If You Aren't Wrong Quite Often, You Aren't Trying Hard Enough

If You Aren't Wrong Quite Often, You Aren't Trying Hard Enough

One of the hardest things for many traders and investors to do is to admit that they are wrong. In many, if not most, endeavors in this world being wrong is a badge of shame. It is viewed as an admission that you might not be very competent or, even worse, maybe you just aren't very bright.

In trading and investing being wrong is inevitable. In fact, the harder that you try to be perfect and avoid any error, the more likely you will produce poor returns. There just isn't any way to ensure that every stock that you buy will be a winner. The more restrictive you are with your selections, the more likely you will miss the best opportunities.

The best market players know that there is no shame in being wrong. Being wrong and making bad stock choices is just part of the process. If you aren't making mistakes then you likely aren't doing anything very productive.

Unfortunately, social media and the internet creates tremendous peer pressure. No one wants to look foolish so they don't talk about the bad trades that are part of the process. Even the most confident traders have some ego and don't care to be ridiculed by internet trolls.

Being wrong quite often is not a problem. It is staying wrong that will cost you the big bucks. Market players often have a tendency to become emotionally invested in their stock picks. Rather than question their decisions, there is often a tendency to engage in data mining. Data mining occurs when you focus only on those things that confirm what you already believe and ignore those facts that call your decisions into questions.

It isn't quite clear who said it but there is a saying attributed to either economist Paul Samuelson or John Maynard Keynes along the lines of "When events change, I change my mind. What do you do?"

It is a good illustration of how we have to constantly question the reasoning for our trades. The danger is that we become wishy-washy and don't have the courage of your convictions. We can't ever eliminate uncertainty but we can deal with it by trade management.

The great stoic philosopher, Marcus Aurelius said, "If someone can prove me wrong and show me my mistake... I shall gladly change". Not only would he change his view but he would be thankful to those that questioned his views.

This past week I was caught in an ugly trade in Chembio Diagnostics (CEMI) when the FDA revoked approval of its Covid-19 test. When I entered the trade it looked quite promising and I expected it to do well but I was wrong. It is what happens when we make dozens of trades every week. I sold the stock and moved on and was able to quickly recoup the losses elsewhere.

There is an inclination to be embarrassed about a poor trade like that but the truth is that if you are an aggressive trader it will happen quite often. If it doesn't then you are probably not trying hard enough to find trades with substantial upside.

Proclaiming loudly and proudly that you are wrong will make you a better trader. Embrace the fact that you are going to make mistakes and suffer substantial losses, and you will be not only a better trader but a better person.