Saturday, December 13, 2008

Immutable Laws

I sat next to Roy Marubayashi in the violin section of Foshay's orchestra. We sat behind Lena Wong and Charmi Tsutsui. I always thought Roy and I played better than the two girls but the teacher liked them more because.. well, because they were girls, haha.

Roy subscribed to a philosophy that prevented him from becoming too exuberant about any good fortune that happened to grace his life. "Anytime something good happens," he declared, "something bad happens right after it."

In a perverse way I suppose that means you should look forward to bad things happening because the good will surely follow.

Maybe it's nothing more than just the law of averages, with some people being more or less lucky than the average joe. I find I've subscribed to Roy's theory over the years and become wary if too many good things seem to happen, even though there is no causal link between good and bad.

There's a lot of people who also subscribe to Murphy's Law: What can go wrong will go wrong. They can point to our government as a case in point.

Well, I thought I'd interrupt my walk down the lane of Christmases past and let you in on a fantastic way to get rich in the stock market. Sort of my Christmas present to you. I'll give you my own rock solid theory.

Are you like me? When you invest in something, like say you buy shares of stock, does the value immediately take a dive? I'll be watching a particular stock, waiting and waiting for it to come down to a certain price that I deem is at the point where it is worth buying. It seems to dance around just above that price forever but then briefly, it dips and I snag some shares.

Then minutes, if not seconds later, the price starts heading south like it was being chased by a bear. I stare at the screen in disbelief. How can it be that as soon as I make my purchase, all of sudden the price drops like a lead balloon? This has happened so many times to me that I am becoming paranoid, like someone is deliberately watching what I do and my purchase acts as the trigger for a massive selloff by everyone else on Wall Street to drive down the price.

Same for when I decide to sell. I'll set a good price to sell and the stock seems to dance around forever just below that price. But then it inches up and the transaction is done - I sell. Just the opposite of when I make a purchase, only minutes and if not seconds after I sell, the price goes shooting up like a meteor in reverse.

I start laughing like a madman.

Are you like me? Do these things happen to you? Well here is my secret advice worth millions of dollars - just do the opposite of what you think should be done. It's as simple as that.

Go right when you think left. Go left when you think right. If your instincts tell you to buy, put duct tape over it and sit tight. Same about selling. If your instincts tell you it is stupid to buy now, get in touch with your broker and load up. If they tell you now is not the time to sell, get out while you can.

That's it. Could it be any easier?

There are tons of books written by very wise people about the stock market that tell you that you can't beat the market. They point to all the mutual funds out there run by supposed stock market gurus whose returns fall short of what could be done by merely throwing darts at a list of stocks, or by buying an index fund.

Well obviously it means people are making the wrong choices. If your instincts tell you to make the wrong choices most or all the time, then doesn't it follow that if you disregard your instincts and do the opposite, you will actually make the right choices most or all of the time?

That's my elegantly simple theory that has evolved over the many years since junior high school when I was exposed to Roy's Theorem. Think it's gonna be heads? Call tails. Think Rock is gonna win? Cut that thought and go with Paper.

I'm whacking myself on the head Korean-style for not thinking of this before! Pabo!

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