January 16, 2019

Confessions of a Day Trader

I write this because, as one young lady who took my course in American Studies at CalState  Fullerton, back in the 1970s,  told me without too much exaggeration: “You are the honest-est person I have ever met.” She was not BS-ing me because I was a permissive grader, and her grade was already in.  “Crazy-honest”—and given to excessive  self-revelation—I still am.

Financially, the most foolish day of my life was in early 2000 when I decided to “invest” in the stock market. I never had much cared about money—in this way only, I was like the (mythical?) Love Children of the 1960s. But I had some money, really for the first time, and it seemed like a good idea to “invest.” I really wanted to turn my money over to an investment counselor and leave the worries to him. I had one, a friend-of-a-friend,  lined up, but for convoluted (mostly personal) reasons, it did not turn out. I decided to do it myself.

I became a day trader—a very bad idea for a smart but impulsive person like me. I’ve seen statistics that 80-90 percent of day traders belly up in a year or two. Not me. I just lost 80-90 percent of my money.

I’ve made some back since, and continue to dabble. My experience this summer, however, should be a cautionary tale for any novice out there unless you’re moral constitution is lots steelier than mine. My problem was—and is—not that I cannot discern trends. I can. The problem is the lack of resolve to act on them, patiently but decisively, in the right way.

I’ve known for at least a month that the market was headed for, as they say on the Street, “a correction” of at least 5-10 percent down. Many talking heads on cable finance news shows said so, but I knew it in my gut.

So I  bought a 3-X  Short ETF, which means that it goes up three times when the S&P Average goes down.  For a while, I waited patiently—and lost money, as the market continued to go up.

Then came August,. I still lost money for a few days, but began to recoup. Yesterday was the moment of truth. As I expected, the terrible news about the North Korean nuclear crisis, and the war of bombastic words on both sides, initially depressed the market in the morning. But then it began to rally around 11:00 Am Pacific Time. I sensed an inflection point—and sold out to take my profit. 

By day’s end, I felt cautiously vindicated because the market had continued to rally until the close, and—if I had not liquidated my position—I would have lost almost all my profit.

I should have known better: in my gut—which told me to stay short until this October—I did indeed know better. Today, the market really tanked. If I had stayed the course—stayed short—I would have made quintuple what I made yesterday. I guess I deserve such frustrating humiliation for sins I committed in a earlier life. That’s Jewish Karma—but that’s NOT Entertainment!

Be forewarned by this fool’s experience.

Yet I also assure you that—when I write about history and politics—you can trust my judgment, within limits. I’m not a sucker across-the-board, just on Wall Street. I wish you better luck.

Harold Brackman is a historian in Los Angeles.