Every person engaged in market activity possesses a different psychological makeup, so pride of opinion as a potential weakness will appear in different forms and in differing degrees. Most people hold the view that it is relatively easy to make money when they initially get involved with markets. In the Introduction to this book, I emphasized that no reasonable person would expect to do well in any business or endeavor without first undergoing a substantial amount of training or gaining many years of experience. The same is true of the markets. Trading and investing in the marketplace should be viewed as any other business.
We do not view this field as another business endeavor for two principal reasons. First, the cost and effort required to begin a trading or investing program are relatively low. We need only a little capital and a phone to call a broker or mutual fund company. After answering a few questions and filling out a questionnaire, we are ready to begin.
That ease of entry is not the case in any other form of business activity. Usually, if we are applying for a job, we have to demonstrate that we have the requisite experience or qualifications. Starting a new business is also an involved process. There are government regulations to follow, credit checks to make, leases for equipment and office space to sign, employees to hire, and customers to attract. By comparison, entry into a financial market is a stroll in the park.
The second reason people think that playing the markets is easy is that on face value it does look uncomplicated. All we have to do is buy low and sell high. The media also give widespread attention to the best performing managers and assets, rarely focusing on the losers. This leaves the neophyte with the distinct feeling that trading and investing represent mostly reward and very little risk.
The notion that investing and trading are easy is inconsistent with reality. Successful practice of these arts requires a great deal of humility. Is it surprising that 90% of traders who open futures accounts are wiped out in the first year? If the average person knew ahead of time that the odds were very much against him, would he open up an account in the first place? If he were aware of this fact, surely he would conclude that a certain amount of study, reflection, and change in mental attitude were required to overcome these overwhelming odds.
Some of the sharpest minds in the world have spent huge amounts of time and money in an effort to beat the markets. In effect, these bright, experienced, and well-financed professionals are trying to take money away from you. Is it little wonder then that most individuals lose money when they first begin to trade? This fact in itself indicates that trading and investing are far more complicated than first appears to be the case. Is it really likely that someone with a lot of enthusiasm but little experience will be successful against such formidable opponents?
Not every market beginner is dogmatic, of course; nor is this rigidity the sole reason for the neophyte's lack of success. With your initial plunge into the stock market, however, you should be aware that pride of opinion is the first weakness that the market most likely will exploit. Consequently, it is the first one you must protect yourself against.
You may feel that pride of opinion is a fault that you do not possess.AIf that be the case, ask yourself whether you could have trimmed or even avoided that last losing trade had your attitude been less cocksure. The markets do not give something for nothing. As R. W. Schabacker wrote in Stock Market Profits, "They offer their chief rewards, both financial and psychic, to those who approach it with humility, with a desire for knowledge and with the will to work and study." The following example shows how pride of opinion can be an important obstacle to a successful trading or investment program.
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