Doctors, scientists, aircraft pilots and even anesthesiologists all share the same problem.
As smart as they are to plow through 12 years of college, studying subjects of mind-numbing difficulty, obtaining MDs, PhDs and ATPL licenses, they are terrible when it comes to trading their own stock portfolios.
A doctor friend once confessed to me that as fast as he was taking in money at his seven-digit-a- year private practice, he was shoveling it out the door in trading and investment losses.
And if he got mad at it, or grew stubborn, the losses then compounded. He considered it a disease, an affliction, if not an addiction.
I have to admit that I once suffered from the same malady, as I was originally trained as a scientist and mathematician. That is, until I identified the problem and dealt with it.
And here is the dilemma.
Science, medicine, and flying high performance aircraft all require tremendous degrees of precision. The practitioners have to be exactly right about everything all the time.
If they aren't, people die.
Let me give you some examples.
I happen to know that the daily dosage for the heart drug, Digitalis, is 0.25 mg per day. If you accidentally raise that to 0.50 mg, you die of a heart attack, especially if you have a small body weight.
I also happen to know that the stall speed of a Boeing 787 Dreamliner is 125 miles per hour. At 126 miles per hour, everything is fine.
But at 124 miles per hours you risk stalling on approach, crashing and killing everyone aboard, especially if it is hot and humid, wind shear is present, and you are overweight.
So as far as doctors are concerned, the premium is on precision.
This absolutely does NOT work in the stock market.
For precision means buying stocks at their absolute lows and selling them at the perfect top-tick highs. The problem is that this is impossible.
I have been trading stocks for almost 50 years, and can think of only a handful of times when I nailed the perfect highs and lows. When I did, it was purely because of random chance.
By insisting on perfection in stock execution, doctors miss every trade. Then, they get frustrated and chase the market, throwing all discipline out the window. This is where the losses ensue.
Perfection then definitely becomes the enemy of the good.
I can almost see the knowing nods of agreement out there.
It gets worse.
Doctors are used to working with a perfect set of facts, a lab report, a pulse rate, a temperature or an MRI scan.
In the stock market you have to deal with the fog of war. The facts you have at hand may, or may not, be true. They are anything but objective. Most of the information put in front of you has a paid, sponsored and biased source (the company flack, the PR department, the political party).
New, contradictory information is getting dumped on you all day long. And the guy on TV is usually telling you to do the exact opposite of what you should be doing. That's why he is on TV and not trading his own account.
After a couple of decades, you get used to operating in this world of constant uncertainty. You learn which information sources to trust and which ones to ignore when the fur starts to fly. After much practice, you learn how to make the right decision when push comes to shove.
Unless doctors work in an emergency room, or in combat with the military, they don't get to learn how to make decisions in the fog of war. To them, it all seems like a mass of confusing and conflicting information. For the perfectionist, it's their worst nightmare.
No wonder they lose money.
So doctors have three choices when it comes to their investment portfolio:
1) They can index, balance stocks against bonds and get used to subpar returns. No bragging rights at the country club here.
2) They can hand it over to a professional financial advisor so it's out of harm's way.
3) They can learn the tricks of the trade that I have which is the purpose of this newsletter. If you learn from my half-century accumulation of mistakes, you don't have to repeat them yourself.
Your portfolio will love it!
Now that I have your attention, I have this pain in my back that keeps bothering me…
Trading in the Fog of War
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.