We Have All Been There
A guest blog post by Ian McMillan, CMT
I have been talking to some younger traders recently, seeing comments on Twitter, college kids sliding into the DMs. The ‘meme’ stock ride was fun. Well, it was fun if you were in by New Years. But not so fun if you bought the top. And what strikes me, especially as someone who is a huge fan of the current retail trading extravaganza going on in America, is that a lot of these younger traders are really embarrassed about losing money. They see the articles, they read /wsb, they have friends who made anywhere from 200 to 700% on GameStop. But they didn’t. They were late. And now most are down well over 50% on their position, or have sold by now at similar sized losses. They’re crushed. They’re in pain. They’re embarrassed. “How could I have been such an idiot? How did it literally peak on the day I purchased shares?”
I need to tell you all something: We have all been there.
I am not kidding you. Anyone who tells you they haven’t done dumb things in the market at one point or another, is a liar. Obviously, hindsight is 20/20. We don’t think we are doing dumb things in the moment. But emotions and biases set in, and before you know it you’ve hit the buy button.
I know you will find this hard to believe, but I also used to do asinine stuff. And you, one day, if you stay involved in this beautful game, will look back and realize that buying GameStop at $400 was indeed an asinine thing to do. It wasn’t in the moment, I get that. But once you’re removed from this situation, maybe months or years down the line, you’ll see it.
When I was in my very early twenties, young into my career as an associate, I too was very into the stock market. This is what I wanted to do, not just for a hobby, but for a living. I loved it. I loved it in a very similar way that most youngsters coming into the arena today love it. I read everything about the most promising stocks and what they would one day become. The financial statements, the comments from hedge fund managers, the investor day presentations. I treasured a good story, just like everyone else. (By the way, I am still waiting for Dendreon to change the medical landscape.) Now, mind you, I had zero decision-making power at this job. I was 23. I was a gopher who ran reports and occassionally maybe got to put together a presentation on Large Cap Growth funds for my boss. The research I was doing on stocks was strictly for personal interest.
So, with this fountain of knowledge I had obtained, I convinced my father that I was particularly good at trading options. (You can see where this is going, can’t you?) After a few months of talking about how consistent I had been (I was okay, but yes, I embellished this), he decided to give me some money to trade with.
Boom! What an opportunity to prove to my old man how smart I was. We had an agreement on who would keep what portion of the profits, etc. It was going to be awesome. I literally couldn’t wait to show him how great I was.
Fast-forward to three days after the money was deposited — gone.
Three days. That’s it. Trading weeekly options. What I know now as “lottos”. Trying to make the losses from Day 1 back on Day 2. And then the same on Day 3. But when the bell rang at 4pm on that third day, there was roughly $33 left in the account.
I had never felt so ashamed in my life. This truly was the only time I have ever suffered from vomit-inducing embarrassment. Who is that dumb? I mean, it’s almost comical how many bad decisions you’d have to make in order to end up in this sitution. And in 72 hours no less. On top of it, it was money that someone loaned you. Scratch that, it was money that your own father loaned you.
Now, what makes this even worse, is this was my father’s world. Finance. Stocks and bonds. This is what he did for a living. I literally grew up with Bloomberg and CNBC consistently on our family room TV. My dad knew the market. Losing that money was like choosing to be a career attorney, representing your own father (who is also a lawyer) in a case, and then losing said case. It was so gut-wrenching. This was your father’s craft. Your desired craft. And he trusted you.
But after the emotional dust settled, there was some good that came from this. Looking back on it, a lot of good came from this situation. I decided that going forward, I was truly committed to being profitable. For me, I didn’t know what that meant at the time. No one knows. But I knew that I never ever wanted to feel like this again. Some traders will say it for years, as they continue to stumble down the path and lose money. But to actually turn that corner you have to believe it. You have to truly, deeply want to do it.
My point is that everyone does dumb stuff. If you are a younger trader or investor, and have found yourself in a position where you’ve taken a big loss on a trade, know that you are not alone. Know that literally every single person who is now a successful trader, was once in your shoes. And I’ll be honest, the earlier on you can experience doing stupid things (again, like buying GameStop at $400), the better off you’ll be. Because no one learns from only doing the right things. It sounds good in theory, but as we know, that’s just not how things work. In this game, much like other aspects of life such as our personal relationships, we learn from pain. I can tell you not to touch a hot stove s million times, but you aren’t really going to learn it until you’ve touched it yourself. (I did this with a car cigarette lighter when I was 6 after years of my mother telling me not to touch it.)
I truly hope that anyone reading this who has felt discouraged lately, or has taken a painful loss, knows that this is not the time to quit. Stocks are not a scam. Wall Street is not evil. Hedge funds are not out to kill the middle class. You made some bad decisons in a game that is really hard to win at, even when you make good decisions. It happens. But in 2021, with the abundance of free resources available to young investors, this is absolutely not the time to walk away. This is not the time to feel scared of the market. But this absolutely is the time to dig deeper. This is the time to commit. Are you going to find the next GameStop-like return? Probably not. In fact, it’s not even worth trying to find the next GameStop. If you focus your energy on developing a process and committing (and recommitting multiple times) to wanting to be a profitable trader, then you will achieve that goal.
Guest blog by Ian McMillan, CMT