Over the in conclusion few days, I've had the chance to verbalise alongside everyday investors every bit good every bit my green contacts alongside prop traders too portfolio managers. One of the distinguishing themes inwards these talks has been stubbornness versus flexibility: the willingness too might to maneuver too arrange to changing marketplace atmospheric condition versus the require to stick alongside positions too live proven correct.
Among the traders, the ones who cause got done good inwards the recent marketplace reject are those who cause got been selective inwards their conduct chances exposure, riding short-term marketplace moves, limiting overnight headline risk, too shifting positions tactically to adjust to volatile conditions. They cause got focused on making money--and limiting loss of capital. They've been quick to recognize when they're wrong, at times getting stopped out once, twice, 3 times earlier finally riding the anticipated marketplace move.
The traders who cause got performed most poorly are those that cause got been stubborn. They cause got had rigid views of markets too cause got stuck alongside those views, fifty-fifty inwards the human face upwards of markets that cause got moved against them. Convinced that markets are overdue for reversal, they cause got faced large losses every bit weakness has led to farther weakness. They cause got been to a greater extent than concerned almost existence right than making money; they've been reluctant to live stopped out, instead waiting for markets to validate their opinions.
Interestingly, I'm seeing the same dynamics amid private investors. Some cause got made proactive adjustments to their portfolios to trim back risk, including reducing exposure to vulnerable investments (financial stocks, preferred shares, high yield bonds); roughly are besides revising their views of the fiscal future, looking for themes too sectors that volition create goodness inwards a changed economical environs (firms that generate cash too are less reliant on borrowing; firms that appeal to consumer value rather than luxury; rubber yields amid beaten downwards bonds). Other investors are frozen, immersed inwards promise that "things volition come upwards back". They remind me of the dot-com investors who, stunned yesteryear losses of 50% inwards their holdings, insisted that a bottom was at hand. Sadly, many of these shares declined yesteryear to a greater extent than than 75% earlier nosotros saw a durable marketplace bottom--and many of those companies never survived the decline.
This is 1 of the paradoxes of trading too investing: you lot require distinct views to lay your coin at risk, too you lot require to persist alongside these views inwards guild to ride winners. At the same time, you lot can't boot the bucket married to these views; you lot require to chop-chop revise too fifty-fifty abandon your outlooks inwards guild to bound losses. We tin terminate merchandise too invest for ego needs, too nosotros tin terminate merchandise too invest to brand money: over the long haul, nosotros can't create both. It takes a rigid ego to formulate too human activity upon one's ideas; an fifty-fifty stronger 1 to footstep dorsum from those ideas inwards the human face upwards of non-confirmation.
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