Trading's Tough: Gary Rates Himself a C- for Year 2000

This is the third segment of a four-part year-end review series that Gary B. Smith has written in the form of an interview with himself. Be sure to read Part 1 and Part 2.

Q: Let's shift the focus for a bit. How would you grade yourself as a trader and, assuming you're not an A+, how do you intend to improve?

GBS: Overall, I think I'd rate about a B. This year, I'd give myself a C-, and for a few months, a flat-out F.

Q: Then before we get to the improvements, answer the obvious question: If you're not great, why should people read your columns?

GBS: Good question! But my thinking is this: When I write the columns and talk about charts or method, I'm always rational and objective. When it comes to my own execution, however, I suffer from many of the same problems as the readers. My only advantage, I suppose, is that I've been trading longer than most, so I've worked through many of the "gotchas" a few times.

Q: So, if you can't do, at least teach, right?

GBS: Yeah, I guess. I do fall back on the fact that the greatest golf instructors have never been the greatest players. In my case, I think I fall somewhere between Tiger Woods the player and Butch Harmon the teacher -- the best and sometimes worst of both worlds!

Q: Tell me about the improvements for 2001.

GBS: Three words: consistency, consistency, consistency. Shoot, I know what to do. The problem is just being smart enough to stay out of my own way, and doing it. Truthfully, I get mad when I lose money. But I get furious when I don't stick to my game plan. I'll tell you trading isn't easy, but we tend to make it 10 times as hard by becoming emotional, fearful, irrational and who knows what. As I've said many times, and others have said, in order to be a good trader, you have to first know yourself.

Q: Very hard to do, though, right?

GBS: Definitely. That's why some very bright, very sharp people, wash out as traders. As an example, earlier this year many people didn't know themselves well enough to know they were just lucky rather than good. It's like hitting a 320-yard drive on a downhill par 5, on rock-hard ground, with a gale-force wind behind you. Shoot, in the first quarter of 2000, there were a lot of people who experienced that and thought they'd hit every drive 300 yards!

Q: You often come out against using fundamentals, and I know you are a pure technician. Have your feelings changed in that regard?

GBS: Actually, that's a fallacy. I really only rail against fundamentalists when they attack me. In fact, it's funny: Rarely do you see a technician take fundamentalists to task, at least unprovoked. But, I don't think I can go a week without some mainstream publication or irate reader mocking technicals. I mean, who cares, as long as a technician is making money?

Q: But you still don't advise using fundamentals, right?

GBS: It's not what I would choose, only because that area of analysis is so broad and, at times, convoluted, that it's tough to make rational, objective decisions. I mean, is Lou Gerstner bullish or bearish on IBM's fortune? Is Michael Saylor at MicroStrategy cooking the books or not? Really, it's almost impossible to tell.

Q: Yes, but the bulk of the analyst community is set up to interpret all that and give the investor some guidance.

GBS: Agreed, and I suppose some of those analysts are very good. But, here's my favorite story. My wife spent about nine months at IBM as Lou Gerstner's executive assistant. She had access to just about every plan, deal, forecast, etc. And she had no clue what direction the stock price was heading. And she was right in the thick of it! So, if you think some analyst sitting in New York can give you more accurate guidance than that, good luck.

Q: So, just stick to the charts, right?

GBS: Well, at least everyone is seeing the same chart at the same time. But honestly, people should use what they're comfortable with. If you think fundamentals are valuable, then by all means, build your methodology around that. Regardless of what I or anyone else says, you will only be a successful trader if you believe in what you're doing. So, in short, your methodology should reflect your beliefs.

Q: Let's go in a different direction. Many folks out there would like to leave their current jobs and trade full time. Any advice?

GBS: Without being glib, I'd say most should stay right where they are. Make trading a hobby if you want, but don't make it your livelihood.

Q: But isn't that hypocritical coming from someone who did leave a decent job to trade full time?

GBS: Maybe, but realize this: When I left IBM, I already had a good nest egg, a steady stream of income from writing, my wife's income and a fairly robust methodology. I can almost guarantee that that set of circumstances is far different from what most people have going for them. I've said it before, and I'll say it again: There have been more than a few days I was damn glad to receive my TSC paycheck. My hat is off to those who start trading from scratch and rely on their trading income to immediately replace their current income, pay the mortgage and put food on the table. It's certainly doable, but my guess is the wash-out rate in that scenario is probably 98%.