Page 931 - How to Make Money in Stocks Trilogy

180 HOW TO MAKE MONEY IN STOCKS SUCCESS STORIES

incredibly strong countertrend rally. After just six weeks of managing money
for Bill, Charles’ account was up more than 50%. “I was on top of the
world,” he said. Little did Charles know, that was the beginning of a long,
dry period.
“My hubris had once again raised its ugly head. I had become overconfi-
dent and loose with the rules. When the market broke badly in September
2000, I ignored the fact that the bear market trend had resumed and kept
trading anyway. I had done so well up to that point that my ego was totally
out of control. I had lost all my discipline. I was like an addict.”
Charles ended up giving back the bulk of his profits in his firm account
and lamented that his personal account took a huge hit as well. “There is no
substitute for experience, and until you’ve been in the investing battlefield,
it’s hard to understand this,” he says. “The market was cracking wide open.
The Nasdaq dropped over 45% in just four months. I started losing huge
amounts of money. The only thing that saved me was my experience from the
1998 bear market, when I had nearly blown up my account. I knew I was out
of control, so I just started wiring funds out of my personal account so I
couldn’t trade. I ended up preserving about two-thirds of my capital. The rest
of the money…gone. This was demoralizing and left a big impact on me.”

Never Break the Rules
Charles went back to his trading plan and, with a little time and a few “good”
trades, recovered his discipline and confidence. He has learned the hard
way to “always maintain your discipline and keep your ego in check, because
breaking rules in the market will cost you a lot of money.” He added, “I’ve
really learned the importance of trading in line with the trend of the market,
and to not draw down too much because it’s so hard to come back psycho-
logically after you’ve dug a deep hole. It can take years just to get back to
even…what a waste.”
When Charles and Mike Webster first became Portfolio Managers for Bill,
they worked side by side in his office for two years. Each day they would
compare their trading results. “I guess it was an ego thing, a way of measur-
ing yourself. But in truth, comparing my progress with Mike put an enor-
mous amount of pressure on me. Even if I was trading well, I’d feel crummy
if he was doing better than me. But if I was beating him, I’d feel just fine,
even if I wasn’t really trading that well. It made absolutely no sense.
“I learned to go into a cocoon and stay isolated, like the legendary trader
Nicolas Darvas, or the ‘lone wolf’ Jesse Livermore, so that I wouldn’t com-