Pit (noun): An area of an exchange trading floor
designated for the trading of futures or options contracts.
It all began innocently enough. It was 1971, and I had been enjoying my first heady experiences as a stock market wheeler-dealer. Wall Street had been enjoying its exciting “go-go” years, and everyone seemed to be making money, even amateur upstarts like me. I was trading, making a little money in spite of myself, and having fun at it.
Then, one of my brokers introduced me to commodities futures. The leverage, the risks, and the rewards are great. Given my propensity for trading, this was probably a criminal act on his part. Surveys have indicated that 9 out of 10 commodities speculators lose money, but that didn’t stop me — I would be the one who succeeded.
In those volatile waters, I was soon swimming with the sharks. I studied books about commodity trading strategies. I subscribed to some of the leading industry publications. I made time to teach myself the various technical analysis techniques. I became — there’s no nice way to say this — obsessed with commodities trading.
I remember driving through Pennsylvania on a summer getaway with Susie and ruining the whole effect by stopping every 75 miles to call my broker back in Louisville. Susie couldn’t believe it: “You mean we’re stopping again?!” But what she didn’t know was that I had left town holding a heavy short position in frozen pork bellies — I had sold 200 tons of bacon I didn’t own to a buyer I had never met for a price one of us would soon regret. I was hoping it wouldn’t be me!
For a while, I made more money in commodities than I made in stocks. But you don’t succeed indefinitely in these markets. Things have a way of evening out — in favor of the pros. Fortunately, we were soon to move from Louisville to California to volunteer our time at Campus Crusade for Christ’s headquarters, and I no longer had the extra 10-20 hours a week to spend on my trading activities. I quit “cold turkey” before I could self-destruct.
But my memories of those profitable days of the early 1970s eventually lured me back into trading in the mid-1980s, and the outcome this time wasn’t very pretty. Of course, I was older, wiser, and tougher, but so apparently were all the other players. Futures trading is a zero-sum game — every dollar you gain is at someone else’s expense. You’re in a competition with all the other traders, many of whom are very savvy pros who have a lot more information than you have and have it a lot sooner.
I spent hundreds of hours on research, but so did the pros. I worked hard at disciplining my decision-making, but so did the pros. This time, I came up woefully short. What are the chances of part-time amateurs — like you and me — trading successfully?
Mark Ritchie is a Christian and a successful futures trading professional who has written about his experiences in his fine book God in the Pits. He tells of a discussion he had with an investor who thought he might do well in futures trading. Mark’s reply:
“May I ask you, sir, what is your profession?”
“I’m a surgeon,” he answered.
“Look,” I said to him, “I’m pretty good with my hands
and I love to work with the human body; do you think I could
be a surgeon?”“Well, it’s demanding work, but if you wanted to badly enough, you might be able to become a surgeon.”
“That’s great!” I responded. “I’d like to start this weekend. How much money do you think I could make doing surgery on weekends? I only want to work weekends and evenings, y’know, some income to augment my regular trading.” He got the point.
I learned a lot during my trading days that I eventually carried over into my advisory work. Three key principles stand out. They should sound familiar. First, always make investing decisions based on a well-researched plan that has a high probability of success. Second, your plan should include clear-cut mechanical guidelines to minimize the role of your emotions. And third, have the self-discipline to ignore the news of the day and follow your plan.
Someday, you might have so much money to burn that you can try your hand at futures and options trading. Meanwhile, don’t get any crazy ideas.
