Trend Following. Ritholtz Barry

(2010) paints speculation quite differently, as his film’s main character Gordon Gecko profanes, “The mother of all evil is speculation.”29

      Stone is not alone in making an enemy out of speculation. New age guru Deepak Chopra makes the sweeping generalization that “Wall Street is broken for sure because it succumbed to greed and corruption and pure speculation with no values.”

      Wall Street, the phrase, can mean anything. If Chopra is talking big bank bailouts it is easy to agree with him, but pure speculation practiced honestly is far from valueless. Politicians, too, love the sport of ripping speculators, an enduring ritual. United States socialist Bernie Sanders was predictable: “I’m not much into speculation.” The character Bobby Axelrod of Billions counters Sanders: “What have I done wrong? Really? Except make money. Succeed. All these rules and regulations? Arbitrary. Chalked up by politicians for their own ends.”

      Axelrod is of course a fictional, fast and loose day trader built on inside information, but his words, words uttered by many an honest man over the millennia, expose in raw form the hatred inferior minds have toward speculation and reinforce it as a worthy endeavor – at least for those disconnected from The Matrix.

      Winning versus Losing

      It is typical the general public equates winning in the markets with abusing the financial market system – you know the horror stories so I won’t overwhelm you. However, there are players with the utmost integrity who achieve spectacular returns year after year. Examine their beliefs and self-perceptions and you will understand what keeps them honest. But before you examine their perspectives, take a moment to consider your own.

      For example, at the end of the 1990s or let’s say summer 2007 or even fall 2016 for that matter, when investors were feeling more secure financially on paper, the you-know-what hit the fan or was about to, and by the time it was over, they had lost significant money. They became angry with analysts, experts, brokers, and money managers whose advice they had guzzled down. Now they know they will not meet their investment goals or come close to the mythological retirement. They’ve religiously held on to their remaining investments hoping they will eventually turn around, but 401(k) decisions are paralyzing. They still believe indexing or buying and holding is the way to go – after all, they’ve been sold that meme for decades. But now as a final act of desperation, they give up – they rationalize winning as only dumb luck.

      Still others lost even more in October 2008, but, win or lose, they enjoy the thrill in the hopes of the one trade that makes them rich. Investing gurus, stock tips, and all of that is their entertainment. Plus they love to boast about their investments – ego needs attention, after all. Yes, they are depressed and angry when they lose, but when they win it feels terrific – it’s the heroin-junkie high. Since their main goal is to invest for quick profits, they will keep doing what they’ve always done. After all, there was one time a few years ago when a tip made a nice profit they still dream about.

      Stop.

      There is a much better way to think: Your approach becomes objective, moving as close as you can to rational. You have enough confidence in your own decision making that you never seek out investment recommendations. You’re content to wait patiently for the right opportunity. And you’re never too proud to buy a stock making new highs, even all-time highs. For you, investing opportunities are market breakouts. Conversely, when wrong, you exit immediately, no questions asked. You view loss as an opportunity to learn, move on, and save money to play another day. Obsessing on the past is pointless. You approach trading as a business, making note of what you buy or sell and why in the same matter-of-fact way you balance your checkbook. By not personalizing your trading decisions, your emotional indecision has the chance to decrease.

      The first perspective is that of a market loser; the latter a winner. Don’t be in a hurry to choose your approach until you know what the choice entails. And look, don’t be shy about it. You have to want the money. You have to want to get ahead and be rich – the critics’ condemnation, the player hating, the rank jealousy be damned. Speculation is not only honorable – it is life. Profit-seeking speculation is the absolute driving force of markets and without it there is only disintegration.30

      Investor versus Trader

      Wide swaths of the population think as investors in search of a bargain. However, if you were to learn the most consistent market winners call themselves traders, you would want to know why. Simply put, they don’t invest – they trade.

      Investors put their money, or capital, into a market, such as stocks or real estate, with the assumption that value will always increase over time: “I am long and never wrong!” As value increases, their investment and psychological reinforcement also increase. But investors have no plan when their value drops. They hold on to their investment, hoping the value will go back up. Investors succeed in bull markets and lose in bear markets – like clockwork.

      This is because investors have zero plan to respond when losses mount. They always choose to hang tight and continue to lose. And if mainstream press continually positions investing as good or safe and trading as bad or risky, average investors will be reluctant to align themselves with trading. Better to trust the mutual fund, and government systems, and fall asleep.

      A trader, on the other hand, has a defined plan or strategy to put capital to work to achieve profit. Traders don’t care what they buy or what they sell as long as they end up with more money than their starting capital. They are not investing in anything. They are trading. It is a critical distinction.

      Trader Tom Basso believes a person is a trader whether or not he or she is trading. Some mistakenly think they must be in and out of the markets every day to call themselves traders. What makes someone a trader has more to do with their perspective on life more than making a given trade. For example, a great trader’s perspective must include extreme patience. Like the African lion waiting days for the right moment to strike its unsuspecting prey, great trading strategy can wait weeks or months for the right trade with the right odds, and only then pull the trigger.

      Additionally, and ideally, traders will go short as often as they go long, enabling them to make money in both up and down markets. However, many traders won’t or can’t go short. They struggle with the counterintuitive concept of making money on market declines. I would hope the confusion associated with making money in down markets will dissipate, but it won’t. Human nature believes in only up.

      Fundamental versus Technical

      There are two basic trading theories. The first is fundamental analysis. It is the study of external factors that affect the supply and demand. Fundamental analysis uses factors such as Federal Reserve meetings, 24/7 news, weather reports, regulatory knowledge, price-earnings ratios, and balance sheet projections to make buy and sell decisions. By monitoring all fundamentals, one can supposedly predict a change in direction before that change has been reflected in the price of the market, with the belief you can then make money from that knowledge. That means you can sit around, ponder the viability of Uber’s autonomous car fleet, make your bets on whatever markets, and the easy bling money rolls in.

      The vast majority of Wall Street is fundamental analysis alone. They are the bankers, academics, brokers, and analysts who always have an opinion or prediction, rain or shine. Many of these Wall Street players have serenaded millions with fundamental stories for decades. Gullible and naïve investors buy into rosy fundamental projections riding bubbles straight up with no clue how to exit. Consider an exchange with President George W. Bush before the Great Recession:

      Question:

      “I’m a financial advisor here in Virginia, and I wanted to ask you what your thoughts are on the market going forward for 2008 and if any of your policies would make any difference?”

      President Bush:

      “No (laughter), I’m not going to answer your question. If I were an investor, I would be looking at the basic fundamentals of the

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Wall Street: Money Never Sleeps, directed by Oliver Stone (Los Angeles: 20th Century Fox, 2010).

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von Mises, Human Action.