A Blog Mini Series

Part Four

Accept small losses as being okay and as a part of life. Expect to experience several while looking to make a large gain.

Ideally we should welcome small losses, because they protect us from the large ones. I know, I know, who does cheerfully welcome losses? I don’t know much people that do either. But at least accept those small losses with good grace and as a fact of life.

In reality this mentality provides us with excellent protection. Get in the habit of taking small losses. If a venture does not work out, get out and try something else. Don’t get trapped on that sinking ship.

Of course, much like the majority of the rules pointed out, this one isn’t easy to achieve either. A way to look at this as being a fact of life is to think of the small losses the same way you do as expecting to pay taxes or electric bills, for instance.

It takes practice to come over these skills and overcome the challenges they come with. When you do, you’ll likely be amazed of the “thick skin” you have grown, and the rewards that come from following the rules of risk and reward and taking on risk head on.

Forecasts

“Human behavior cannot be predicted. Do not trust anyone who claims to know the future, to whatever extent.” 

Before the coming of the year 2000, people predicted computers would shut down, networks would go under, the world would end, etc. What happened? Nothing. You woke up this morning to be advised by the news weather man that it’s going to be a bright sunny day. On your way to work you get drenched from the enormous downfall of rain.

It makes you wonder. Why do we continue on listening to prophets, forecasters, predictors, etc. when they know more about the future than you and I?

No doubt we listen, because knowledge about the future is, and always been, one of those things that is desperately sought out by humans. If you would know tomorrow’s stock prices, next year’s fads, the next economic boom, you would be rich. Therefore, we listen with respect and hope anytime someone stands up and claims to envision the things to come.

More often than not, listening to prediction turn out to be a big mistake. Back in the beginning of 2008, stock market gurus determined that the market would continue on going up and that it’s the right time to buy in to the stock markets. With their “crystal balls” and supposed theories, they told people they could make a lot of money. People listened and piled into the markets. As you may or may not know, the market crashed months later and the economy went into a deep recession, resulting in people losing money, their retirement funds, and the shirt on their back.

The fact is no one has any idea of what’s going to happen next year, next month, or even tomorrow. If you hope to get anywhere as a speculator, you should get out of the habit of listening to forecasts. It is essential that you do not listen to economists, market advisors, or other financial oracles seriously.

Sometimes they may be right, but that’s what makes them dangerous. Say they make a prediction and it turns out right. “Amazing!” everyone says. But what about all the times that they were wrong. You’ll never hear about those instances. It’s easy to be a prophet. Make fifty predictions, and only talk about the ones that come true. You see it being done every time.

Prophets like Nostradamus or modern “future gazer” Jeane Dixon made a lot of predictions, but only a few were right. Those were the ones often noted and talked about, making them seem to be some kind of guru. They made predictions often, but they were only right often. Again, you’ll rarely hear of the wrong predictions.

It’s easy to be dazzled by a “successful” prophet which is why it makes them so dangerous, especially when it comes to making money. When it comes to making money they will attract an enormous following when gaining the reputation as a successful forecaster.

The Shift

Maybe you do understand that market advisors and financial oracles are right and wrong sometimes. Now, what does this do to you if you look to them for advice? It causes you yourself to try and forecast the future in discerning which of their predictions will turn out correct. What a paradox.

One of the traps the money-world prophets fall into is that they forget they are dealing with human behavior. They try to rationalize events with reasons of things like inflation rates, the action of the Dow, or some kind of physical event. All to succumb the illusion that things can be remarkably forecasted.

Looking at the stock market, it is a major engine of human emotion. Prices rise and fall because of human emotion. Their fear, greed, hopes, worries, etc. are painted all over the charts. Regardless of the abstract figures, company reports, future prospects, etc., what it comes down to are people’s worries, discouragements, fears, or simply because there’s a four day weekend and everyone’s off to party. And all is entirely unpredictable because human behavior cannot be predicted. There’s probabilities, but no guarantees.

The bottom line is no one, and I do mean NO ONE can forecast the future. There are some things that we can predict, like the sun rising tomorrow morning or the forecast of the phase of the moon in twelve months. But even those aren’t guaranteed to happen.

If people were able to foresee the future, they would be rich. The world would likely be less dynamic and life wouldn’t be so complex as we see it.

Of course, we all wonder what will happen, and we worry about it. But look to get away from that worry and looking toward predictions because it will likely lead you to poverty. A successful speculator bases his/her moves on not what supposedly will happen but instead reacts to what does happen.

Design your speculative strategy on quick reactions to what is happening and developing in the present, not on hope. Don’t let oracle predictions sayings of “it is bound to succeed” get to your head. Rather remember to never lose sight of the possibilities that you may have made a bad bet.

If your speculations are right, good, stay with it. If they turn out sour, remember the third rule and GET OUT, regardless of what the prophets say. Do your own due diligence and shift your paradigm.