Stories can tell you what to ignore as well as what to focus on.
Traders and investors turn stories into profit and loss
As traders and investors, it’s important not to get caught up in the story of how a particular trade is going to make you money. You start to focus on any evidence, any price tick, any change in your favorite indicator, that seems to support your bullish or bearish position.
You ignore evidence to the contrary. “It’s just a little drawdown! It’ll come back, it’ll come back!”
On any jobs Friday, you’ll hear some pretty wild stories getting tossed around and often tossed right onto the trading floor. This week there’s a boneheaded article in Forbes claiming that the CBO says Obamacare will cause job losses.It doesn’t.
But to read Scott Gottlieb’s article (which, in combination with his great hair and teeth, should get him on Fox News), millions of us are going to be so healthy from Obamacare we’re going to quit our jobs to take up extreme sports full time.
The financial crisis? The unpleasant incident? The end of the world as we know it?
One of the big stories of our time, of course, is the financial crisis. It’s actually many stories, depending on your role in it.
Right down to what you call it. The credit crisis, the financial meltdown, all that fuss in 2009?
How about the Second Great Depression? After all, if we’d responded to it the way we did in the 1930s, it could have been worse this time. We faced a bigger, emptier bubble and greater inequality than in the 1920s.
The story we tell determines the decisions we make about a situation. It even determines how much courage we can summon.
After the crisis, many people chose not to put their money in the markets at all. A friend of mine just told me yesterday he keeps his in a bank account and “under the mattress.” So do a lot of people.
It’s hard to argue against his fear. If you’re not well-informed, i.e., you haven’t gotten an empowering story to guide you, you’re in trouble from the moment you open a brokerage account.
You are the hero of your story, not the market
One of the most important story changes anyone can make, in any area of life, is to go from seeing yourself as a victim suffering to knowing that you are a hero struggling.
Victims give up, they get used and abused further by forces larger than they are; they are not in control.
Heroes, no matter how dire the circumstances, are in control of their own minds and never give up. They don’t take any $&?*! from anyone, or any market.
So the first step is to understand a situation clearly by telling yourself the truth about it, even if the truth doesn’t make you feel good at that moment. And especially if the truth seems complex and boring to get through.
[youtube id=”bx_LWm6_6tA” align=”right” maxwidth=”300″]Remember, liars rely on your willingness to lose focus, get bored, and just hand over control to them. My broker, Paul Brittain, is one of my best teachers; so is MrTopStep’s CEO, Danny Riley, and our little group of honest and profitable traders. Most people aren’t so lucky.
So in the interest of a little Friday truth-telling, here’s one of the best explanations of the credit crisis around. It takes 11 minutes. If you want a great movie about what really happened, check out the Oscar-winning Inside Job.
Happy Friday, and keep an eye on the stories people tell you (and try to sell you) and the ones you tell yourself, especially the ones that have become habit (I have trouble with my weight, I’m not good at math, I’m shy, etc.).
Don’t let them control you and whatever you do, don’t let someone sell you bubbly high-fructose corn syrup and tell you it’s a bottle of happiness.
Guard your empowering stories like they’re money. Because one day soon, they will be.