“It’s never different…”

Client feedback in:

Hi Mike,

I apologize in advance for this long email but I felt the need to write to you and tell you that you are right about everything. Well, not everything in general, but everything about trend following. Of course, you know this. So why do I bring it up? Well, I had a couple of hard lessons last year and into this one.

Even though I read your books and others, took your course, listened to hundreds of podcasts and had the examples of history, I still didn’t “get it” fully. I guess I’m the kind of person who has to experience things for himself before finally understanding it. I naively thought I was immune to the psychological traps that plague other trader/investors. I was wrong.

The first lesson was in cryptocurrency. Now, I did make some profit on Bitcoin Cash and broke even on Bitcoin. However, I lost money in all the alt coins I owned. Why? I did trend follow these but I didn’t honor my stops. I was swayed by the HODL mindset. I told myself that it was a new asset class, that “this time is different”. Where have I heard that before? Hmm…

Lesson learned: It’s never different. New asset classes are subject to the same market forces as any other. Trend follow it.

The 2nd lesson was in a private equity investment I made about 3 years ago. It went public a year ago and I started to trend-follow it. In a short amount of time, it shot up to $11 but then started to decline. It finally hit my stop at around $9 and I sold. But, I didn’t sell it all. Only 1/10th of my holdings. You see, I had a target of $13 and I figured it would go back up. After all, I was an early investor and knew more about the company than the general public. You can guess what happened after that.

The stock slid down over the course of the year and, looking back at the chart now, made a perfect, textbook example of a long-term downtrend. It had its rallies and I sold at different points but I never could bring myself to sell it all. I hung on to the idea that it would bounce back. After all, I was with it from the beginning. I knew the company and the industry. What could go wrong?

I sold my last remaining shares yesterday at breakeven. Looking back, I didn’t do too bad. I more than doubled, almost tripled my money. But I could have made so much more if I had sold it all when my first stop was hit. I beat myself up every day for it.

Lesson learned: No matter how much you know about or are involved with a company, you never know more than the market. The market is always right. Trend follow it.

I can only hope that I’ve learned my lessons now and that I still have time to apply them. I take great inspiration from Tom Basso though. He had a hard lesson in silver, but got past it. Now he’s still trading in retirement.

Thanks for your continued teachings in this way of trading (and even a way of life) through your books and podcasts.

I wish for you a long life full of health, wealth and happiness.

All the best,

T.

Thanks!

The Author