Chapter 11Prophecy of Value
From Scalping to Trading
It began with this text from my wife about our son Jackson: “Jackson wants to buy an extra Austin City Limits ticket to sell later on, presumably for a profit. What do you think?” For years, I've been trying to find a way to teach my kids about trading in a way that would capture their interest. Finally, I had my opportunity. I said, “Yes, but it's not a gift, it's an investment that he will make from his savings.” (I will preface this chapter by stating up front that reselling tickets for a profit is legal in the state of Texas.)
Jackson's argument for purchasing the extra ticket for $255 is that every year he sees tickets sell in the online aftermarket “at the last minute for as much as $500.” If he could do that, he would effectively be able to go for free. That's when I let him know that he was trading. He was making a bet based on his experience. He had identified a trend in price action and was positioning himself to capitalize on it. He immediately made a classic mistake by framing the decision irrationally. He is correct, he could effectively go for free, but because money is fungible, the cost of the ticket he is actually using is completely irrelevant. All that matters is how much he is risking relative to how much profit he expects to gain. It's a mistake that traders often make.
He acknowledged that there was a risk that he wouldn't be able to sell the ticket for at least what he'd paid, which is the lowest he'd ...