Day trading for dummies

Oct 3rd
Posted by shambo  as Economics, Investing, Retirement

Let me say this about that.

Two middle-aged gentlemen lost their jobs and had achieved no success finding other employment.  After a couple of months, they decided to give up looking for new jobs and try their hand at making money by day-trading stocks.  They usually met for lunch each Monday to exchange stock trading ideas and catch up on how each one did the previous week.

Bob:¬† “Well Colin, what did you do this weekend?”

Colin:¬† “Not much, Bob. But I did get a dog for my wife.”

Bob:¬† “Wow Bob.¬† Great trade!”

I have long considered day trading stocks to be the economic equivalent of juggling rattlesnakes while blindfolded.  In the long run, nothing good is going to come of it.  The stock market is an extraordinary complex institution whose inner workings are intertwined with international uncertainty, currency fluctuation, tax strategy, and all manner of arcane and ambiguous accounting regulations.  It would certainly be beyond the ability of a retired old fart like myself to decipher. 

Well, maybe not…¬†¬†¬†

With money markets and savings accounts in banks earning less than 1%, my retirement savings are rapidly eroding away.  Since I am far too lazy to go back to work, I thought I might try my hand at day-trading to earn a little extra money.  I did a little research on day-trading techniques and called a couple of friends who had tried it to find out what I was getting myself into.

Shambo:¬† “OK Bruce, you’ve been doing it for a while,¬†how would you describe a successful day-trader?

Bruce:¬† “Well I’ll tell you, Shambo.¬† An optimist is someone who believes the glass is half full.¬† A pessimist is someone who believes the glass is half empty.¬† A day-trader is someone who fills the rest of the glass with Scotch.”

Bruce went on to describe a typical week for a day-trader that sounded about as much fun as having a feral cat use your scrotum as a scratching post.  I could see that day-trading had turned Bruce into a quivering bed-wetter whose only joy left in life was listening to bagpipe music while masturbating.

Well, that sounded pretty good to me.

I started trading stocks the very next day and immediately made a boat-load of money.  The next day, using an identical strategy, I lost a boat-load of money.  Make money, lose money, make money, lose money.  No matter what I did, no strategy seemed to  be able to assure a consistant result Рwhether making OR losing money.

After about a month of intense day-trading, I had a great epiphany.  The stock market is an illogical institution.  Well, who would have thought?

A company’s stock price is NOT¬†determined by¬†which company is making¬†the¬†highest¬†profit.¬† It’s also NOT about which company has the best management.¬† It’s NOT about which company is the most efficient, has the best technology, the¬†highest quality¬†product, or anything else that any normal sane person might imagine.¬† As best as I can determine, a company’s stock price is determined by Albanian trolls who live under bridges and smoke pot all day.

Understanding this simple fact means that attempting to¬†make money by day-trading stock is no more a quantitative¬†or analytical process than that¬†used by a cow to determine the exact spot in the pasture on which to poop.¬† Picking a¬†company whose stock price¬†is likely to go up on any given day¬†(and earn profits for a day-trader) is a random, arbitrary, capricious, and spurious proposition.¬† If you like to gamble by betting on the roulette table, then you’re gonna love day-trading.

But having said that, I must admit that I’m hooked.¬† I am thoroughly consumed by day-trading to the point that it has ruined my home life, consumed a large chunk¬†of my retirement savings, and drove me to travel to Albania in search of trolls.¬† Bruce warned me, so I have no one to blame but myself.¬† I have just one question: “Have any of you guys seen my bagpipe CD?”

And, that’s all I have to say about that.

Shambo

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