Strange but true. Over the last couple of years, I have had fun answering some of the weirdest and most nonsensical questions on Quora. I thought it would amuse you to see some of the questions and my responses.
What happened to critical thinking? Why are these questions so mushy? I invite each of you to consider your questions, look for clarity and most importantly, ask yourself, what do I really want to know?
Some of my answers are serious, some sarcastic. But I had fun with them all.
What is the advice to beginner investors in the stock market for heading recession?
Great question and reveals one of the mental traps all of us need to deal with. So I am just going to comment on that trap.
“heading for a recession” (reworded)
What we do is to create a verb that reflects our internal experience of the PAST. We just can’t know if the market is “heading for a recession.” We take past direction and then project it into the future with a verb that implies past behavior will continue.
I am not saying what the market will do. I am just pointing out the thought bias. I often hear “the market is going up.” What this means is that the person saying it has the experience that the market has gone up, they expect it to go up…but the market isn’t “going up.” The market is where it is at that moment. That verb triggers overconfidence.
I invite you to give this some thought.
The stock market has the best 50-day rally in 75+ years, V-shaped recovery. Aren’t you
Yes, very thrilled! But, I get very depressed every day the market drops. My emotions go up and down with the market. When it is up, I feel optimistic, when it is down I feel pessimistic. My wife knows when she can request some play time by looking at the DJIA.
Uh…just kidding. It is great to see the market reflect the hopes of all of us. Just one caution…depending on the market moves to create an internal state. Can we be just as delighted to see the market go in either direction? Do we need an up move to feel OK about ourselves and the future?
Just a word to invite you to be aware of what drives the “thrill.”
Is selling put options a long-term sustainable strategy?
It is until that one day it isn’t. Selling premium means you anticipate what Nassim Taleb calls an “Antifragile” state. There is a reason that out of the money put options (and by the way their matching deep calls) tend to trade at a premium. Sudden unexpected drops in the market can wipe out the put sellers. The best and most scary time to sell put options is when the panic is the greatest, everyone is terrified of the next drop and premiums are the highest. However, the risk is the greatest. If you do sell a put option, calculate the loss if the asset drops 50%.
What is evidence that stock prices sometimes fall when a firm announces good news contradicts the efficient market hypothesis?
The market is made up of very inefficient humans with emotions like greed and fear. The market is driven by people’s beliefs about the market. Thus, if everyone believes a company will have great earnings, and then good earnings come out…and they all at once want to sell to take profits…uh….
There are no profits and the stock falls.
This is the most important point: The market is made of beliefs. Watch the news to see how people will believe. The most money in the market is to be made when you see beliefs that can no longer be supported.
What are investment tips for middle-income people besides playing on the stock market?
Don’t listen to investment tips!
What should you expect and push towards when starting out as a new day trader?
The most important priority is to maintain a master trader’s mindset. So, start by trading a simulated account. Have some fun. Explore, experiment. And most importantly, notice your physiology, your emotions and the quality of thoughts while you are learning.
Notice if you move into stress. It is difficult to trade successfully with long term stress.
When you are ready to trade a live account and risk real money, pay attention to any shifts in your physical, emotional or thought quality. If there is a shift, stop trading until you have your equilibrium back.
Why do people invest in the stock market when it is forecasted that a drop should occur?
When it is “foretasted” by the general consensus, those forecasts are always right. Only an idiot would invest when the “forecast” says the market is going lower. We should all listen to those expert forecasts and invest with those voices on the internet who are confident in their predictions.
Ok, just kidding. Expert forecasts, especially if they are all in agreement are most likely wrong.
Often that can be a time to buy. Remember, at the bottom, almost everyone agrees the market is going lower.
Why might a company’s stock price fall after record earnings are announced?
Even if earnings are more than predicted, they can be anticipated. Those that anticipated good earnings to make a profit, when the earnings are announced, those that anticipated the earnings, sell to take profit.
The market is about beliefs. We trade each other’s beliefs.
Which is the best option between online trading and offline trading?
Offline trading? What is that?
Oh…going back to 1980 when I was a broker for Merrill Lynch. A client would call and place an order. We would give him a price on our old “green screens.” I would write up the order on an order form and put it into a pneumatic tube and it would go to the wire room. The wire room would then type the order into a teletype machine and it would print out on the floor of the exchange. That would be ripped off the machine and a runner would take it to the right pit or desk and hand it to a floor broker who would manage the order with the specialist or the market makers. The floor broker would fill out the execution and hand it back to a runner. It would be returned to the desk, and typed into the teletype. It would arrive in the brokers wire room who would put it in a pneumatic tube back to me. I would pick up the phone and call the client with the fill.
Understand that in the futures market the bid offer spread was very wide and commissions could be about $80 round turn. Also, the floor market makers would manipulate the bid/offer spreads and pricing.
Now, I have all the information I need and I click the mouse. Stock trades have no commission and bid/offer spread is pennies.
Whew! What a wonderful change.
Has any retail investor made significant money in fixed income?
Yes! Carl Smith, in 1981 inherited $500,000. He asked his broker what he should do with it. At the time, the long term bonds were trading at the all time lows with interest rates running 15%. His broker was drunk and put all the money into treasury bonds by mistake when everyone knew that interest rates were going to continue going higher. Carl forgot about the investment until the bonds matured and he found out he made an additional one million dollars.
So, yes here is one retail investor!
This story is made up just for fun. The serious answer is obviously some investors have, and many have not. Since there isn’t a database on retail investors, we can’t know the percentages.
Now we are in a very low rate environment. The risk is the return of higher rates. But the interest rate world is like Alice in Wonderland and we could be in for big surprises.
Who came up with the number that 90-95% of day traders lose money?
Great question! I have assumed that to be true without the research. So, the best I could find was from a broker with day trading clients. They had hard numbers. They said 90% lose money in a year. I would assume that percentage would be higher in two years.
Since day traders aren’t forced to register their P&L, we will never know for sure. The losers probably aren’t bragging about their results. The brokerage firms who do know don’t want to discourage their clients. The entire active trading industry is built on the commissions, courses, systems, software and data from the losers. So…
Shhhhh…..don’t give out these hard numbers.
Why are bears and bulls used to symbolize the ups and downs of the share market?
There is this amazing service called Google search. You type in Google.com to your browser, then ask your question. And, up pop up thousands of answers! Truly amazing. But keep it quiet.
Where Did the Bull and Bear Market Get Their Names?
Has the COVID-19 pandemic created any new millionaires due to investments in the stock market?
Yes indeed! To learn who is a new millionaire because of market moves with the pandemic go to: http://newcovidmillionaires. Every new pandemic millionaire is required to register here. You can find their names and how much they have made.
OK, just kidding. There is no database. But…we can assume that employees in tech companies such a Zoom whose stock options and positions push them into a wealth status. So, look for stocks that have done well because of the pandemic, see if there is a list of employee owned shares…and do the math.
There are also investors who saw this coming, purchased cheap puts…and really cleaned up. I don’t know anyone personally…but someone owned those S&P puts before the break and must have done well.
Have fun if you want to research this further!
How many shares of penny stocks should a person buy if buying a lot of them can lead to the price dropping when it comes the time to sell them?
Penny stocks are very risky. The information is known by only a few, manipulators play games with the low volume, the bid ask spread is sometimes significant. Unless you are willing to spend time learning how to play penny stocks or you have a specific stock in mind…this is far too risky for someone who has to ask the question on Quora.
Which are the top gainer shares after mid-2020?
Let’s say I told you the top gainer shares for this year. I am simply someone typing answers from the internet. If I have a good track record, would I be telling the internet? You can trust investing advice from voices on the internet…but how do you think this will work?
The real issue here is your own decision process. In the rest of your life, do you call up strangers and ask them about critical decisions you need to make?
I invite you to continually improve your own decision process rather than looking for quick answers.
Can you get rich on stock trading apps like Robinhood?
Yes, you can become a billionaire! You can buy an island filled with all your toys! Everyone can get very very rich trading with trading apps.
Oh…seriously. Think about the question. Creating long term wealth is a complex multivariate process. There is no single factor that creates wealth. In fact, there aren’t just three or four factors. I could create a list a mile long.
So, can you get rich with a trading app?
What I invite you to do is to start you own critical thinking. Break down your sentence.
1. “You” Who is “You?” Warren Buffet or someone with a gambling addiction?
2. “Stock Trading” Define clearly. Day trading? Long term investing?
3. “Apps” Is there a magical solution to wealth in an app?
It is more important to develop critical thinking than to get quick easy answers.
How do overconfident investors influence share prices?
Do you ever wonder who buys the absolute top of a stock before it plummets? If you look at the news, press releases, beliefs about a stock, they are the most optimistic at the top. If there is a lot of pessimism about a stock, it may not be the top.
If the S&P returns 7% over the decades, individual investors earn less than half of that according to some sources. That is because they are the most pessimistic at the bottom, and most optimistic at the top. On March 23rd, everyone was expecting the dominoes to keep falling with bankruptcies and economic collapse.
So, watch the market for overconfident investors!
Aurora cannabis went up 80% today, May 15, 2020. What happened?
Obviously, it got high.
Is it possible to not lose money trading penny stocks?
YES! Penny stocks come with a guarantee that you can never lose money. So, you can risk your life savings, mortgage your house and borrow from friends to invest in penny stocks. NO RISK!!
OK, just kidding.
Penny stocks are the most manipulated investments you can find. Unless you have inside knowledge or skill reading how these are manipulated, best to find a different investment strategy. If you have to ask that question, you are NOT qualified to trade penny stocks.
How can one avoid impulsive trading decisions?
Our survival brain evolved to help us survive our early development. We needed to react very quickly to physical threats. As a result, the survival part of our brain can and does react many times faster than our neocortex or the rational part of our brain. This has been called “brain hijack,” or at Mind Muscles for Traders, we call it a “Downshift.”
In this state of “Downshift” our survival brain overrides everything else. Our brain chemistry shifts when we are in this survival mode.
However, because of neuroplasticity, we can change our survival reactions. This isn’t a trivial process, but it can be done with an understanding of how our brain works. My process is first…awareness in real time…acceptance of what we discover…and finally creating new neural connections, that with repetition can replace impulsive trading decisions.
This path requires the ability to step into this future state as safe, since the survival brain will fight it all the way if it feels this new state is a threat. The best way to accomplish this is with exercises, simulations and visualizations that my students have used successfully. You can create your own…or better, find a coach to help support you through this shift.
A veteran broker and floor trader, Rich went from the "worst trainee trader ever", to building one of the most consistently profitable options trading firms on the Pacific Exchange by training his traders using neuroscience. Rich also holds a Masters Degree in Clinical Psychology, a B.A. in Philosophy, and is a graduate of the Gestalt Institute in San Francisco along with Master’s training in Neuro Linguistic Programming (NLP).
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