These 3 words – Stay the Course – were coined by the late Founder of Vanguard, Mr. John C Bogle. A very respected man in the ETF universe.
In my opinion, these 3 words are simple but NOT easy to apply. Most traders and investors I know DON’T have it in them. Only the minority have it and practice it. Warren Buffett is one that comes to my mind. An astute investor that is second to none.
Why the Difficulty to Apply?
Novice traders and investors have psychology and mindset that are contrary to profitable traders and investors like Jessie Livermore, George Soros, and Warren Buffett.
A case in point, during the market crash of 2008-2009, Warren Buffett “lost” about 25 billion dollars of his fortune. Down from 62 billion dollars to 37 billion dollars. That was a 40% reduction in his fortune.
Most investors would have run for the exit, but not Warren Buffett.
He knew and trusted his strategies. He knew the market would eventually reverse to the mean. He knew what he was doing. True enough, over the next few months, the market turned in his favor. He stayed the course when everyone else runs for the exit. He made all his money AGAIN. While those who exited the market, lost.
Not many traders and investors that I know of could ever stomach a drop of 40% in their net worth overnight. This is also the reason why most cannot stay the course in a time of temporary market crisis. The keyword here is “temporary.” And Warren Buffett knew it.
As I have mentioned in my previous blog articles, all financial and market crises are man-made. It is just a game to benefit the minority few at the expense of the majority masses.
Therefore, the failure and success of traders and investors lie in their ability to stay the course with a good suite of trading strategies. Nothing else matter.
UK Election on BREXIT
The recent UK Brexit election on the 12th Dec 2019 was another case in point.
Many traders were concerned about what this election would bring to the EURGBP and GBPUSD. “Will EURGBP shoot up?”, “Will GBPUSD collapse?” Answers to questions like these will only be known after the fact, not before.
Some Forex brokers tightened their leverage as well for this event. They were worried also.
As for me, I chose to stay the course regardless of the market situation. This is because I have 100% belief and trust in my trading algorithms. Period.
On Election Day, the EURGBP and GBPUSD jumped against our open positions due to market speculation. But we were in hedged positions as per our trading algorithms. As such, we were on safe grounds at least at that point in time.
After the election, the Conservative Party won the majority of 43.6%, EURGBP and GBPUSD reverted to the mean the next day. Everything was trading “as usual” the next day. Our broker released their margin back to us. Like Warren Buffett, we made money along the way.
Many users of our algorithms were glad that they stayed the course despite this being their first encounter with such a market event. Through this incident, many have realized the power of being in hedged positions and the “smartness” of our algorithms.
The fact remains that I would rather lose money following my trading algorithms and staying the course than to make money by intervening with my trading algorithms and run for the exit. This has been my practice since I started my trading career, and this is where true traders depart from the novice traders.
Now that Brexit on the 31st Jan 2020 is over and done with. What’s next? Novel Coronavirus?
I don’t have the answer to that question. However, I do know this virus will cause many businesses to bleed and the economy of many countries will tank. But not traders like us.
Thank you for reading my blog articles.
Profitable trading to all.
CEO & Founder, ALGOINSIGHTS PTE LTD