Back in the 90s, when Nasdaq trading was still done by humans, I remember a particular stock that started trading in the morning like many stocks at the time, but moved into the afternoon business. No matter how much was sent, the price would not move and the ladder meant the well-known GSCO – Goldman Sachs stock.
A guy I once worked with called a Goldman Sachs investor directly on the phone (this is the 90s after all :)) and said, what are you doing? There’s someone offering a lot. Someone from Goldman Sachs replied: Do your customers want this product? I’ll sell the whole damn company to him!
The share price has declined since that point, and there’s no doubt that GSCO would benefit from shutting down the project.
Times have changed. We are not in the d-k-Liar’s-Poker glory days of Wall Street volatility, but the Goldman Sachs transaction will forever remain in my mind as one of the iconic times when a player had the potential to influence the market.
Investors have no special knowledge of Goldman’s business. His business skills are no better than ours. Yes, the stock is overpriced, but that’s all the stock we traded at the time and will be for years to come. According to Goldie’s founder, anyone can access GSCO’s balance sheet and Goldman Sachs can sit there and bid on it without selling $1 million worth of stock every day because that drove business people crazy back then. Don’t worry. This information helped him call the bluff and put an end to his scheme, just as he had done so many times before Goldie won the gold medal.
Financial markets are down on coronavirus fears. The Fed hasn’t bought anything but bonds so far, but it announced plans to buy more loans, including from businesses, to help stabilize the economy. It was unprecedented and critics were furious, warning it would devastate the mortgage industry. Interest. The Fed bought very little. As long as you know the Fed is willing to buy, the bond market will stabilize. The Fed can trust the economy and can easily panic.
Now here’s some very important advice you need to hear. You are not Goldman Sachs. You are not the Fed. You cannot influence anything or anyone, and the sooner you stop trying to do so, the better off you will be.
You may object and say you wish you hadn’t, but I’m betting you did. Every time you make a trade, you’re taking the average. Every time you engage in a Martingale strategy, you’re trying to influence the market, and since you don’t have unlimited money at Goldman Sachs or the Fed, that action won’t end well.
I’ll grant that it’s a very tempting approach. Yours truly is just as guilty perhaps much more so than many of you in taking this path many times. It creates a very smooth equity curve because almost every market trade can be resolved positively until it can’t and then like a skyscraper that you’ve built brick by brick over months everything comes tumbling down in one quick, vicious collapse.
I stopped measuring the market’s losses a while ago. There is no middle ground. There are no binary options. All changes are the same size. My win rate dropped 30 points instantly, but my overall win rate increased dramatically. As time went by and I started making correct entries, my earnings started to increase.
Don’t use size as a rule of thumb. Don’t try to force your way into the market. Leave that to the Fed and try to do better. Your account and your heart will thank you.
