I try to write about a wide range of stock-related topics here on Trading Common Sense. And let’s face it: there is a lot to learn about the market. But if sometimes I start to sound like a broken record with the “perspective” and “patience” and “timing” and “discipline” stuff, it’s not by accident.
You see, there are thousands of things that factor into whether or not a person is a good trader. The best traders in the world are good at most of these things. But you and I don’t have to be one of the best traders in the world to make a lot of money. I always want to be the best at everything I do. But when it comes to the stock market, simply being a “good” trader still makes you money.
So how many of those thousands of things does it take to be a good trader? Surprisingly few. If you set out to complicate the stock market, you will have no shortage of tools at your disposal. If you simply want to make money, remember that it’s always a good time to K.I.S.S. (Keep It Simple, Stupid!) I talk about the handful of things that truly matter over and over and over again on Trading Common Sense and in my book.
Timing
Sometimes I hate cliches. There are a lot of awesome cliches that have been stripped of the impact they would otherwise have because of the fact they are cliches. But cliches become cliche for a reason, and in the stock market, it’s very much true that “timing is everything.”
Here’s a 10-year chart of Bank of America:
It’s been a rough freaking decade to say the least…
Lots of shareholders lost a lot of money trading BAC stock during the last 10 years. Overall, the stock is down 63%.
So when I picked Bank of America as one of the first stocks to buy back in 2008, was I picking the best stock or the best company? Absolutely not! But I picked a damn good time to buy. I bought the majority of my shares of BAC at $4.96 in February, 2009. Then I sold them in August of 2009 at around $18. As it turns out, that was a damn good time to sell as well, considering that five years later BAC is trading around $16.
The next time I bought BAC was at $10.00 in July of 2011. Then two months later, I doubled my position at a price of $6.00. Looking at the chart, these buys (especially the $6.00 one) came at another extremely opportune time. I sold these shares at around $15.00 in December of 2013.
So here is the chart of a stock that is down over 60% in the past decade. And yet within that 10-year period, because of timing alone, I was able to make two sizable trades for gains of about 260% and 87% respectively.
The power of timing.
Patience
I first bought Apple back in January 2013 for a split-adjusted $73 per share. At the time, I thought that was about as cheap as the stock was going to get. Fortunately/unfortunately, I was shortly thereafter able to get an even better deal on Apple at a split-adjusted price of about $66 per share. Then I sat and watched day-by-day as AAPL dropped as low as $53.
It’s easy to see now with Apple trading at around $100 that those were good buys. But for nine months I sat and waited, staring every day at a red number next to the Apple shares in my trading account, until my position finally turned comfortably green.
I’ve written before before about how Warren Buffet, widely considered one of the greatest investors of all time, waited three years before his purchase of the Washington Post became profitable. Twenty years later, Buffett’s $10 million purchase was worth $1.7 billion.
The power of patience.
Discipline
It was terrifying in February of 2009 to be buying shares of Bank of America (at $4.95), Pfizer ($14.64), Alcoa ($7.66), GE ($11.15), and Dupont ($23.07) when everyone else around me was in a selling frenzy. But I had a plan, and I had a long-term outlook, and I was determined to stay disciplined and stick to my plan. Overcoming the emotions that a trader experiences in real time, particularly fear, is one of the hardest parts of being a successful trader. It feels so safe to cave in and do what everyone else around you is doing. But guess what? Everyone else around you is probably losing money.
Sure I was scared in 2009, but I believed in my plan. And because I stuck to it, I made sizable profits on every last one of those buys.
The power of discipline.
Perspective
My poor, poor fellow Melco Crown Entertainment shareholders… It’s been a rough year. This week, the monthly Macau gaming revenue numbers were released, and the 6% drop for August marks the third consecutive monthly drop. That’s the first time Macau has seen a losing streak of three or more consecutive months since 2009.
Melco shares are down 28% in 2014, and if you want to read more of the laundry list of recent problems raining down on Melco, I’ve written plenty about them recently.
But today I’m talking about perspective, so here’s some perspective for you. Yeah, it’s scary to see three straight months of falling revenues. But Macau gaming revenue for the first eight months of 2014 is still 8% higher than the same eight-month period in 2013. The sky is not falling, people. Not yet, anyway.
And yeah, MPEL’s 2014 chart looks ugly. But look its long-term chart compared to Apple’s:
This big pullback in Melco on fears of slowing revenue growth reminds me a whole lot of the fears around the slowing revenue growth of Apple back in 2013. Melco is aggressively expanding outside of Macau, and I see no reason why the long-term picture for the company is anything but bright. There have been a lot of bumps in the road lately, but as long as you always stay aware of the reasons you bought a stock in the first place, you will always know when it’s right to stay the course and when it’s time to throw in the towel.
The power of perspective.
K.I.S.S. Me!
When you feel like you are getting bogged down in information or emotion, do what I do: have a little K.I.S.S. It always makes me feel better… Keep it simple! Trading can be as complicated as you want to make it. But sometimes some K.I.S.S.-ing can do a lot of good.
Want to know more about how I K.I.S.S? Or maybe you just want to be able to look sophisticated in front of your coworkers when they ask you what you are reading on your Kindle, and you’d prefer to tell them “Oh, I’m just reading a book about stock market analysis,” rather than the usual “Oh, I’m just looking at pics of my ex-girlfriend on Facebook.” For these reasons and more, check out my book, Beating Wall Street with Common Sense. I don’t have a degree in finance; I have a degree in neuroscience. You don’t have to predict what stocks will do if you can predict what traders will do and be one step ahead of them. I made a 400% return in the stock market over five years using only basic principles of psychology and common sense. Beating Wall Street with Common Sense is now available on Amazon, and tradingcommonsense.com is always available on your local internet!
