Option Fanatic, RIA (Part 5)

Today I continue with a second reaction to [1] from the previous post that involves detachment.

I find it interesting how calm trading educators, the financial media, and many financial advisors remain when the market gets volatile. I am sometimes jealous of their calm because I usually get scared! More than once I have reached the conclusion that had I simply walked away when the market started acting crazy then by the time I got back the market would have calmed down and/or reversed. Doing this could have prevented exacerbated losses.

I do not have the monopoly on fear in volatile markets, either. Robert Lang’s words in his Real Money article “On Human Nature and the Markets” (February 2, 2014) are echoed by psychologists and commentators aplenty:

> Human behavior never really changes and, as I’ve often discussed, in the
> stock market this plays out along a very specific emotional spectrum —
> one with fear on one end, and greed on the other. As traders vacillate
> between these two extremes, their behavior reveals itself via the charts…

How can I possibly manage OPM during crazy market environments when I am fear-stricken and on-edge for myself?

The solution is to insist my clients invest no more than a reasonable percentage of their total net worth. If I am trading reasonable size then I will not worry for myself. Knowing my clients have committed to investing reasonable size means I will not worry for them, either. If I have adequately explained the risk and my clients have understood the message then I should never be receiving emotional phone calls at the end of a trading day.

As a marketing point, my wife suggested it may be a good thing that I am never one to calmly sit back and say “everything will be fine” (remember the asterisk). Unlike most representatives of the financial industry who probably do little more than sell products, I actually trade. Trading experience gives me knowledge of how markets really work: details most “financial advisors” don’t [need to] understand because they are generally salespeople with a glorified title. Furthermore, having skin in the game means I will be more vigilant and able to do what it takes in the critical moments to manage risk.