The Cost of Arrogance

I was born for this business, according to William J. O’Neil, Investor's Business Daily. In the ninth chapter of his 1995 edition of his book titled, “How to Make Money in Stocks,” he describes the need for a strong defense. “Sometimes the best offense is a great defense….

In sports, a team that is all offense and no defense seldom wins the league,” according to the 1963 founder of William O'Neil & Co. Inc., an institutional investment research firm. Defense in this case is described as a muscular shrewdness for frugality and prudence to protect oneself against large losses. Defensive is the way I play chess.

The rules he lists are all things that come very natural to me because they’re all based on doing the hard work necessary to find good picks and understand the market as a whole and then apply healthy doses of caution, vigilance, prudence and care. But obviously, I do not understand yet the market as a whole.

“The whole secret to winning in the stock market is to lose the least amount possible when you’re not right.” But, considering that the last six weeks overall closed at a new all-time record high, I’d say that I’ve got this backwards; my whole secret seems to have been to win the least amount possible when I am right.

I have found some well-performing stocks through endless hours of scouring through all the possibilities but I either decided that the market was crashing and it was safer to apply caution, or I bought and then sold, believing that I was being prudent and sensible and settling for a meager win. Or I just didn’t realize that hard work this time could pay off.

I am beginning to see that my caution and penny-wise nature is draining any profits I would otherwise have had after spending four months straight, eight or more hours a day, reading and adding and dividing and multiplying and being exceedingly careful so as not to lose my paltry capital.

I think I am going to need to be a bit more aggressive but the truth is: all the news about the pending crash and/or recession or the parallels between the shocking equivalent between 1929 and 2007 and how the Fed’s cuts, the rate at which banks loan money to one another—could cause another crash like that one in the early 20th century—has scared the dickens out of me!

I’ve not lost money per se but I sure have lost the profits that I could have taken, which would have paid me for these last few months of fulltime-plus work—if I would have followed the market trend instead of all the spooky advice out there. Because I found some nice winners.

Jack knew they were good and bought some of my picks and made nearly $1,000 on them in just a few weeks, but I didn’t. I just sat there knowing the bull market was going to turn bearish any second now. I just sat there consoling myself that I wasn’t going to lose money the way Jack and everyone else was going to lose capital. Geesh, I can be an arrogant little shit!

Lesson No. 1: Don't be an arrogant little shit.

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Inspiration for this post: David Gaffen, MarketBeat