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How to play the game

Blog - How to play the game

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It's not Sesame Street

Sesame Street.jpg

Many of us enter the Stock Market, with the notion that we can simply throw money in, and much more gets chucked back at us., that’s how it works isn’t it?

All we need to do is just choose a stock, and a “good company” and we’ll be rewarded with riches just like Warren Buffett.. that’s certainly the perception I know, but quite often the reality looks vastly different,.

I think many of the folks I talk to don’t seem to realize we’re playing against Wall Street… we’re NOT up against the crew from Sesame Street, and although it may look like an easy game to master, try asking the graveyards of the 97% who fail how easy it is.

What do I think is wrong?

When I observe some of the nonsense I see on Social Media, it really baffles me to the highest degree, to see rationale being built around a personal belief, instead of building a rationale based upon what the weight of the evidence is telling us, which you probably don’t need me to say, is an absolute cardinal sin when we talk about assessing risk, because that’s what we’re doing… we’re asking ourselves, if our hard earned money, is worth the risk on stock ABC, and when we start to bend a narrative, to suit your own beliefs this is what’s called confirmation bias.

The Definition of Confirmation Bias - “the tendency to interpret new evidence as confirmation of one's existing beliefs or theories”

You see, confirmation bias is 1 of the biggest threats to individual success in the markets because as a collective, the human mind has a tendency to convince itself, that route X is the best possible route to success, despite the glaringly obvious contrary evidence to taking route Y.

In the same way you might convince yourself you’re correct when having a minor quarrel with your significant other, and try to persuade them why you’re 100% correct, despite the overwhelming evidence to the contrary… why is it you still attempt to argue your corner?…. despite knowing the overwhelming evidence building against you?

How many of you have then placed a bet and then eventually lost?

And when we apply this dangerous mindset to the Markets, it’s an incredibly risky place to be and let me back it up with a couple of examples…..

To state the obvious….

Wall Street LOVE your confirmation bias, and Wall Street loves the amateur mistake of “lets buy this lovely looking company” because it has a nice name, … let’s take the example of Electronic Arts (EA)… way back on the 23rd October, the Technical’s were breaking down, and I posted this chart into my client group ( I save EVERY chart I post into my group for complete transparency for my website).

I lost count of the number of Social Media comments telling everyone to buy the stock simply because it was a “huge discount” from it’s former highs, the theory is it’ll go back up there and you’ll make money right? It’s a great company right? Xmas gaming sales will kick in and the stock will get back to where it belongs right?

Wrong

This is Sesame Street thinking, and just like Sesame Street, you’ll get made to look like a 5yr old child by Wall Street if you have that approach, and usually it’s nothing more than a classic case of confirmation bias… adapting your own individual beliefs to fit your narrative, instead of observing all of the information presented to us by Technical Analysis.

Electronic Arts 23rd October 2018.png

The chart above, although simple to look at and understand, has much more going on in the background (yes I know many of you follow me, trying to reverse engineer my methods), but what you see is only but a small fraction of the decision making process that I have… but the point I’m trying to make is… in order to take on Wall Street and be successful, you must give your trading the care and the due diligence it deserves, you cannot move in on stocks blindly, and hope for the best.

Oh and Electronic Arts (EA) - now resides at $76.00.

You must always understand that stocks can go MUCH lower than you think they can, and you must also understand that stocks will not always get back to their former glories… just look at poor old General Electric (GE), which is another victim of the “it MUST bounce back soon brigade”…

2 years ago. it was trading at $30… and on the 30th October 2018, I posted this chart to my group, which at the time I posted to social media (because sometimes I’m just nice like that), and I was ridiculed for betting against 1 of the world’s biggest companies, and which was incidentally the most valuable at 1 point in time.

General Electric 30th October 2018.png

Oh and General Electric and has now hit a low of $6.66 (which is a 40% drop)

This was a funny one for me, because I still remember the private messages and the comments calling me an idiot telling me it was a screaming buy because of it’s value, which I really don’t mind, it’s completely ok… I just realize it’s a different game that I play… because I like to play on Wall Street, … I’m just bummed that everyone else likes playing on Sesame Street.

The frustrating thing is though, literally everyone can play on Wall Street, with the proper guidance…. it just disappoints me that everyone continues playing the game blindly, trying to learn from Dave down the pub, or some amateur who has no clue what they’re doing.

You’d never try to perform Heart Surgery after watching YouTube Videos…. so why try to learn a subject that (when performed well over a number of years)… will pay MUCH more than a Doctor (who has spent a few hundred thousand dollars for training)

The bottom line… take on board the weight of the evidence, don’t jump into positions unless you’re inherently comfortable with the position you’re taking, because it’s your own hard earned money… your families money… and you are ultimately responsible for every single position you take in the market. It’s negligent to do it hoping on blind luck, and it’s negligent if you don’t invest in a solid grounding of education.

Many are told to read book XYZ, and watch 200hrs of YouTube Videos, but everyone has to understand, that by going down that route, you’re following yourself into the graveyard of the 97% of failed traders.

For those that don’t understand Technical Analysis and are losing, and those that are perhaps doing badly at the moment, all you need to do is get in touch… I can probably help… provided you’re teachable / decisive and prepared to drop bad habits.

Are you ready to profit now?

Sam McCallumComment