Only active traders suffer from this horrible pain & costly mistake
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
Last week was wild for stocks and commodities after the Silicon Valley Bank defaulted and the government bailed out SVB's clients. While the Fed and other authorities across the pond recently swore the banking system and banks are much better than they were during the 2008 financial crisis, having one of the top US banks default just 48 hours later is a little ridiculous. Both the USA and European leaders continue to tell us the banks are strong, but after last week, can we really trust the leaders that support the financial system anymore? By that stretch, can we really even trust the financial system itself anymore, either? In my opinion, not entirely, that's for sure.
Last weeks big bad key points…
- SVB imploded within 48 hours, which could have wiped out thousands of companies because they lacked risk management.
- Government bails out SVB customers within 48 hours to protect companies.
- The US and European leaders state the banking system is much stronger than in 2008, which seems like a lie, but they are doing a good job covering things up as they try to ‘handle' the crisis.
All this may be closer to home than you realize
If you look into how your retirement account was managed over the past few years, you may realize that your financial future and retirement could be at serious risk. For example, if you just held onto positions and rode out the 40% correction in bond prices from the high in 2020 and did the same during the significant stock market correction in 2022, your assets were undermanaged. This is a problem that needs to be corrected, especially if you are over 50 and approaching or in retirement. To be blunt, you no longer have time to recover from major market corrections. If you cannot see that, then I am sincerely worried for you.
My focus is to help anyone with investment capital who wants to protect it during the next financial reset, and not have to downgrade their lifestyle due to inflation and falling asset prices. If that's you, keep reading because holding onto assets falling in value is a terrible investment strategy. The buy-and-hold method that got you to where you are today does not work if you are over 50. Instead, it could destroy your retirement and lifestyle faster than you ever imagined.
Ok, I got off onto a little rant there, and I apologize. But whenever I get talking about the financial and banking systems and how they screw the very people they purport to protect, I get a little worked up and can't help trying to warn others.
I think it was Ric Edelman, ranked by Barron's as America's #1 independent financial advisor at one point, said it best:
"There is no greater pitfall than the one created by the retail investor industry. They are ripping you off. You are incurring greater risks, lower returns, and higher fees than you realize, and as a result, you are in danger of not achieving your financial goals."
Alright, so let's get into the main reason for this post!
The Pain Active Traders Suffer from…
Last week was wild, with stock and commodity prices popping and dropping all over the place. And while it was not a surprise to my followers and me, it was stressful for almost everyone else, especially active traders watching these big intraday price swings from the sidelines.
On Thursday afternoon, I sent out an update to those who follow my analysis, which was well received.
This is a summary of what I said Thursday afternoon:
“A strong rally today with technology, growth stocks, and regional banks lead the way higher. The VIX remains high, we had panic selling yesterday, and today is the opposite, with our FOMO buying indicator spiking.
This is a volatile market, and I prefer being on the sidelines. I want to share a great example of why that is from an email I received today from someone about to join our group. This person wanted to make some trades before joining our newsletter to see if he could make some quick money in this fast-moving market.
Unfortunately, the email turned into a sad story, and I could tell this person was suffering badly from the financial outcome and emotional stress weighing on him. His story explained how he lost almost $100K, messing around with his portfolio in some stocks, and is now kicking himself for falling victim to greed and feeling the need to satisfy the rush of active trading.
I can't stress enough how important it is to sit on your hands, take small losses to avoid more significant losses, and follow a strategy versus shooting from the hip and swinging for the fences for the so-called easy money. I try to preach this in some way every time I communicate with traders and investors.
To be very articulate and to the point – there is no such thing as easy money in the stock market. You might hear of or experience an easy (aka lucky) win, but unless you spend hours of time learning and understanding investing, trading, and the market itself, you will give every cent of that money back…and probably more.
From helping fellow traders and investors for over 25 years, I know for a fact that most active traders struggle with trading less and watching the market from the sidelines. They feel more pain by waiting in cash than they do when stimulated with trades and taking losses.
The unfortunate part about that is it's hard on the pocketbook and does not get them to where they want to go in the long run. Nothing good comes easy or fast (generally).
Tomorrow should be another interesting session, Chris Vermeulen"
Later that day…
I received a few emails and stories from followers, which really made my day and may also connect with you and your struggles.
Reply From Investor #1:
This jumped out at me from your update this afternoon: "Active traders feel more pain by waiting in cash than they do when stimulated with trades and taking losses."
I recognize that in me in spades. It's horrible but true. I totally believe that.
I think that pain is akin to why men won't stop and ask for directions. Guys will drive around for an hour before we will ask for directions.
The lethal version of that impulse I have personally seen in hiking. I've been a backpacker since I was 14 (now I am WAY older) and have hiked all over Oregon and California. I've experienced this myself: when lost (really lost), there is a strong impulse to just keep going, expecting and hoping you will stumble back onto your trail. We all know; hope is not a strategy. We need to sit down, breathe, drink some water, pull out your compass, look at the sun, look at your watch and altimeter (or GPS), and then pore over your map. Pretty soon you get oriented north and south, then to the map, and then you can plot a heading that will take you to your trail (or water).
It may cost you some time, but the alternative is not good.
Reply From Investor #2:
It has now been a little over one month since I joined you. I used to have a problem being in cash... but NOT now. Thanks for the constant daily reminders of how important it is to avoid any big drawdowns.
Reply From Investor #3
I am a relatively new subscriber, and I just wanted to share my experience with you.
I really appreciate the experience you have and the way you have set up your strategies. I also very much appreciate Brian - his calm demeanor and his thoughtful and thorough analysis of charts and situations.
I find it very useful how you are able to explain and teach about the intricacies of the markets in the BAN Morning Updates - and mentally prepare traders for the day's action.
I'm not really an active trader- I like more of the longer swing trades - I first encountered your style and technical mastery in an article entitled "Three Charts Every Trader and Investor Must See". This was a few years ago - maybe early 2020. I eventually got around to buying your book - and exploring Technical Traders' website. I started slowly with a TTI membership and listened in on the mentoring sessions.
I learned more about CGS and BAN. I like how you have the big picture - looking at money flows and technical patterns in all different types of financial instruments. I also like the chart system you have and how you can look at historical patterns and cycles.
I have had money in the stock market since the late 1990s - I did pretty well into 2000, then lost a lot of it, and have gradually worked my way back. A few years ago, I bought a lot of Apple stock and let it run during the bull market. I started selling covered calls so that I could keep my Apple shares and still make some extra money.
Along the way, I learned the hard way to limit trading losses and preserve capital.
In addition, I have learned a lot from your approach and from watching your strategies. I also have learned a lot from your explanations of the market and economic cycles.
I could go on and on - but I really just wanted to say thank you.
In short, active traders often suffer from horrible pain and costly mistakes that they can avoid. The recent market volatility has highlighted this fact, and while it may be tempting to try and make quick money in a fast-moving market, it often leads to significant losses and emotional stress.
Most active traders struggle with trading less and watching the market from the sidelines. They feel more pain by waiting in cash than they do when stimulated with trades and taking losses. As an investor or trader, it is crucial to understand the value of, and put into practice, sitting on your hands, taking small losses to avoid more significant losses, and following a strategy instead of shooting from the hip and swinging for the fences.
It is essential to have a strategy to protect your investment capital during the next financial reset that will result in not having to downgrade your lifestyle from inflation and falling asset prices. As an investor, it is vital to avoid being ripped off by the retail investor industry and not continuing to fall victim to the traditional buy-and-hold strategy when it no longer serves you. Instead, decide, choose, and then follow a strategy that you understand and are comfortable with that can help you achieve your financial goals and secure your retirement. For example, I use the CGS strategy.
If you are 50+ and believe the buy-and-hold strategy will keep working for you into retirement and won't hear of anything else, I can't help you. Just know that it's only a matter of time before the next major market correction takes place and plunges you into a very new and scary reality. To find out if or why you need help, read this post: two silent killers that destroy retirement dreams, and read this post: the most damaging thing you will suffer – sequence of returns risk.
If you are an active trader, convinced that you must always be in trades and that if there are big swings in the market, you should be catching them all no matter the timeline, well…I can't help you either.
If you have an open mind and want to become wealthier during retirement vs. poorer, I can help you.