While buying or selling, I often recall something one of my aunts admonished me for when I was 8. As she was visiting from out of town, my parents wanted me to perform a piece on the piano for her. I had had two teachers within the previous three years, and had picked up their habits and preferences. Also, admiring some of the older students, I decided that I wanted to perform just like them. I started playing my little grade three piece, moving quite expressively: dramatically hovering over the keys, waving my elbows. At the end, I was disappointed when my aunt said, “You move around too much. A little is OK, but most of the time you should stay still.”
Then over the next 15-20 minutes she sat with me until I had minimized my melodrama over the piano and she was satisfied. Later on, as I got older and performed in front of others, I remembered that statement always—I perhaps then started with a more subtle lift of the arms going into the piece, but unless I really had to reach for the highs or lows, I kept my movements to a minimum, allowing for better concentration on the piece itself.
From: Son
Date: Wed, 09 May 2001 12:46:04 -0500
To: Dad
Subject: IRA
Dad:
I was looking at my IRA and have an idea. This may or may not be OK, let me know. I can take out a loan at less interest than the growth of money. That way, I will end up with more in the long run but be more broke out of college. What do you think?
From: Dad
Date: Wed, 09 May 2001 21:55:20 -0600
Subject: Re: IRA
A very bad idea.
1) Taking a loan out to invest sets unrealistic expectations. I owe this money and I can't lose it. A sure-fire way to lose.
2) How do you expect to pay less interest than the growth of your investment?
The market lost 40% or so since last October. See (1).
3) What is your investment strategy? What is your investment plan?
4) You have over 50 years to invest. Wait until you have an income. Then follow The Richest Man and take 10% off the top and invest that. In the meantime, invest your time by learning how to invest.
5) Invest your money and time in a good financial education. Read Niederhoffer. Then read Adam Smith's The Money Game. Then come and see me for more books to read (and books not to read). Investing is as much about psychology than finance. Then read some more. After that, read some more. Read widely. The best investment books are not necessarily about investing.
6) Remember James Lackey, the trader who noted there are three stages to becoming successful:
i) You get the joke
ii) You are the joke (after spending much time studying the market and perfecting your investment strategy, you realize that the joke is your investment strategy).
iii) You get to make the joke.
7) Remember that to learn how to win, you first have to learn how to lose.
8) Learn how to control risk and your emotions.
Dad
My father-in-law Mike was the consummate businessman. Owned the leading Chevrolet dealer in Boston. Loved to gamble. Drink you or anyone else under the table in a jiffy on a dare, any time. Took me aside shortly after I got married. “You know, when you get right down to it, you’re betting bigger on these markets than all the action in a casino in Vegas each day. One thing, though. I always see people there have a limit on their losses. None of them have a limit on their profits. Thus, they always leave a loser. Why don’t you, say, when you get up to $5 million or so, you’ll call it quits. That’s quite a good return on your initial $50,000 investment. Someday you’ll realize that this is real money you’re playing with, and that will be quite valuable.”
I listened to Mike and had nightmares every night about what he said. I was pyramiding gold then. My $50,000 grew to $22 million. Then it got down to $5 million. Finally, I told my assistants to sell no matter what, and not to listen to me even though I begged them to stop like Ulysses wanted to be untied from the mast when he heard the mermaids singing. Of course, by the time they paid slippage and costs, the $5 million was down to $2 million.
About four years ago, my wife and I were visiting friends for dinner. After the meal, my friend, let's call him Bob, pulled me over to talk about a stock. He was actually nervous when he said in a hushed tone, “I'm not supposed to tell anyone else, but I have information about this stock that is about to take off big time.” It only took a little prodding to uncover that the information came from a broker and the tip was on some pink sheet stock.
The nervous hushed tone in his living room was the tell, but I sensed that he would not listen to reason. Besides, I do not like to give advice knowing that I will be dammed either way. What I did do for him is show him how to track the stock on the Internet and advised him to cut his losses if it didn't work out.
How did it work out? Well, he finally cut his losses at something like 40% down. He knew someone else that rode it down to oblivion and lost everything. It was all a scam, he admitted in the end.
Patricia Covino, New York/Connecticut:
Your article was great. After I read it, I thought that I had no story. I do.
My family did not invest in the market and we got nowhere.
Panutat:
My story is that all members of my family really enjoyed putting their money in the stock market and saw their investment soaring every year until one day Thailand faced financial crisis. My aunt and other members of my family who were always cynical about the life of Thai politicians and investors decided quickly enough to sell all stocks they got albeit at their cost when the value of their stocks was wiped out more than thirty percent in a week but my grand mom who always believed in the sanctity of Thai nation-state shared the view with thousands of her stockmarket goers at the time that the Thai Government would or should helped her out of the ongoing frightful situation in the end.
But when the crisis hit Thailand very hard, the stock market collapsed and the Government was pushed to seek assistance from World Bank and IMF. She became
disillusioned that buying and selling stocks was more gambling than investment
in the country where stock market goers had no real access to the state of credit or accounting of the firms they put money in. She was very old and did nothing but saw her savings and dream slipping away overnight. After the long frightful experience, she told me one day that it was better for her to be born financially idiot or understand nothing about the workings of the Thai stock market.
James W. Hogg, Fort Myers, Florida:
I am originally from the New York area and am now an attorney living in Florida. In the mid 1980s, my family moved my grandfather from Queens, New York to Fort Myers, Florida because he was getting on in years and having trouble taking care of himself. The burden of looking after him at home became too great and we moved him into an adult congregate living facility a couple of miles from our home. At the time, I was running a mortgage company, which I owned.
Grandfather was a stock broker all his life and worked well into his late 70s before retiring. His office was always with one of the brokerage houses dead center in the financial district. His employers included the names Spencer Trask, Hornblower Weeks, and some others I have since forgotten. He was born in 1900 in New York City and worked as a broker ever since around 1920.
Grandfather was on Wall Street on the day of the 1929 crash and witnessed first hand all the mayhem that unfolded that day. He told me of the people jumping out of windows; however, he personally didn't see too many. He was afraid of heights because of a childhood accident of falling out of a second-story window and nearly losing his leg. Therefore, he pretty much stayed away from windows on higher floors of buildings.
I asked him about his personal experiences in those years and he told me an extraordinary story. Mind you, Grandfather died around 1990 and my conversation about the market with him took place around 1988 or 1989. My grandparents were always fairly well off, having owned their own home debt free since 1920 and putting both my mother and aunt through Pembroke College (now Brown University) in Providence, RI. in the early 1940s. My question was: how did he do it?
Answer: Grandfather had a pretty decent size portfolio in those days. After all, he had a front row seat being a stockbroker on Wall Street. He noticed in the year before the great crash of 1929 that valuations were going up rather aggressively and that concerned him. The talk on the street was that the old rules were no longer applicable, that we were in an unprecedented era of economic prosperity and that now was the time to aggressively buy stocks. Riches, after all, were available to everyone now because the sky was the limit.
Sometime in either April or May of 1929, Grandfather became concerned about the market. What he did was totally liquidate his entire stock portfolio at that time. His reasoning was that valuations were a little out of hand and that there should be a mild market correction beginning soon. After things came back down again, he would repurchase everything at a lower price and run the stocks up again. Well, stocks continued their upward momentum through the summer and Grandfather thought he might have made a mistake by selling out too soon. Fortunately for him, his gut told him to stay out. Well, I need not recount what happened in October, 1929! I asked him, "Pop, how did you KNOW???"
His answer: "Pure luck! My gut told me things were a little out of hand, so I sold everything. When the market crashed that October, I was stunned."
When I told my mother about the story, she told me she was amazed that grandfather told it to me. She said that over all those years, he would never tell it to anyone. I guess he knew he was reaching the end of the line and he needed to tell it to me because he knew I was building a portfolio of my own.
Because of his story, I completely missed the tech stock market crash of 1999 because I saw a remarkable parallel between his observations in 1929 and my observations of 1999!
Hope you enjoy this ABSOLUTELY TRUE story about my Grandfather, Vincent Chiarello, now deceased, formerly of Richmond Hill, New York.
Allen Elkins, Williamsburg, Va.:
Yes, I have a stock market story for you. I own every loser stock that you mentioned in your on-line article; JDS Uniphase, EMC Corp., Texas Instruments, and Qualcomm, plus a few others. Before the crash in March, 2000 I was mildly well off and didn't see the end coming, just like everybody else I know, so now my investments are worth virtually nothing. I don't see any long-term end or comeback in sight despite your long range optimism. My father-in-law who went through the Great Depression, always called investing in the stock market "gambling." Now I know what he was talking about. He would only put his money in bank CDs, and even there he would not get a CD worth more than $10,000 because that's all the FDIC would insure a depositor for, and he bought his CDs from multiple banks. He didn't trust any of them after the Crash of '29. His strategy saved him a lot of money in potential losses, though he never made a lot of money from his 'investments' in CD's. But he at least survived with his capital.
Ever since I read Alexander Kotov's famous book, Think Like a Grandmaster as a teenager, I tried to follow the approach of Mikhail Botvinnik. He arrived at the board 15 minutes early and never got up until it was over.
Actually I've found that the main problem with getting up from the board is that you then become a target for chatter, which I find is the most distracting thing, and even between rounds if you play more than one game a day. I tend to get seated at the board only 5 minutes before the game starts rather than Botvinnik's 15, which I admit is probably a weakness! But still this is usually 5 minutes earlier than everyone else in the tournament hall.
Bent Larsen was a great believer in changing his opening repertoire every few years to avoid routine thinking. Korchnoi has done this very effectively too.