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Do You Want to Be Right or Do You Want to Make Money?

This might seem like a silly headline at face value, because if I buy a stock, and it goes up, then I was right and I made money, right? In a one-off event, yes; but in reality, where multiple trades are made, not necessarily. While any given trade may serve to boost one's pocketbook and ego, continued success in markets and trading are much more complex than being right all the time.


Personally, I could care less if I'm right or wrong. It's a major reason why I'm comfortable making forecasts and publishing the Mercator Letter. Also, I'm not saying anything new or revolutionary here, but I'm in the market for one reason, and one reason only: To make money. If this isn't your reason to be involved in markets, then don't even waste your time reading this blog.


I'm also not one of those people to constantly and unilaterally berate the ego. Without egos, there would be no motivation in life, nothing would get done, and we'd all live in passivity-- Not my type of life.


But when it comes to markets, having too much conviction *via one's ego* can translate into major, major problems. Yes, I'm speaking from experience. I have no shame in admitting that I've lost tens of thousands of dollars learning that lesson for myself. This is known to many as "trader's tuition," and believe me, I paid it.


It's even worse when you lose money for other people. Back when I managed money for the public, I had good experiences and bad experiences. When you make money, you're the man. People love you and you are flying high. But when you lose money for others, and all professional money managers do at some point, it literally is one of the worst feelings in the world.


Anyways, back to the headline: Do You Want to Be Right, or Do You Want to Make Money?


Let's do the math:


Assume you have a brokerage account with $100,000. This number is arbitrary, and the amount does not matter here, as we are working with percentages.


You decide to buy four stocks in equal amounts, or $25,000 each, and commit to cutting your losses no lower than 8%. This is so very important.


Now let's pretend we have results after 3 months, and you were only "right" on one trade.


Stock A: Stopped out for 8% loss, or -$2,000.

Stock B: Stopped out for 8% loss, or -$2,000.

Stock C: Up 30%, and you decide to close out the position for a gain of $7,500.

Stock D: Stopped out for 8% loss, or -$2,000.


The sum of these figures produces a gain of $1,500. So there you have it, you were right only 1/4 times, and you still made money.


So again, Do You Want to Be Right, or Do You Want to Make Money? Because in real life, I probably wouldn't take advice from someone who has a track record of only being right 25% of the time. But as the example shows above, we are dealing with a market, not an individual person.

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