365QOD- Day1232

Hoping vs. Controlling

“I hope this turns out well”- famous last words

In the article 11 or 12 Things I Learned while Daytrading Millions of Dollars, James Altucher gives us his second lesson to be:

Lesson#2 Hope is not a strategy.

Lesson1 taught us that we are horrible at predicting the future.  As I advised, we need to enjoy the adventure because we are not going to be able to predict the future precisely.  So sit back and enjoy?

Well, what else can we do?  We can hope that the future unfolds the way we want it.  And at some level we all hope this will be the case for most  or all of our lives. But as the lesson warns, hope is not a strategy.

A strategy has the form: 

If X happens, then I will do Y.

It starts with identifying a few Xs that can happen and thinking through how you will respond.  This process should not be one in which you dwell on the bad X that could happen but just realize that if it does happen you have options, Ys, and that you can recover. 

As I often say, what is your plan B,C,D,etc.

An application of this lesson towards trading is that we must follow a detailed plan.  If we say that if an investment drops by 10% that we will say, the moment that condition is fulfilled then we must sell.  We can not sit there “hoping” it will rebound. The rebound could continue working against us and pretty soon we are desperate not to lose too much.

Today’s question is:

“Do you identify your strategies for recovering from a bad outcome?”