Geof Smith busts up trading myths

Stephen Ground: All right, everybody, I get to sit down with Geof Smith here today and talk a little bit about the two market myths he shared a while back.

I wanted to do this for folks that are reading Prosperity Pub who are maybe newer to trading or haven’t had time to work with Geof. Geof, I know you’ve spent a lot of time more behind the scenes than you are today.

And now you get to be kind of upfront and sharing your ideas with folks. I think you’re one of the best teachers I’ve seen in the game, so I want to help folks get more of your brains.

Back a couple weeks ago, you shared two myths with us that you wanted to address.

One of those was, “I’m right and the market is wrong.” The other was, “Trade more, make more.” So what are your thoughts on why people believe these, and kind of why that’s such a big mistake for folks?

Geof Smith: A lot of times in the market, when people are reading the news or trying to figure out if this stock is doing this, that, and the other, going off basically fundamentals, they will jump in, they’ll buy something, and it starts going against them.

And so they’ll sit there and go, “Yeah, but I’m still right. I mean, I still have this. Go, go.” And then they’ll keep losing money, and they’ll buy at a lower price, and they’ll buy at a lower price or average down. Before long, they’re throwing up in a trash can just because whatever they thought was right is not correct.

And that’s the biggest thing about the market. We have to do what the market tells us to do. We can’t tell the market what to do. And a lot of people like to do that.

Even when they look at a piece of economic news, they’ll say, “Man, that was really good news.” And then they’ll come back an hour later and they’ll go, “Why is the market selling off so bad? That was really good news.” Well, the market didn’t think it was.

And I think one of the biggest problems people have is thinking, “Hey, I know that I’m right. I just have to wait for it.” Well, why not just let the market tell you you’re right, and then go for it?

And that goes really into my second myth, where people think if they trade more, they make more, which is incorrect.

You can sit there and day trade a million times in a day if you want to, and you might end up breaking even just because of all the commissions.

Instead of stepping back and saying, “Really, what’s the overall picture here?” and then fundamentally coming in and going, “Okay, I think overall this is probably going to be happening.”

I mean, you look at a market like we have right now, it’s so volatile. I mean, you can be in a trade and get hammered, get into another trade and get hammered.

Why not be patient and sit there and go, “Let’s wait for the right setup, and I’ll take one trade. I can make this much money off one trade,” as opposed to trying to trade eight or nine times to get the same amount.

Yeah, you’re just generating cash for your broker, in my opinion.

Stephen Ground: Yeah. They appreciate it.

Geof Smith: Exactly. And that’s the biggest thing. People think they just have to be in the market.

I mean, it’s almost like you have a digital crack device on a cell phone, right? Well, and the market could be the exact same way.

You can sit there and go, “Oh man, this is just awesome. It’s like a casino.” But it’s not.

We’re here as a business, and we have to make business decisions. And the question is, do we want to put our money at risk? That’s what you really have to ask.

And a lot of people don’t look at that. They just think, “Well, I can buy it here and get out here.” Well, yeah, but what’s your risk on that trade?

I mean, you’re going to have to look at the S&P right now. It ranges over 116 points in a day. I mean, that’s a big range for the S&P.

Nasdaq? Almost 600 points in a day. So you go out and buy something, watch your real risk in something, right?

And people just pound and pound at the market, and they figure out, “Well, why can’t I make money like he’s making money or like she’s making money?” That’s because they traded once that day or they traded once that week.

And that’s the biggest thing — wait for a proper setup. We get a great setup, we can make money off of it.

Otherwise, let the market churn and burn. Let somebody burn their own money, don’t burn yours.

That’s the biggest thing. And I think really, the two of them go together. I can’t always say that.

I mean, there are a lot of times I’ll sit there and go, “You know, I can’t believe they sold this market off on this,” but I didn’t trade it because, well, it’s not doing what I thought. So let the market tell me what I’m supposed to do here.

But that’s just from experience. A lot of people haven’t experienced that, and they think, “Well, that was good news. We ought to be buying it.” Well, the market doesn’t like that.

And there are different cycles that the market goes through where they’ll go down on good news and up on bad news, and then they’ll flip it around to something more normal — up on good news, down on bad news.

And so we always have to be aware of what that current economic status is to do that.

And I think that’s really what people need to do. They need to be more patient with themselves, more patient with the market, and wait for the best setup based on their criteria, as opposed to just telling the market, “I’m buying it, you better go up.”

That doesn’t work a lot of times.

Stephen Ground: Yeah, absolutely. I think people also just don’t want to be in cash and don’t realize that that can be an advantage to them, especially in markets like these.

Geof Smith: Yeah, well, everybody’s heard it all their life: cash is king.

Well, I mean, there it is. If you can be in cash long enough to wait for the best setup and then put your money to work, you’ll get paid a lot better.

I mean, you look at companies, they don’t sit there and go, “Well, you know, I think we’ll just build a brand new chip manufacturing facility that costs us $18 billion and we’ll have it done in three years. We’ll be making chips all over the place.” Well, there’s got to be a demand for it.

They’re not just going to go out and do it just because, “Well, that’s the hot thing in AI right now.” The thing is, are they going to make money doing it?

And that’s what they have to do. They have to wait for the proper time, they have to have the proper place, they have to have the proper people to do it, and then they’ll invest the money.

And that’s what we’ve got to do in the market. We have to wait for that prime opportunity to jump in.

Stephen Ground: Yep, absolutely.

And I think it’s so important. I think all of our Prosperity Pub folks really are technical traders first, as I look at the lovely roadmap charts you have behind you.

But for me, as someone who certainly doesn’t know the markets anywhere near as well as you or all our folks here, that makes so much more sense to me because, you know, even I’ve seen more times than I can possibly count how news is just unpredictable and unreliable.

I mean, earnings is such a great example of that. You know, maybe just to make up an example, Nvidia reports record revenue and incredible numbers, but then they fire their AI chief for something.

And for some reason, that’s what the market decides is the news to latch onto. And suddenly, you know, Nvidia’s stock is down 5% when there’s no reason on earth it should be from a company performance standpoint.

Geof Smith: Yeah. You know, just like Starbucks. They jumped up 17% because they fired their CEO and got a new one.

And you’re just like, “That’s the guy who founded the company, and you’re wanting to get rid of him and get somebody else?” And I was like, “That’s a good idea? Okay, fine.”