Millionaire TradersQ: Any other worst trades?
A: No. The baptism under fire coffee trade, that’s the worst.
Anything worst than that and I would not be here today talking to
you guys about trading, if I were in your office today, I would be
asking you guys something along the lines of who ordered the Big
Mac [laughter].
Q: Do you average down into a trade?
A: This is going to cause some controversy—but a qualifiedyes.
Let me stop the controversy though as much as I can. I realize as
much as anyone else that averaging down has led to some of the
biggest debacles in our industry. The idea of averaging down is
where if you are buying an asset and then it goes against you. You
start buying more. You are getting hurt by reverse compounded
interested. Not only are you wrong, not only is your net worth
declining, but you’re also increasing your risk. Now I know that
is a recipe for disaster and most people should not even do it.
However, there is one other thing that’s been happening in the
past few years and that is you identify a great asset class that you
want to own for whatever reason. You’re thinking about buying it,
and you’re sitting there and sitting there, and because of the world
we live in and the amount of money that is going into these markets,
all the managed money as well, and the amount of people who are
using black box or some type of trend following system designed to
basically exploit trends. You might be watching this asset class with
a whole bunch of other trend followers. They’re going to get into
the asset class make it go further and further away from you. You
have a choice to make because you may think that this is a great
asset class that I want to own it. I hope to own it at lower levels, but
the trend guys are in there and they’re pushing it and pushing and
it’s getting away from me. I’ve got to buy some now and get some
exposure because the worst thing you can ever do is be right about
an investment, researched it, it’s correct and it goes dramatically
in your favor and you’re not even on board. I mean that’s going to
lead to huge underperformance or maybe losses for the year. So