Before I get into the heart of what this blog will be about, I want to make sure everyone understands that I am not a professional trader. Nor have I ever been a professional trader. Like many of you, I am simply a fellow TSPer who decided to try and take control of my financial future. I do not have all the answers and there are many things about the market that I do not fully comprehend. And I never will. But that's okay, as it's really not necessary to understand the market on an intimate level in order to be successful when taking charge of your financial future.
Now I don't remember when I made the change exactly. I think it was at least 3 years ago. The change I am referring to is my avatar on TSP Talk. As you are probably aware, my avatar shows an image of Neo, one of the main characters from the Matrix movie series. I chose this avatar because it serves as a perfect motif when comparing the parallels between the movie itself (The Matrix) and the stock market.
In the movie we learn that the Matrix is a simulated world to which humans are connected, and that humanity is used as a power source for giant intelligent machines. It creates a world of myth and illusion to those connected to it, thereby keeping the masses under the control of the machines.
The Stock Market is not a whole lot different. Its sheer complexity creates a world similar to that of the illusion that is the Matrix. Trying to understand it for most people is usually futile. And as investors we often try to use logic when approaching the market. But the market is not logical. It eludes most attempts to apply logic due to its tremendous manipulative nature. We have to cast logic aside if we are to free ourselves of its powerful grasp.
In the movie, Neo is offered two pills; a red pill and a blue pill. The red pill is designed to disrupt his body's neural connection to the Matrix so that he may learn what the Matrix is and eventually manipulate it in an effort to end the illusion for all held in its embrace. The blue pill takes him back to the world of illusion where he could return to his old life and remain blind to the truth.
He took the red pill.
I took that red pill some time ago. But just as Neo still required training and conditioning to fully escape the Matrix's grasp, so too I needed to continue to adjust my perceptions and understandings of the stock market. And I am still learning.
With the analogy between The Matrix and the stock market in mind, I am hoping to set the stage for the message I want to convey.
Now let's get to the main theme of this blog.
I think that to be successful in the market one has to have some level of understanding of what they are up against. You have to recognize that the market is an entity with its own character and that this character is always in motion. Myth and deception are among its basic components.
To deal with such an entity, one must make some attempt to get educated to a point where proper perspective of the market landscape is achieved. I believe you need this in order to better recognize and appreciate what approach you'll want to take in interacting with it. It will also help you embrace the approach. You're more likely to trust it. Without a proper perspective it is easy to get frustrated and lose focus. The specific approach I'm going to focus on in this blog is using a system.
So education is important as that develops perspective, but the amount of education varies with the individual. The goal however, is to develop an understanding and trust in a system level approach.
Also important is setting realistic expectations. This is something you will understand better as you become more knowledgeable. We need to always remember that the market is smarter than we are. And any system that we choose to use will have times where it may not do so well, but it is also true that it will have times when it excels. Over the long run, if the system is well thought out it should outperform the market.
A system frees us from having to roll up our sleeves to try and sort the market out on a day to day basis. And sorting out the market on a daily basis is pretty darn hard to do and most of us don't have the time for it. Plus a system should remove the emotional component of managing one's portfolio. Because a system has no emotions. Remember, this goes back to education and market perspective. You develop trust for the system through this process because you're better educated.
Now here's an obstacle. As human beings, we tend to have a need for control. We want to be the ones making the decisions. And following a system forces us to give over that control. It's very hard to commit to something when you don't understand the reasons why you're doing it. Once again, it comes down to developing that perspective and understanding.
I don't think any of what I'm telling you is new to many of you. You've heard this before at least to some extent. Tom tells us some of these very same things from time to time. And he is correct. But it is not an easy lesson. Not by a long shot.
So what exactly are we up against when interacting with the market?
Since volumes have been written on the subject, I cannot give you a detailed answer. It is just too complex. But it is that complexity that makes it quite challenging to interact with. It is why the market is so elusive. So seemingly unpredictable. And that is one of the reasons many traders choose to use a system when dealing with it.
One aspect of the market that many of us have come realize, aside from its complexity, is that the market is not a level playing field. And this has become the general consensus among the masses. And it's small wonder. As if the market wasn't difficult enough for the retail investor/trader to deal with there is a dark side that is ever present as well. Here is a short list of the some of the more prolific examples of that dark side. You should recognize most of them: Enron, Long Term Capital Management, Arthur Anderson, WorldCom, Savings & Loan Debacle, Bernie Madoff, Bear Stearns, Subprime Mortgage Crisis.
The list goes on, but you get the idea.
Among that list of examples I just mentioned is one in particular that carries with it a personal experience within my own family. You see, my brother used to work for Arthur Anderson. And let me tell you, not many worked for Arthur Anderson unless they went through a multilevel interview process. And you had to have the right credentials as well. As graduate from the University of Texas at Austin (go horns!), my brother made it through that process and worked for them for about 11 years. But he was involved in strategic planning and not the auditing arm of the company that eventually did them in. Still, he was a Certified Public Accountant who understood company financial profiles very well.
My brother used his extensive knowledge in this area to invest in companies he was sure were worthy of his financial resources. He had done his homework after all, and knew what he was doing.
But it didn't matter. When the dot com bubble burst, many investors lost significant personal wealth and my brother was no exception. This was also around the time of the Enron and WorldCom debacles, among others. Fraud left very few untouched.
So what is the value of logic? What is the value of fundamental analysis? If a really smart guy can get fooled, where does that leave the rest of us?
Here's another story, same theme.
I just attended the Money Show here in Orlando, Florida earlier this month. It's not something I would go out of my way to attend, but since it was only about twenty-five miles from where I live, a co-worker and I decided to go.
One of the presentations I was particularly interested in hearing was given by Kelley Wright of Investment Quality Trends, one of the oldest newsletters around. The presentation was titled "Build Wealth with Dividends in a Sideways Market".
Now if you've never been to one of these shows, they're pretty large. And there are dozens of presentations given on a daily basis. People flock to these shows from all over and like to hear what their favorite gurus are saying.
Well, during Kelley's presentation, one of his followers asked a question regarding some of his past picks in the financial sector. He began an emotional response with "Those lying rat bastards...".
Need I say more?
In the end, we have to accept as fact that we cannot avoid these situations entirely when putting our money at risk, but a system can help to a very large extent in smoothing out the ripples (or waves in some cases). Much more can be said, but I don't want to belabor the point. My intent here is to help shape perspective. To get us thinking about the challenges involved in managing one's financial future.
This blog is the most difficult one I have written. I've spent over a week just thinking it through. The subject is complex and has an emotional component to boot. So consider today's message a baseline. A starting point from which to begin a dialog. I welcome input from anyone who cares to offer it. We can learn together as that is what TSP Talk is all about.
Now I don't remember when I made the change exactly. I think it was at least 3 years ago. The change I am referring to is my avatar on TSP Talk. As you are probably aware, my avatar shows an image of Neo, one of the main characters from the Matrix movie series. I chose this avatar because it serves as a perfect motif when comparing the parallels between the movie itself (The Matrix) and the stock market.
In the movie we learn that the Matrix is a simulated world to which humans are connected, and that humanity is used as a power source for giant intelligent machines. It creates a world of myth and illusion to those connected to it, thereby keeping the masses under the control of the machines.
The Stock Market is not a whole lot different. Its sheer complexity creates a world similar to that of the illusion that is the Matrix. Trying to understand it for most people is usually futile. And as investors we often try to use logic when approaching the market. But the market is not logical. It eludes most attempts to apply logic due to its tremendous manipulative nature. We have to cast logic aside if we are to free ourselves of its powerful grasp.
In the movie, Neo is offered two pills; a red pill and a blue pill. The red pill is designed to disrupt his body's neural connection to the Matrix so that he may learn what the Matrix is and eventually manipulate it in an effort to end the illusion for all held in its embrace. The blue pill takes him back to the world of illusion where he could return to his old life and remain blind to the truth.
He took the red pill.
I took that red pill some time ago. But just as Neo still required training and conditioning to fully escape the Matrix's grasp, so too I needed to continue to adjust my perceptions and understandings of the stock market. And I am still learning.
With the analogy between The Matrix and the stock market in mind, I am hoping to set the stage for the message I want to convey.
Now let's get to the main theme of this blog.
I think that to be successful in the market one has to have some level of understanding of what they are up against. You have to recognize that the market is an entity with its own character and that this character is always in motion. Myth and deception are among its basic components.
To deal with such an entity, one must make some attempt to get educated to a point where proper perspective of the market landscape is achieved. I believe you need this in order to better recognize and appreciate what approach you'll want to take in interacting with it. It will also help you embrace the approach. You're more likely to trust it. Without a proper perspective it is easy to get frustrated and lose focus. The specific approach I'm going to focus on in this blog is using a system.
So education is important as that develops perspective, but the amount of education varies with the individual. The goal however, is to develop an understanding and trust in a system level approach.
Also important is setting realistic expectations. This is something you will understand better as you become more knowledgeable. We need to always remember that the market is smarter than we are. And any system that we choose to use will have times where it may not do so well, but it is also true that it will have times when it excels. Over the long run, if the system is well thought out it should outperform the market.
A system frees us from having to roll up our sleeves to try and sort the market out on a day to day basis. And sorting out the market on a daily basis is pretty darn hard to do and most of us don't have the time for it. Plus a system should remove the emotional component of managing one's portfolio. Because a system has no emotions. Remember, this goes back to education and market perspective. You develop trust for the system through this process because you're better educated.
Now here's an obstacle. As human beings, we tend to have a need for control. We want to be the ones making the decisions. And following a system forces us to give over that control. It's very hard to commit to something when you don't understand the reasons why you're doing it. Once again, it comes down to developing that perspective and understanding.
I don't think any of what I'm telling you is new to many of you. You've heard this before at least to some extent. Tom tells us some of these very same things from time to time. And he is correct. But it is not an easy lesson. Not by a long shot.
So what exactly are we up against when interacting with the market?
Since volumes have been written on the subject, I cannot give you a detailed answer. It is just too complex. But it is that complexity that makes it quite challenging to interact with. It is why the market is so elusive. So seemingly unpredictable. And that is one of the reasons many traders choose to use a system when dealing with it.
One aspect of the market that many of us have come realize, aside from its complexity, is that the market is not a level playing field. And this has become the general consensus among the masses. And it's small wonder. As if the market wasn't difficult enough for the retail investor/trader to deal with there is a dark side that is ever present as well. Here is a short list of the some of the more prolific examples of that dark side. You should recognize most of them: Enron, Long Term Capital Management, Arthur Anderson, WorldCom, Savings & Loan Debacle, Bernie Madoff, Bear Stearns, Subprime Mortgage Crisis.
The list goes on, but you get the idea.
Among that list of examples I just mentioned is one in particular that carries with it a personal experience within my own family. You see, my brother used to work for Arthur Anderson. And let me tell you, not many worked for Arthur Anderson unless they went through a multilevel interview process. And you had to have the right credentials as well. As graduate from the University of Texas at Austin (go horns!), my brother made it through that process and worked for them for about 11 years. But he was involved in strategic planning and not the auditing arm of the company that eventually did them in. Still, he was a Certified Public Accountant who understood company financial profiles very well.
My brother used his extensive knowledge in this area to invest in companies he was sure were worthy of his financial resources. He had done his homework after all, and knew what he was doing.
But it didn't matter. When the dot com bubble burst, many investors lost significant personal wealth and my brother was no exception. This was also around the time of the Enron and WorldCom debacles, among others. Fraud left very few untouched.
So what is the value of logic? What is the value of fundamental analysis? If a really smart guy can get fooled, where does that leave the rest of us?
Here's another story, same theme.
I just attended the Money Show here in Orlando, Florida earlier this month. It's not something I would go out of my way to attend, but since it was only about twenty-five miles from where I live, a co-worker and I decided to go.
One of the presentations I was particularly interested in hearing was given by Kelley Wright of Investment Quality Trends, one of the oldest newsletters around. The presentation was titled "Build Wealth with Dividends in a Sideways Market".
Now if you've never been to one of these shows, they're pretty large. And there are dozens of presentations given on a daily basis. People flock to these shows from all over and like to hear what their favorite gurus are saying.
Well, during Kelley's presentation, one of his followers asked a question regarding some of his past picks in the financial sector. He began an emotional response with "Those lying rat bastards...".
Need I say more?
In the end, we have to accept as fact that we cannot avoid these situations entirely when putting our money at risk, but a system can help to a very large extent in smoothing out the ripples (or waves in some cases). Much more can be said, but I don't want to belabor the point. My intent here is to help shape perspective. To get us thinking about the challenges involved in managing one's financial future.
This blog is the most difficult one I have written. I've spent over a week just thinking it through. The subject is complex and has an emotional component to boot. So consider today's message a baseline. A starting point from which to begin a dialog. I welcome input from anyone who cares to offer it. We can learn together as that is what TSP Talk is all about.
