probability, and so does the opposing one. We just adjust accordingly.

Do we stick to being wrong and insist everyone else is an idiot? No sir.
Since we are wrong about tech sectors going up on Monday, does that mean we should sell our entire portfolio? Maybe switch to trading oil and gas counters? Or buy some Hang Seng put warrants as insurance against a falling market?

Being wrong does not have to be the end of it; its just one single point in the decision chain. We get over it very quickly, because the more important things lie ahead. We owed some of our biggest trading profits to being completely wrong at the start, changing our minds, and swiftly making decisions to reflect that.

Additionally, we are completely shameless. We do not care what people think about our wrongness, even when we screw up the next 9 out of 10 trading decisions. That one time where we get it right can make all the difference.

And you shouldn't care either. It's your own money, your own call. 

DON'T WORRY, IT'S JUST A LEARNING LESSON


Let's do a simple exercise. When was the last time your financial adviser, or stockbroker, or your immediate supervisor, admitted that they were completely wrong about something? Like, absolutely, horribly wrong?

We know it can get a bit touchy. Reputations may be on the line, and admitting fuck ups do not pay well. Aren't they supposed to be the experts? 

Maybe your stockbroker can hedge his recommendation. "It was really the right call, but we didn't expect oil prices to crash by 20 bucks!". OK, it's the universe's fault now.

Is it too much of a stretch to suggest that perhaps people who really know, are the ones who learned from not knowing before?

We are not joking when we say we get things wrong every day. It's part of our process. We do not doubt it for a second, because we get results.




There's a bit of a paradox when it comes to experts, and the whole notion of expertise.

The more we think we know, the more resistant we can be to opposing opinions. My reputation's on the line, so I have to know better. 

Even worse, we become dogmatic. Instead of seeing merits in diversity of thought, we are inclined to reject them. We get defensive, and start citing our credentials while trying to snipe at other people's credibility.

Value investors sneer at short term traders who make gigantic losses from a single bad move. Short term traders laugh at value investors who held on to their positions during a big market crash out of their devotion to value, just before they capitulate and dump stocks at the bottom of the market. 

We simply don't understand people who think like this. We find value in... well, value investing, as well as trading, as well as arbitraging, technical analysis, fundamental analysis, and a lot of things. It's all different strands of knowledge in the pursuit of the same goal.

The obsession with 'me being right and you being wrong' is why most of us 
will never improve as investors.

It's no surprise that kids tend to admit that they don't know things, and that they are wrong, compared to adults. We somehow naturally end up outgrowing a very crucial and necessary trait. Maybe it's because we live in a conformist society that does not tolerate indecision and wrongness.... you get the idea.

We fear getting things wrong. We fear being thought of as an idiot by our friends or colleagues. We fear being perceived as incompetent. 

We should not be motivated by fear, though. We should be motivated by the pursuit of knowledge, and finding optimal outcomes.

Elton John got it right when he said that 'sorry' seems to be the hardest word, but next in line are 'I was wrong' and 'I don't know'.

GET RID OF THE FEAR

In trading, the primary fear is self-doubt. Fear of getting things wrong can sap confidence, ruin emotions, and destroy egos. Sometimes there will be a losing streak that we find hard to overcome. 

But this is not a business meant for egos. When you think you're a market genius, that's when you're toast. We will keep getting things wrong even when we're all in our 70s and trading out of retirement homes with shoddy Internet connections. 

So what's the cure for being fearful of wrongness? It's simple : forgive yourself. Know that it's alright.
 
In our own investment journey, we've done everything. We've been wiped out. We've had bullish calls that turned out to be complete duds. We had bought speculative crap stocks at their peaks. We once turned a 30% paper profit into a 20% loss overnight (also a speculative crap stock). Five figure losses. Et cetera.

And worst of all : we had been in denial before. Like the clueless gambler destined to spend a life in destitute, we ignored the lessons of cluelessness. It took us a long time to realise that it's OK to be wrong. Only then did we start improving, slowly.

Getting things wrong is not a negative trait. It doesn't mean you're an idiot. It's what you do after that matters.

The next time your trading or investment ideas turn out to be completely wrong, accept it, move on, and find the next angle. That moneymaking opportunity is not going to stick around forever.

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