5 Types That Deserve to Lose Every Penny in the Stock Market

by Brian Lund

This is an except from my upcoming book The Most Important Concept for Successful Trading (And a Few Others), and originally appeared on The bclund Blog.

The body of my best friend from childhood, Eric Philips, lay motionless on a gurney in the county hospital. He had just died. Twice.

Eric was at the nadir of what had been a two-year addiction to heroin that took him from class valedictorian to strung-out junkie. One who broke into people’s garages to steal things that he could fence to support his habit.

The journey had now ended under the harsh lights of an emergency room, with Eric surrounded by nameless, faceless medical professionals who were trying to give him another chance.

His situation sparked a very intense discussion among those ofus who knew and loved him; who should be held responsible, the pusher or the junkie? Put in financial terms, the mortgage broker or the borrower? The financial professional or his customer?

We know that the financial pusher is consciously selling something that will cause harm to his customer (as documented in one of the best books ever on the subject, Backstage Wall Street by Josh Brown (I call him “JB”). But what about the customers? Don’t they have any culpability in this devil’s dance? Where does personal responsibility come into the picture?

I asked this question of myself after spending the weekend attending the San Francisco Money Show where I talked with hundreds of financial customers. I spent hours basically doing the in-person version of what I try to do on my blog, to help people better understand the markets by showing them a different perspective.

I had a number of great conversations with intelligent and thoughtful investors and traders. Unfortunately, the vast majority of the people I spoke with did not fall into that category. Instead they chose to embrace active ignorance about the financial markets.

They roughly broke down into five categories. If you are one of these types, as far as I am concerned, you deserve to lose all your money.

The answer to everything is gold.

These people are known as gold-bugs, but they should be known as gold-idiots. Thanks to the broken-clock phenomenon, they may have seemed wise at times over the last few years, but remember that most have been calling this same tune since 1980.

“I don’t trust the markets, so I am buying gold.”

“I don’t trust the financial professionals, so I am buying gold.”

“I don’t trust the government, so I am buying gold.”

“I think my wife is cheating on me, so I am buying gold.”

“I am having erectile dysfunction issues, so I am buying gold.”

The only answer they have to any question is “Gold!”

Their distrust of the markets makes their myopic view exponentially worse. They pay huge transaction fees and taxes and risk theft of their assets by hoarding physical gold instead of owning other, more efficient assets, which would free up space for homemade preserves and elk jerky in their shelters.

Technical analysis is voodoo.

Let’s have a Jeopardy moment, shall we?

Clue: You find this on pottery. It is often on doughnuts. You will see it in the eyes of most people when you mention technical analysis.

Answer: What is glaze?

I saw that glaze when I mentioned such crazy and exotic trading concepts like the simple moving average or a support/resistance level. As far as most people at the Money Show were concerned, I might as well have been saying that Martians landed on Earth.

It still boggles my mind that so many people who are active in the market have never looked at a chart of the instrument they are buying let alone tried to use some basic technical-analysis concepts.

On a side note, as I was turning down the hall at the hotel to go to my room, I heard a very well-known market technician who peddles his eponymous indicator say to his wife, “Obama is going to ruin this country. They should kill him!”

No matter which side of the political fence you are on, this has to be one of the most ignorant things I have ever heard someone say in public, even if he thought he was alone. I only regret that I wasn’t quick enough to add to his “kill” list by saying as I passed by, “And promoters of black-box vanity indicators that haven’t worked in ten years.”

The whole system is manipulated.

Algorithmic bots control the markets. High-frequency traders control the markets. The Fed controls the markets. The Illuminati control the markets. Justin Bieber controls the markets—well, at least the Canadian markets.

These folks have bought into the crazy conspiracy theory that the market is controlled—yet they refuse to stay out of it.

They use their theories to excuse their lack of success in the markets instead of adapting to the machinations that they claim are so obvious and then using them to make money.

I know everything.

I admit it: these are the people I have the least amount of patience for. They don’t want to learn anything new about the markets. In fact, they feel they already know all there is to know.

One woman spent thirty minutes talking to me—no, more accurately, talking at me—about her trading. She knew all there was to know. I could only surmise that she had obtained trading perfection and had come to the show just to let people know about it.

When I brought up concepts like sizing your positions in relation to your risk profile, she either knew about them and had dismissed them or didn’t know about them and dismissed them.

At one point, “A-hole Brian” showed up and asked her what she had thought about Rollo Tomassi’s book on finding consistently profitable trading setups. She answered “I don’t find that his stuff works very well.” Check, please!

Social media scares the hell out of me.

I have pounded the virtual pages on my blog about what a powerful tool social media is when it comes to trading and investing. It may not be for everybody, but if you don’t at least make an effort to get familiar with it and its benefits, then in my opinion you are just ignorant.

After I suggested to one man that he sign up for StockTwits, one of the largest online investing communities, his first question was “What do they charge?” I explained that it was free. Merely by signing up, he could follow some really good traders and leverage their ideas.

“Oh, well, what do they charge?”

Once again I explained that it was free, but I could see the skepticism in his face. I finished up by suggesting that he read the “Best of” section on my blog where I discuss the markets in a different way.

“Ahhhh! I get it! What do you charge for your blog?” he snapped as if he had finally discovered my hidden agenda.

“Nothing,” I said.

“Well, then, why do you do it?”

“I’m just stupid,” I replied (in my mind).

I spend so much time engaging with the trading and investing community that it’s hard to remember that no matter how large and deep it is, it still occupies rarefied air compared to the public at large.

So many members of that public have either put their heads in the sand or decided that financial education is finite, relieving them of the need to keep evolving their thinking. No wonder they have been like lambs to the slaughter for the financial services industry.

It’s never too late to learn, though. Some of the best conversations I had that weekend were with folks old enough to be my parents who were as current and educated about the markets as anyone I know.

As for Eric, well, it wasn’t too late for him either. Those medical professionals were successful in their efforts: Eric was revived for a second time. He eventually cleaned up his life and moved to France, where he has lived ever since, now complete with a lovely wife and two beautiful children.

Copyright © Brian Lund