Did Wall Street get drunk?

During a fun raising event on the 18th of July 2008, President Bush made a comment about Wall Street. President Bush in trying to explain the reason behind current global financial crisis said, ”There’s no question about it. Wall Street got drunk - that’s one of the reasons I asked you to turn off the TV cameras - it got drunk and now it’s got a hangover. The question is how long will it sober up and not try to do all these fancy financial instruments.” The presidents comment were captured on a video clip that was subsequently leaked on the Internet.

Did Wall Street get drunk? The word drunk immediately conveys a picture of alcohol consumption, so you have to delve deeper into the definition of drunk before agreeing or disagreeing with President Bush. I looked up the definition of drunk on dictionary.com and came up with 2 relevant definitions. 1) being in a temporary state in which one's physical and mental faculties are impaired by an excess of alcoholic drink; intoxicated: 2) overcome or dominated by a strong feeling or emotion: drunk with power; drunk with joy. Looking at the first definition, it’s not certain whether the powers that be on Wall Street had their mental faculties impaired by excess alcohol. However, they must have been dominated with a strong feeling of emotion. Yes they were dominated by the emotions of greed and power. In that sense, yes they were drunk!

The President’s comments were very lenient compared to the cover page of a November 2007 issue of Fortune magazine. (http://money.cnn.com/magazines/fortune/fortune_archive/2007/11/26/101232838/index.htm?postversion=2007111212), titled “What were they smoking?” I think they guys were on something a lot stronger than alcohol, as the effect their actions have spread across the globe.

Are you insane?

The intention of this article is not to insult anyone but to highlight one of the main reasons why people get mediocre results in trading.

Albert Einstein defined insanity as “doing the same thing over and over again and expecting different results”. It’s amazing how many people want a different result in various areas of their life but are not ready to make the change from within. People want to succeed but are not ready to put in the extra effort/sacrifice that it takes to succeed. One of the dictionary entries for insanity is “extreme foolishness”. i.e. something that is extremely foolish.

How does the theory of insanity apply to trading? According to research, more than 90% of traders loss money. The accuracy of this figure has not been established, however, it’s a fact that more traders lose than win. Most new traders get whipped out within their first year of trading. The reason most of these traders failed is not because of a lack of methodology, but because they failed to address certain habits or psychological issues that are detrimental to trading. For example, one of the ways of using MACD is to go long when the histogram crosses above midline. Some traders that use this method have a habit of buying just before MACD crosses the midline, and end up on the wrong side of the trade and loss money. They do this time after time and get the same result. A lot of people rather than change their approach would do the same thing over and over again and expect to get lucky. Although they might make a profit on a few occasions, it’s most likely they’ll lose overall. This is extreme insanity. Although according to Jesse Livermore, everyone makes a foolish play on the market, that’s temporary insanity, just like everyone has a few minutes of madness every day. It’s when making foolish plays becomes the norm in a trader’s activity that it becomes insanity.

According to Rob Gilbert "First we form habits, then they form us. Conquer your bad habits or they will conquer you". If you have gotten into the habit of making foolish plays (synonymous to gambling), please stop now before it destroys you. It’s not going to be easy to drop a bad habit, but believe me it’s possible. Don’t wait till the water runs dry before you commit to making the change. The market is a global place, traders come and traders go. If you compare trading to a career in the military, most traders end their careers as recruits, some make it through to captains, while only a few make it through generals. Those that make it through to the general grade are those that are able to demonstrate a high level of self-discipline. If you want to turn your trading around you need to identify the changes you need to make and have the discipline to implement the changes. Do it today as you might never get another chance.

10 Trading Principles

I’d like to share some trading principles. These 10 principles are the top 10 from a list of 50 principles that was compiled from a pamphlet printed 30 years ago entitled “How Young Millionaires Trade Commodities” and these principles still apply in today’s market. Whether you trade commodities, stocks, indices or forex, these principles apply.

1. Use money you can afford to lose - don't trade with money that will give you sleepless nights.
2. Know yourself – be disciplined, know your weaknesses, control your emotions.
3. Start small – try and master the mechanics first.
4. Don’t over commit - don't use all your margin. Apply good risk management.
5. Isolate your trading from your desire for profit – try to eliminate “hope” from your trading plan.
6. Don’t form new opinions during trading hours – do not let day to day fluctuations change your overall plan.
7. Take a trading break – trading everyday may cloud your judgement.
8. Don’t follow the crowd - follow the trend, the trend is your friend.
9. Block out other opinions – do not be influenced by others once you form an opinion.
10. When you are not sure, stand aside – it is ok to be in cash and not in the market.

In trading, if you adhere to the basic principles and apply diligence, profits will come.

Here’s a tip for you, free of charge!!

I received a phone call from a woman claiming to work for a brokerage firm in Zurich. She claimed to have many high income clients like me, and had an investment opportunity that had just come up. She had news that the government was about to invest heavily in alternative energy and she could buy me some shares in an alternative energy firm that the government was going to invest in. The company is registered in Germany (ticker A38.F). According to her the shares are currently selling for 2.20, but she would get them for me at 1.29. That’s a huge discount. However, it’s a minimum investment of 5,000, but she was certain that the share price was about to explode and I would make more that 10 times my investment. I allowed her to finish her sales pitch and then politely told her that I was not interested in buying the shares.


This type of activity has been around for a long time. You can refer to them as stock selling promoters. They create markets for companies to get rid of their shares to unsuspecting members of the public. This is done either by the brokerage firm phoning people directly or through email. One of the popular email stock promoters is Jarret Wollstein (in the US). There are many others who also claim to be experts at identifying good stocks. Most of these guys are based outside the UK as the market is highly regulated here, and such practises are illegal. Here’s an example an email that I’ve received in the past.








Finally, my tip for you is if you get a similar phone call or email, ignore it. They want to offload shares to you which you would be unable to sell.

The FSTE index one week later

Last week I posted my comments on the FTSE. After publishing the chart, I wasn't sure if I had done the right thing. The charts indicated that there was still some downside, but if the market had gone against my comments, then I would have exposed my being wrong to everyone. Anyway, the index went lower, as predicted.




Below is the daily chart

Have a great week.

Do not despise the days of small beginnings

Zechariah 4 v 8 -10 : 8Moreover the word of the LORD came unto me, saying, 9The hands of Zerubbabel have laid the foundation of this house; his hands shall also finish it; and thou shalt know that the LORD of hosts hath sent me unto you. 10For who hath despised the day of small things? for they shall rejoice, and shall see the plummet in the hand of Zerubbabel with those seven; they are the eyes of the LORD, which run to and fro through the whole earth.

Do not despise the days of small beginnings is a phrase that we use to encourage one another regularly. However when it comes to the nitty gritty of practising this philosophy, it seems no one wants to live it. We all want to go from zero to hero overnight. Everyone wants to go from amateur to expert within the twinkle of an eye. The media entice us with slogans like from zero to hero, “how to make 1 million in one month” etc. Unfortunately life rarely works this way. There is a process to everything in life. You have to start from somewhere and work your way to the top. Most of the great leaders we know today started from somewhere. Barak Obama didn’t end up being presidential aspirant overnight, he started from the grassroots and worked his way diligently to where he is today. Richard Branson started his business on a small scale and today is one of the greatest entrepreneurs of this generation. Bishop T. D Jakes, the founder of one of the biggest churches in the US didn’t arrive at the big seen overnight If you listen to, or read his story you’ll see that he started his preaching with a small congregation and through diligence and faithfulness he was promoted to higher grounds.

Even Warren Buffet, one of the greatest investors of our generation did not become a great investor overnight. He would have started investing with small amounts, gradually increasing it till he got to where he is today. Most people don’t even know that he worked for Benjamin Graham, the author of The Intelligent Investor. Through hard work and diligence Warren Buffet has been able to establish himself.

Why am I being a bit philosophical here? The financial markets offer a world of opportunity to people to build wealth, however only a few people are able to seize this opportunity. Many have tried and have had their hands burned, while many are just too scared to try because of stories that they have heard. Why have people had their hands burned and, why are people too scared or just not bothered to try? The main reason is because they do not understand the true meaning of “do not despise the days of small beginnings”, i.e. they are just not willing to start small. The get rich overnight mentality doesn’t help matters. A lot of training courses take advantage of human greed by selling you slogans like “how to turn £3,000 in £36,000 in 6 weeks”, or “how to make a million in the stock market”. People see these adverts and then rush to register for such courses, paying thousands of pounds, with the hope of recouping their training fees within a few weeks. The end result is usually disappointment. Can an absolute beginner turn £3,000 into £36,000 in 6 weeks? I won’t say impossible, but certainly, it’s unlikely. To do that, it’s 99% certain that person violated all rules of money management.

Are you new to investing via the financial markets? Is it something that you have heard about but are too scared to start? I’ll challenge/encourage you to start small and see how you’ll progress onto being great. Start off by buying 100 shares instead of 1000 or speculating £1 per point instead of £10. If you can’t make money consistently risking £20, how on earth can you honestly expect to make money risking £200 a trade? Diligenttrader encourages people to start small.