The Big Trade: Simple Strategies for Maximum Market Returns

Chapter 1

Breaking with Tradition

Can you imagine what I would do if I could do all I can?

—Sun Tzu

Then I Got High

I don’t know about you, but the day I decide to try my hand at something new, it’s all I can think about. It’s like the smell of a new car. We’re not really sure where it comes from or why it affects us; we only know that it does. There’s an excitement with any new endeavor. The possibilities seem endless. It is the allure of entrepreneurship, the conscious knowledge that we are taking a risk far outside of ourselves; a leap of faith into the world of potential—and that risk is intoxicating.

In our imagination, making money in the markets looks far easier than eking out a living at our boring day jobs. During the last phase of any bull market, that may actually be true for a lot of people, but sooner or later we must leave the world of imagination and enter the world of reality.

The reality is that valuations of the assets in any bull market—be they stocks, gold, or tulips—become fictional with respect to their fundamentals, and the window of opportunity to recognize that the imaginary world can no longer be sustained is very short and requires swift action. Figure 1.1 shows the spectacular crash of Japan’s Nikkei 225 Index, which, if I’d been paying attention, would have served as a harbinger of things to come.

Figure 1.1 Nikkei 225 Bubble

Source: Yahoo! Finance

No one puts their money into the market with the intention to lose it. Not one person. But yet so many ...