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The Stock Market and Humility  

This past year my wife and I decided to take over control of our money that was being set aside for retirement. We transferred her IRA and my IRA , plus a retirement fund for her, to one investment company, Fidelity Investments. We were no longer going to keep the money in different companies, nor utilize a few mutual funds and presume that the managers of such funds would produce the results or gains that would give us a sufficient return on our investment.

As you all know, 2008 was not a good year for the stock market and investments in either mutual funds or stocks. Many people who had their money in such things lost value or they lost part of their funds. This will was true for funds managed by individuals themselves, as well as funds managed professionally by others.

The problem with the stock market was directly related to the housing crisis and a slowing of the overall economy. More people were losing their jobs. There was a growing lack of consumer confidence. No one wanted to admit that we were entering into a recession, but we were. Obviously such events do have an impact on the stock market.

Fortunately we found some good news. You could actually make some money on a stock market that was going down, just like you can make money on a stock market when it is going up. However, the more you know and the better training you have, the easier it is to do this.

I am a fairly confident individual and felt that if others could invest to make money, than I could do the same. This is a true statement, but perhaps it lacks a little humility. And the reason why is very simple. In learning to manage your own funds, the first thing you find out is that you have a lot to learn. This is especially true if you haven’t worked in investments previously, and you don’t have a lot of class instruction relating to investment strategy and principles. Let me share with you some lessons I learned about the stock market and humility.

My first decision in early 2008 to consolidate our funds into one company was a good one. My next decision was to get involved with an initial public offering or IPO for the first time. The stock I chose was VISA. I bought it in March the first day it became available to the general public and I did make money as its value increased. This was two good decisions in a row.

The stock market prices were still relatively high and stable in late winter and early spring. The Dow Jones Industrial Average seemed to be at a decent level during this period and stayed there for a few months. The mutual funds we had selected for our IRA’ s and retirement account were increasing in value. At the time this appeared to be third sign of success for us.

By summer the storm clouds began to gather . My stocks and mutual funds were not increasing in value, but beginning to go down. And the first great lesson I was learning was this. I didn’t pay enough attention to the overall market and market conditions. If they go down, then my investments will be affected and probably go down as well. Before I truly absorbed this hard knock of life and transferred some of our money out of certain funds and stocks, we had suffered some unnecessary losses. Looking back on this now, I can see so clearly that I was really dumb.

In July we decided to expand our efforts and open an individual account for me to do margin trading on a regular basis with various stocks. This went OK during July, August and into September. But then once again negative trends in the overall market were beginning to work against my limited knowledge and skills.

By October I switched from being a margin trader to a pattern day trader. The rules now were more complex and the game was harder to learn. As I got involved in this daily effort, I noticed even more that I was making mistakes which were hurting me or limiting my profits.

By December my wife had begun to show an interest in trading. As we discussed the issue, it became obvious that we both needed to stand back and critically analyze what was being done right and wrong. The overall conclusion was very simple. I had failed to utilize the opportunity to learn more about the stock market before actually trading with my own money. So we bought a couple of good books on short-term trading and pattern day trading in order to help us get more educated. We had also failed to utilize on the Fidelity website the opportunity to make trades and see the results of these trades without actually using any real money. I certainly wish now that I had done this several months ago. This would have decreased my losses and the amount of time I sat in front of the computer trying to make money at trading. After all, if you trade smarter, you can make the same money in a shorter amount of time.

Here are some things which I have learned.

The reason I have tied the stock market and humility together is very simple. If you make mistakes in trading, you’re punished immediately or you lose money immediately. There is no opportunity to think the trade through again or to change your mind. Luck doesn’t last very long, and the odds are against it. So if you’re an amateur, you will lose more money. Remember, with ignorance comes greater losses. You can lose money fast and thus get into debt fast. There is no mercy with the rules of the marketplace or the investment house that you utilize to trade daily.

Fortunately if you do obey the rules, there is also instant success or financial rewards. It is a black-and-white situation. You either win or you lose with each trade. The goal is to increase the number of wins and decrease the number of losses so that earnings grow and the losses decrease.

I have reviewed my situation and recognize that I would have done a few things differently this past year if I could live it over again. My mistakes cost me money and correct choices made me money. In 2009, I seek more training and will work on making less mistakes. I have established my own set of trading rules which guide me daily. Through experience I know that these rules do decrease losses and increase gains, if I will only follow my rules on a more consistent basis. I expect to become more skilled and more successful in my trading efforts.

Other aspects of life do not punish or reward you instantly like the stock market. In this way the stock market tells you what you did right and wrong as soon as you do it. Life in general is not this way. You can go along and not change yourself or your ways of doing things. There is no apparent need to be humble and change. It seems easier to stay the same. It’s easy to be proud and do things utilizing your strengths, rather than recognizing your weaknesses and working on these. But ultimately life has a way of testing us and placing demands upon us. Misfortune can come into our lives. Problems can develop that demand attention. Eventually a problem becomes more serious and you’re finally forced to take action. Through various types of misfortune and problems, people began to stop and think what they’ re doing. Perhaps they’re making wrong choices after all. They need to make some changes in their lives. This is the beginning of humility. It leads to self-examination and to a greater awareness of who you are as a person. It helps you to face the problem or misfortune in your life and to ultimately overcome it. With time such efforts produce a stronger you and a more successful life.

Fortunately, most things in life are not like the stock market. You have more time to think about them before acting. There are not immediate consequences for all your decisions and behavior. Thank goodness for this. This allows us to make mistakes, learn from them, and become a better person in the process. If you have dealt with the stock market as I have, you will not want in real life the same type of instant failure and success that the market delivers. You do not need nor want this strict system which almost forces you to be humble while trading. Instead you want a more merciful system in which you can choose to be humble as you live your life day-to-day. I challenge you to utilize humility in your life in all your activities, and it will bring you greater self-fulfillment and happiness. It will also help you make more money on the stock market.

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Copyright  2008     Leland Pulley