Like many investors, I’ve spent some time thinking about the past year of trading action and trying to process what’s happened in the markets. As a professional money manager and someone whose heart and soul lives within the ticks of the tape, I am constantly seeking improvement.
This has been an important year for me both personally and professionally. I’m pleased with how the year has turned out, but it didn’t come without its fair share of turbulence. I hit peaks I never thought I could and I saw valleys that drew tears I’ve never seen in such quantity.
The end of a year is a time to reflect and that’s what I intend for this post to be; and specifically a highlight on one of the biggest lessons I learned as a trader in 2015.
As I grow as a trader one of the biggest, most unappreciated portions of my development has come from the topic of mentality and psychology. Specifically in pressing my bets and trusting myself more than I have. By no means was every call I made or buy and sell I placed correct. That, I have no problem with. The largest lesson I learned this year was recognizing when I should have stronger conviction in my trade ideas. Mike Bellafiore, co-founder of SMB Capital and author of two excellent books on trading, has shared some excellent viewpoints on this topic. Bellafiore notes that conviction is something that’s earned and developed over time and requires dedication and study of your previous trades.
While I don’t share every trade I make in my personal account or on behalf of my firm’s clients on social media or blogging, I can reference some previous posts that touche on this point from the last twelve months….
For example, in January I wrote a post that at the time didn’t get a whole lot of views. It was on a topic that was a bit confusing and one that was fairly contrarian. I laid out an argument for why I thought this year could be a flat/negative year for U.S. equities, titled Why 2015 May Not Be A Lock For the Bulls. While I wrote a fair amount of bearish posts, this specific one kept me from finding certain opportunities in areas of the market that broke away from the overall indices and taking full advantage.
Reading through some old blog posts from April, May, June, & July, I notice how many bearish articles I was writing. All I could come across were more pieces of price-related data showing deteriorating breadth and rotation favoring defensive pieces of the market. While the 2015 high did occur in May, these bearish charts clouded my ability to find bullish opportunities. In June I tweeted about an expectation for market volatility to rise. While I may have gotten more defensive in my trading and portfolio, there’s more I could have done before what turned out to be one of the largest spikes in Volatility history.
The one post I wrote this year that probably got the most attention was on July 30th, titled, The Greatest Risk of A Market Peak Since 2007 which followed my post that looked at the lack of confirmation in semiconductors on July 22nd. If there’s one thing I’ve learned since starting to blog, people love references to 2007. As awful of a time it was, people are drawn to headlines with those four numbers. I digress.
This was the one time where I feel my actions did meet my market view, but I could probably have done more. A few days later the markets began a waterfall-like decline as panic set in. I had no idea it would happen that quick. While there’s no way to know what will happen, I failed to recognize the possibility for the saying “the market takes the escalator up and the elevator down” to materialize. I hadn’t pressed my bet as much as I wish I had.
When markets decline like they did in August, it’s often followed by a re-test of the low. However, no one seemed to be looking for this to happen. The choir had grown accustom to singing the same song called “V-shaped recovery.” It was lonely not chasing but I felt the sell-off was too quick and caused too much damage to just be another V. While equities did decline after an initial bounce I did not show enough flexibility when the market didn’t provide a perfect re-test of the prior low. My expectation got in the way of clear thinking.
The biggest lesson I learned in 2015? To trust myself and have stronger conviction. There are many market-related calls I got wrong. I’m happy to make mistakes in my analysis as that’s how I’m able to learn and improve. It’s the times my analysis is on the right track that I need to do a better job of acknowledging and riding large chunks of the wave. 2016 will be a new start. I look forward to trading during another election year with sprinkles of Fed policy and international conflict thrown in to keep things interesting. I love being able to have the opportunity to be involved in the financial markets and I can’t wait to see what next year brings. It’s a privilege and an honor to trade, a fact I refuse to ignore. This year had its share of missed opportunities, I don’t plan to learn from this lesson in 2016.
Thanks for reading and best of luck into year end and 2016.
The information contained in this article should not be construed as investment advice, research, or an offer to buy or sell securities. Everything written here is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned.
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