So You Wanna Trade Stocks

A couple of lessons from someone who had made and lost more than most.

Jack Raines
August 27, 2021

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Story Time!

“It’s not about money, it’s about sending a message. Everything burns.” - The Joker (The Dark Knight)

China Burned Through $108 Billion in December

I lost $108,462 in a day a couple of weeks ago. My very own Joker impersonation. Pretty wild, isn’t it? That’s about double my salary at the time. Enough money to buy a nice sports car. Put a fat down payment on a house. Blow on a trip around the world. Surprisingly, I didn’t want to jump off a bridge. I was in Pittsburgh visiting my friend Tucker when it happened. I walked in his room and said, “Well that was pretty f*cking stupid of me, huh?” Then I sold the stock that tanked, went to the gym, and went on with my day. How did I get here in the first place?

When I first started working for UPS in March 2020, I turned $10k into $30k in a week and a half. I really thought I was on top of the world at 22 years old. I had bet on the market crashing, and I was right. The problem was, I thought it would keep crashing when it didn’t. That $30k dropped to $10k again by late April. So then I deposited $6k in a Roth IRA for longterm investments. I was going to be “responsible.” Naturally I started YOLOing my retirement money over and over again, and I turned $6k into over $300k in less than a year.

That’s a 5000% return in a year. I traded the SPAC bubble well all the way up, and I sold the top. When that bubble popped in February, I didn’t lose any money (at first). The problem was, I jumped back in way too soon. I kept trying to play the game that had made me all of that money, but the game had changed. I thought stuff would recover faster, but it didn’t. I took positions too aggressive, too fast.

The final result was losing about $150k from the peak in total. On one hand, I lost $150k. That sucks. But on the other, I turned $6k into $150k in a year. That’s still sick. I traded really well for a while, then I traded really poorly for a while. The final result was a $150k gain from a $6k investment, or a $150k loss from a $300k+ peak. Really is a glass half full / glass half empty situation. I’m not actively trading anymore. Why? First, I’m vibing in Barcelona, Spain right now. Exploring Europe has certainly been more fun than trading stonks. Second, I didn’t wanna spend all of my time staring at lines on screens anymore. I got burned out.

Opportunity Cost

There are two reasons why I quit actively trading.

  • Time
  • Headspace

Time

If you want to be good, like really good, you have to be willing to put the hours in. If you want to buy stocks for the long-term, you have to research which companies you think will outperform. Does your company have solid fundamentals? Are sales growing? Is it profitable or on the path to profitability? Is the valuation too high? Does the market appreciate this sector, or will it? Does the company have a moat? What’s the bear case? What will you do if the stock drops by 30%? 50%? Will you listen to management reports? Read through 10-Qs? Analyze competitors?

It’s incredibly hard to pick winners (especially at the right time), harder to hold winners, and hardest to cut losers. You can’t half-ass this stuff, or the market will chew you up and spit you out like a well-done steak. If you are buying stocks because “you know they will go up over time”, and you haven’t done your homework, you are going to get bodied in the long-run. Even if you do all of the work required, you could still be wrong. Imagine putting hours upon hours into research, only to get wrecked because the company didn’t execute. At some point, it’s inevitable.

Headspace

When you are trading actively (day trading, swinging positions over multiple weeks, etc.) it consumes your brain. Investopedia actually has a great article on this very phenomenon.

“Trading can give you a kick and a rush, and blot out reality, just like illicit drugs. If there is an innate psychological tendency toward compulsion and addiction, the initially harmless (cheap) thrills can turn into an obsessive desire to repeat and prolong the pleasure.”

The pleasure center in your brain that triggers dopamine in response to drugs, sex, alcohol, good food, money, gambling, etc. also pops off when you trade. Likewise, a large loss can be an emotional and psychological train wreck. That being said, it’s not just the responses to wins and losses that hurt. It’s everything in between.

When you have a lot of money in a position, it tends to occupy your subconscious at all times. You want to check the market every fifteen minutes. It’s incredibly difficult to focus on work, hobbies, etc. It’s hard to stay engaged in conversations because your mind is constantly drifting back to the market. You will find yourself slowly being consumed by these thoughts. I thought this was just me until I mentioned it to my friend Cole a few days ago. He had been having the exact same experiences in his own life. I imagine there are thousands of others out there in the exact same boat. Straight up, it’s not healthy. I took my own advice and loaded SPY a couple of weeks ago, and I never looked back. I haven’t checked the market in a week, and it’s been cathartic.

Hit It Big, Then Stop

Maybe you’re like me. You managed to pull off a ridiculous profit, and you want to keep it rolling. My advice: stop while you’re on top, champ. Here’s the thing, those multi-thousand percent returns aren’t sustainable. Whether or not you know it, you took on substantial risk to make that home run. Now you’re going to think you are the second coming of Warren Buffet. You’re not. You’re going to think that you’re a genius. You’re not. Those big returns give you unrealistic expectations of future returns. You’ll take an L at some point, and your first reaction will be to throw more money in to get your account back to its peak value. Then the L gets bigger. You keep digging a hole clamoring to get back to the top.

If you do hit it big early, treat it like the lottery. Pull a bit out and treat yo’ self, and let the rest compound. If you want to satisfy that itch, trade with a small portion of the account. Don’t risk blowing up everything by chasing another number.

That Goal Post Doesn’t Stop Moving

I wanted to make $100k. Then I wanted to make $300k. Then I wanted to make a million. See, you’ll set these targets, but once you blow through them the goalpost moves. It’s never going to stop moving unless you make it. There is so much more to life than trading for trading’s sake, and you can waste a ton of time getting caught in this cycle if you aren’t careful. I could have kept trading, and maybe I would have hit $500k. Or maybe I would have gone to $0. I don’t know. Here’s what I do know. Hopping out of that rat race was the best decision I’ve made in a long time. Thank God I lost $100k two weeks ago.

The Biggest Benefit of Not Trading

Since I put all of my money in an index fund, I have felt like I have 10x more time in the day. I can write more, and I write better. I have more engaging conversations with my friends and family. I feel more present wherever I am, and my day to day life has certainly been more fulfilling. When I was trading everyday, my brain was like a desk with way too much clutter everywhere. Now that I cleared out the mess, it is much easier to focus on the task at hand.

Closing Remarks

A few final thoughts before we get this weekend started:

  • Trading is addicting, especially if you have experienced big wins
  • Outsized returns aren’t sustainable
  • The time commitment needed to consistently outperform isn’t for most people
  • The best decision you can make if you do hit is big is cashing out at the top
  • That $$ target won’t stop moving unless you make it
  • My life has been 10x better since I hopped out of the market.

Addiction comes in many forms, but we happen to call this one investing. Am I glad I made the money that I did? Certainly. That being said, I’m never again going to let myself be controlled by an activity. If this article hits home to you, reach out. I’d love to chat.

Happy Friday folks. Get after it this weekend 🤝.

Jack

The Weekend Daniel Craig GIF - The Weekend Daniel Craig SNL - Descubre & Comparte GIFs

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