You know me as an energy guy. I try to stay inside ‘my lane’ here, and keep the conversation mostly about what I know best, which is oil prices and oil stocks.
I don’t know about you, but I get pretty annoyed when I hear financial folks preaching on everything, as if they are experts in everything. They’re not.
But, despite the fact that there are those that know a few things and some that know it all, there are still some commonalities to investing — to trading — that everyone needs to be proficient at in order to be successful at this, no matter what your specialty.
One of the most important is in trade management, sometimes mislabeled by the pros (in my mind at least) as money management or risk management.
Most of the know-it-alls, when they even bother to give a strategy of trade management use something simple and mechanical — like a sell stop, for example. These aren’t useless tools, don’t get me wrong. They can prevent you from making the number one worst move in investing — taking a big loss on a single position. If you re using mechanical sell stops, you are far better off than using nothing at all. But mechanical ‘systems’ also prevent flexibility and customization, which almost any investment will need to work best. For example, a stop will typically use a percentage loss trigger, like 10% —and this doesn’t take into account factors that may make that simple failsafe frankly inappropriate for the specific stock or option or future or whatever you’re thinking of owning. Maybe the stock is so volatile that 10% moves are happening every day — almost like trading noise. In this case, you should know that this stock will have greater risks and a mechanical 10% stop is more than useless - it is counter-productive. Further, mechanical systems preclude using other strategies that might be more appropriate for that trade - options, spread ideas, long-term tax implications, pyramiding — you get the idea.
Correct trade management is created before the investment is executed and planned as carefully as the stock pick itself. Strategies, risk tolerances, upcoming reports, news, targets — all of these factors and many more should be a part of the management of any trade before you go into it. You should know pretty well what your likely scenarios are for the investment before you lay down dollar one, not go white-knuckling it untethered through volatile markets — now THAT’S a recipe for failure.
How many folks are out there giving you free stock picks? BUY THIS — and buy it RIGHT NOW — how many?
Let me tell you something as a 35-year veteran of markets. A simple stock recommendation does you no good. No damn good at all. Without the right trade management to go with it, you’re going to screw it up — either you’ll lose big, or, you won’t get the maximum win you’re entitled to.
But either way, and over the course of time, you’re going to miss out on a lot. And there’s no reason to — just make sure you’ve got the right priorities in your mind, even if you’re going to listen to some know-it-all’s recommendations. Have your targets set, and make sure you have a strategy prepared that’s appropriate to that specific investment idea. Even with the most volatile investment in the most volatile market, you’ll be able to manage the trade far better this way, sleep at night and more likely win with it.