Your Tuition: Learning From Painful Lessons

Over the years, I have found that people actually believe they can just enter the market place and start to profit right away. They read a book, pull up some charts, and start entering trades. When it doesn't work, they blame technical analysis. This really happens all the time, I kid you not.

Stan Weinstein has been in the business for a very long time. I think his perspective on learning lessons and paying your dues adds a lot of value to what we do.

The market has taught me a lot of painful lessons. First of all, no matter how sure you are of something , never bet the whole ranch. The first lesson I learned was back in late 1961-early 1962. At that time, I was in school getting my economics degree. I was believing in the fundamentals. I was getting a lot of fundamental stock services telling me about all these great stocks. I bet my whole Bar Mitzvah money on the stock market and the 1962 crash came along and it wiped out all of my money.

At that time, it was a lot of money to me. The lesson I learned was that fundamentals don't work, at least fundamentals by themselves. Fundamentals are important when you are putting them together with the chart. That was lesson number one and that is really what propelled me to become a technician. After that, I remember going to the school library and getting Edwards and Magee's book Technical Analysis of Stock Trends and saying, "What the heck is all this?" I started doing some charting. I am not going to say I made money right away but I lost less.

I found that there was really something to technical analysis and it was interesting. I saved up the next little bit of money and started out the second time and got much better. The second lesson I learned was not having stop losses. In 1962, stocks came down so much that I sold at the bottom because it looked like they were going to go down forever. When I look back, they were good companies. Some of them had tremendous falls. I didn't realize first starting out that good companies could get whacked. When I started looking at charts, I realized that no stock should ever fall by half and lose that much money. Remember I told you to look at two charts and see which one has less risk? Going back to that initial experience, I am very risk averse. We never get past those experiences. It's like people who were tainted by the depression. Before I look at how much I can make, I first say, "How much can I lose?" I think that is important. You realize that once you learn this game you can have a lot of small losses and still come back to fight another day but when you are on margin and you take a big hit like I did in 1962, it takes a long time until you put the money together and come back. It was a painful lesson but it was a good thing. I always believe that something positive can come out of something negative. That did it. I'm a technician today and I learned to always cut my losses.

I don't think most people who become successful in the market can just walk into the market and become successful anymore than somebody can walk onto a tennis court and start whacking the ball. You really have to pay some dues. Some people have a faster learning curve than others. Some people go through life and never learn. They blame their brokers or their stock market letter writers. You have to pay your tuition.

Well said

Source:

Technically Speaking (Stan Weinstein) 1997