Inability to control emotions: That’s why 90% of you lose money

In any endeavor in life most people will fall on a bell curve. 10% will consistently be very poor at it. 80% will be roughly average, and 10% will combine the perfect attributes of natural skill, determination, training, and focus to excel. Unfortunately in investing there will always be that 10% that consistently lose money. They buy tech stocks in 2000, houses in 2006 and bitcoin in 2017. But because investing is a very emotional business the 80% that are in the middle of the bell curve usually lose money as well. It doesn’t actually work out that 10% lose. 10% make a lot, and 80% make an average amount. In this business 10% make money and almost everyone else loses.

Which is weird because everyone understands how to make money. You buy low and sell high.

It’s really quite simple other than the fact that our emotions try very hard to prevent us from doing that. While there are literally thousands of ways to make money in the market, I think the most dependable way to make sustainable long term gains is to be a contrarian. The problem is that almost no one can actually stick to a contrarian strategy in real time. Contrarian trades are difficult. It’s hard to time major trend changes. And if you don’t time it perfectly then you end up taking a drawdown while you wait for the bottom, or you end up selling too soon and watching the market continue higher without you. This is painful enough by itself but you also have to endure a mistimed entry while the rest of the herd just keeps running with the trend. The herd is making money while you look like an idiot waiting for a trend change that in real time your emotions tell you will never come. Ultimately the herd runs off the cliff (they must if 90% lose money) and the contrarian ends up making money (usually a lot of money), but that isn’t any consolation while one waits for a contrarian trade to begin paying off. For most people the urge to rejoin the herd is just too powerful to resist and contrarian trades just too hard to hold onto.

This is the whole purpose of using cycles and sentiment as our main trading tools. They are the two single best tools for taking and holding onto contrarian trades. But even so in our modern markets with frequent government interventions, cycles can get scrambled and sentiment derailed. It’s even tougher in the metals sector where the banks control the market. Cycles can get distorted and stretched, and bottoms come when the banks are ready for it to come. So being a contrarian in the metals is much harder than other sectors of the market. Throw in the fact that metals investors tend to be extremely emotional anyway and you have a recipe for one very difficult sector in which to make money. But as they say, nothing in life is ever easy, and the most difficult things are usually the most rewarding. For those few people that are able to cultivate a contrarian approach, ignore the herd, and apply it to the metals sector you can make a lot of money, quicker than virtually any other sector of the market. It’s not unusual to make as much in one or two weeks in the metals as it would take you a year to make in the stock market.

Metals are extremely volatile and that’s exactly why it’s so hard to hold onto contrarian trades. The draw down for a mistimed entry is much bigger in the metals sector than in other areas of the market. But the reward if you can hang on is also usually much larger.

Realistically there’s no hope for most of you. You will never be able to train yourself to go against the herd. But for that 10% that want to make long term gains and not just a win here and a loss there type of results, that’s what we do here at the SMT. We ignore the herd and we try to play by a different game plan than the other 90%.

We are contrarians.

Look at your past results. If you haven’t made, and more importantly held onto any gains over the last 2-3 years then you are the 90%. Are you willing to change and try something different, or are you forever stuck running over the cliff with the rest of the herd?