I admitted I was powerless over my affliction to taking small profits.

I made a decision to turn myself over to the care of those who affably might help me as God has helped others.

I made a searching inventory of all the losses I have taken.

I admitted to other human beings especially the spec list the nature of my wrongs.

I am ready and willing, but perhaps not able, to remove these defects.

I humbly ask all my supporters and friends to help me remove them.

I have enumerated the many millions that I have lost and beg forgiveness from those I could have helped had I not had this affliction. My family would be a very wealthy family and would not have to worry about such things as homes and educating their kids had I not succumbed.

I promise that I will make amends to them except when doing so might lead me closer to the grave and a nondescript and economical old age home.

I will continue to take an inventory of my lost profits and exacerbated losses, and when I transgress I will admit it. Readily.

When I jog, and have a peaceful moment, I will meditate on my past transgressions.

I will share the awakening of my profits, if any, with my colleagues so that others afflicted with this ailment can practice the principles necessary to correct.

And I will count. If this affliction manifests itself in day of week effects, than when the two day move is down seriously and the one day move is up, there should be a rise the next periods. I find of the 152 most similar events in the new millennium, the average decline the next days is -0.05 %. When the two day move is up seriously but the one day move is down, there should be a decline. I find the average move the next day of 132 such events is 0.03 %. I find similar random results for intra day manifestations of this terrible affliction. So I will meditate and count some more. 

Russ Sears writes:

An integral part of the 12 steps is accountability. You don't slip off the wagon because you don't want to have to admit it to the group and your accountability partner. Further, you recognize the triggers and you call the accountability partner to talk you down from the ledge.

In October in Canada, I attended an Enterprise Risk Management Conference where several heads of large Risk Management Departments talked to the group. It appears the regulators have adopted a system of 3 level of "challenges". That is they document times risk rules were broken and mistakes were made, either unintentionally or by bad processes at 3 different levels.

The first level was self or departmental reporting. The second level was outside department but internal to company (either internal controls or internal customers) and the 3rd level was external auditors. Each level was expected to have some "challenges" and write up how to improve them, and give a degree to how material or risky the error was. The right number of challenges and the degree of rogue risk was determined. Too little challenges or no serious violations were considered not taking risk management seriously.

The problem is, however, that this only prevents errors or rogue risk happening at the lower levels because it is a top down approach. But most companies fail because of strategic risk. Often in hindsight it is clear the strategy was guaranteed to make money short term in exchange for taking on crippling unavoidable long term risk.

This became clear to me when the Citi Risk Manager talked…The preamble to the "dance while the music is playing" quote played in my head.

They knew the housing market was a bubble ready to burst… But they also knew there was massive bonuses to be made before it struck and destroyed most of their company's equity.Nobody at the lower level was allowed to "challenge" their strategy, no matter how clear the fraud was to these lower level people.

In short, there are some risk rules that should never be broken, no matter how high you get. These may change as the circumstances dictate but they should always be defined. Allowing everyone to hold you accountable should be part of the any trader's 12 steps.

Chris Tucker adds: 

Is there a twelve step program for traders that habitually get out too soon?

(20 minutes to close): "Daddy will you play with me?"

"Umm, give me a couple minutes honey" says he. "Let me sell this first."

He groans but dutifully closes all positions. "What are you selling?" He makes a half-hearted attempt at explanation. Then heads outside for frisbee and badminton.

Then comes in an hour later and berates himself in disgust.

He never called his sponsor so there was no one there to say "Just hold it 'til the close bud, you can do it!"

He makes dinner all the while promising that he'll do better tomorrow. That he'll call his sponsor. That he'll keep at least one contract open, even if it kills him.

And he wonders, deep down, if he really can. Or is it going to go on like this forever.

Rocky Humbert writes: 

Mr. Tucker's whimsy is actually a profound question which is not easy tested:

Over a trading career, which is better: Exiting too early or exiting too late? Over a trading career, which is better: Buying too early or buying too late? (for a long only investor)

I would argue that for most fundamentally-oriented investors, the true killer is buying too early. I believe there are mathematical underpinnings to this. Perhaps other have a rigorous analysis of this problem. I've never seen this debated on the Dailyspec.

Ralph Vince writes: 

I think it depends on how you size your way in. I find I am infinitely better to be too early — on exits as well as entries. But I scale in, gingerly, one toe into the kiddie pool at a time. But this is, essentially, entering and entering on limit orders, whereas to be late at both ends, is essentially entering and exiting on stops.

I'm very interested in your thought process as to why that would be more advantageous.





Speak your mind

4 Comments so far

  1. Anonymous on March 27, 2013 6:24 am

    Well, over here in retail land i am a professional at taking small profits, usually right befiore they would become 400% profits or more.
    Worse, i then manage to lose the small profits after being dismayed at my prior ventures massive gain after i sold-hence i hold on to long creating much to large of losses.

    After countlesss readings of bacon and vic’s books i always try to buy the beaten down past favorites when i think there is no air, alas there is always much more air and i am always too early, get squeezed out and then watch the rise.
    Real world i can pick them, but usually too early and after many months of back and forth i give up before the major rise.

    I always assumed it was retail losers like me and not the bigger hedge fund folks that suffered from this affliction.
    well i owned LVS at 3 and sold for a quick profit.
    Wynn at 19 held to 50
    Started with the homebuilders in march 2011 and suffered until december 2011 right before the massive 400-500% rise of kbh and pulte
    Bought HGSI 1st day of january 2012 actually did well sold at 10 bought back at 7.4 and sold again at 8.02 because i saw that the sharp folks were selling-alas only to watch a 100% gain 2 weeks later on a buyout.

    Once again fighting this years beaten down miserable but big potential crop dendreon, intermune, jcp etc..And might i add that the professionals are oh so good at squeezing everyone out just in time for some major anouncement or rise-dendreon down for 11 days strait who can hang on to some onslaught like that i ask?

    oh well back to the drawing board.

  2. Jeff Watson on April 9, 2013 6:24 pm

    12 steps? You gotta take that 13th step to stay in the game. The public takes the 12 steps, and we know how they do on average, so take that extra step.

  3. Ed on April 9, 2013 7:06 pm

    the only thing that works for me is to step away from the screen. If you like your positions over X time horizon, don’t tick-watch. If this makes you nervous, reduce size. Then expect to be frustrated when you miss that “warning sign to exit early” and give back most of your profits.

  4. douglas roberts dimick on April 11, 2013 10:42 pm

    1 Turn

    V, my mom went through a 4 year bout with alcohol after my sister and I had left home — empty nest syndrome. Upon being confronted following a related hospitalization, she checked in at Mercy Hospital in Portland, Maine, and two weeks later came out, never to drink again.

    My sister and I grew up with my parents on the cocktail circuit. We hosted and attended dinner and cocktail parties seasonally.

    Perhaps the nonlinearity of this behavior could be correlated to their days at Columbia University in the 50’s?

    Offering this correlation of my mother’s codependency to your self-professed “affliction” is done with a single intent…

    Can you identify then articulate that core psychosomatic inner product (or emotive trigger, if you will…) that causes (or is the origin of) your perceived codependency?

    I have been student of yours since September 2009. From the time of writing my first contribution that December, my opinion of you as a professional speculator now evokes an image of “a gambler.”

    My caveat here with that observation is that you are far smarter and far more accomplished than me… so what do I know? Could be right, could be wrong. That said…

    In our online discussions of our dad’s, it has occurred to me more than once that we both have a significant, core, emotive complex that revolves around why and how both you and I each love “my dad.” If so, do you think that “taking small profits” is the mirrored codependency of a son the speculator rationalizing (or justifying) himself correlative to the life of a policeman-turned-lawyer father?

    I could be way off base here, so I hold here until we have a confirm or deny or ‘I don’t know.”

    As I have requested before, I also reiterate here how cooperation on SMART might advance your goals here… ?

    Be well…



Resources & Links