Turbulence. Anyone?

Algoinsights Blog, Forex trading, Investing, Success, Wealth

Having just returned from our Hong Kong holiday with my wife. I was wondering what to write for my blog.

I was thinking should I write about the protest that is now happening in Hong Kong?

Or, should I write about the hot and humid summer weather?

Or, should I write about the high property costs?

There were so many thoughts on my mind that I was lost in my thoughts.

I was not able to find a good topic to write for my blog to educate my readers and clients with my personal experience.

Finally, I decided to put my mind to rest and wait for the right idea to come to me instead.

After 8 days in Hong Kong, we headed home.

Seated at the window seat of the Airbus 380, I was watching my movie until I was interrupted by an announcement saying, “This is your captain speaking. We are expecting some turbulence ahead. Please return to your seat and put on your seat belt. Please remain seated till the turbulence is over. Thank you for your attention.”

I looked around and saw some interesting reactions to the same message from the captain.

Some passengers went back to sleep after hearing the message, some looked worried on their face, and some were mumbling words in their mouth, presuming praying.

When I saw these reactions, my idea for my blog article came – TURBULENCE.  

Why difference reactions?

These 3 different reactions from the same message have a lot to do with the level of trust the passengers have with the pilot. This is my opinion and I think I am quite right on this.

Those passengers who when back to sleep after hearing the message have the highest trust in the pilots’ skills and competency to ride through the turbulence.

Those who turned anxious and worried have little trust.

Those who started praying turned their trust to God in a turbulence have no trust in the pilots’ skills and competency and were hoping God to be their pilot there and then. They were praying out of fear, not out of faith.

All good pilots expect turbulence in ALL their flights. It is through those turbulences that they gain their real-life experiences that is so invaluable in the air. It is through those experiences that they become expert in riding through turbulences.

Turbulence and Trading

What has the turbulence in the air has got to do with trading and investing on the ground?

My short answer is, “Everything.”

Most traders and investors who do not recognise this similarity will not do well in the trading and investing universe. It will be very difficult for them to create wealth of any size in their life.

Therefore, to be a great trader or investor, you must first learn to live with any turbulence that may hit you from time to time. If you are NOT capable of coping with it, then you should NOT be trading or investing at all. Again, to quote what Warren Buffett say, “If you cannot take the heat, stay out of the kitchen.” Wise words from a world-renowned investor.

How most traders and investors cannot stand the heat

Having worked with more than 100 traders and investors, I can tell you that most are not able to take the heat when their investment or trading portfolios turned south.

They panicked. They closed out of their positions and realised those losses. They didn’t know they have just made a huge mistake at the wrong time.

No airplane flies in a straight line from destination A to destination B. It always goes up and down during the flight. Similarly, your trading and investment portfolios will go up and down as well. They will never move in a straight line.

How to ride through a turbulence

Most traders and investors who got “caught” in a turbulence do not and will not claim that they are the main cause of the turbulence in their trading and/or investment portfolios.

They will not admit that they have overtraded on their accounts. Biting more than they can chew. They will not admit their greed for more money.

To them, they are always “right.” It is the markets that are doing them in, NOT themselves. Instead of taking personal responsibility, they blame the markets and everyone else, but never themselves.

They never learn from their own mistakes and therefore they will never grow their wealth whatsoever.

Like I always say, “We create our own prosperity or crisis every time.”

It takes time, strategy, trust, discipline, and patience to create your own prosperity in your life. However, it takes practically nothing whatsoever to create crisis in your life. All it takes is just one stupid investment decision or a super “hot” tip from your uncle and there you have it – a financial crisis.

Hello Warren

If you have read some books on Value Investing, you would have come across the iconic Value Investor, Warren Buffett. And if you have read some of his books, you would know that he has 2 very simple investment rules – (Rule 1) Never lose money, and (Rule 2) Never forget Rule 1.

However, did you know that based on published reports, the share price of his company, Berkshire Hathaway went south in 4 major occasions?

1987 (-37%),

1989-1990 (-37%),

1998-2000 (-49%), and

2007-2009 (-51%).

On paper, he was down billions of dollars. But he lost $0/-. Why?

He never got scared out of his positions, and he wasn’t forced to sell out and realise those losses for liquidity reasons. He trusted his strategy totally. He believed in “Mean Reversal” as his strategy. He never bit more than he can chew.

He knows that volatility is temporary and by selling out in a crash, you put yourself at risk of missing out on future gains. This is especially true if you never have the guts to get back into the game again.

What about you? Time to start thinking.

Thank you for reading my article.

Victor Ang

CEO & Founder, AlgoInsights