Trade what you see, not what you think

Last Thursday, Oct 12 2017, I dumped 90% of my portfolio holdings and then bought some long term bonds(TLT) and gold(GLD). The only reason was I had a gut feeling that morning that some bad things will happen in the stock markets around the world.

I knew it was emotional and irrational, but I can’t hold the impulsiveness to do it. At that moment, I was controlled by fear, or a kind of biased prediction. After I’ve done that, my feelings were mixed. At one side, I felt relieved because I am in a defensive position now. At the other side, I feel shameful and guilty, as what I did was like a 100% retail player. It didn’t match all the education and training I’ve got through the years.

I spent a lot of time to build my portfolio, which was dumped eventually in less than 30 minutes. The portfolio is well divesified, with core and satellites, performed very well. It was a produce of rational work, but destroyed by irrational emotion.

Today I listend a podcast called “trade what you see, not not what you think”. Suddenly I realized what is the problem I have.

Before I did the irrational thing, I read quite a few berish call articles on the internet, such as a recent memo from Howard Marks, “There they go again …again”. With the stock markets around the world are hovering the high level, more and more calls about bubble, collapse, etc. I am biased by those calls, or predictions. I just THINK the market is in jepardy.

Actually, when I SEE the charts, which I do it on the daily basis, my holdings are still in bullish trend, or at least in a consolidation range but with breakout potential.

I chose to ignore what I see but to belive waht I think.

Some takeaways from this important lesson:

1, Predition vs. reaction. Prediction is hard and notoriously unreliable. But we can choose to react to the price movement. Those are happened facts.

2, Analyst vs. investor/trader. Analyst has to make calls all the time, they have to have an opionion at any time, that is there job. They can’t say I don’t know. As an investor or a trader, we can say I don’t know at most of the time. We stalk, wait and see, catch a few high probability trades.

3, Don’t over thinking or over trading. As an individual investor, my most precious asset is my time. I cannot catch all the information flow in the market. I shouldn’t watch news too often. I should spend more time on reading books, doing sports, and writing.

4, Try to be objective and emotionless. Always have some doubts when reading or listening to someone else’s opinions.

5, Investing and trading based on a preset system, a set of rules, checklists. Those are repeatable.


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