RPF0190-Steve_Burns_Interview
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00:00:43.000 | Today on the show, we talk with Steve Burns.
00:00:47.000 | Steve is the founder of New Trader University.
00:00:51.000 | He is a stock trader who's been investing
00:00:53.000 | and trading his own accounts for more than two decades.
00:00:58.000 | I think you're going to enjoy this inside look at somebody
00:01:02.000 | who only trades their own accounts
00:01:05.000 | and doesn't have an agenda beyond education.
00:01:09.000 | [MUSIC PLAYING]
00:01:13.000 | Welcome to the Radical Personal Finance Podcast.
00:01:16.000 | My name is Joshua Sheets, and I'm your host.
00:01:19.000 | Thank you so much for being here.
00:01:21.000 | Today's interview is a good one.
00:01:23.000 | It's nice to talk with somebody who's just involved
00:01:26.000 | in trading their own accounts, and I think you're going to like
00:01:29.000 | the transparency and authenticity of today's interview.
00:01:32.000 | I'm going to ask you to tell me what you think.
00:01:35.000 | I'm going to ask you to tell me what you think.
00:01:38.000 | I think you're going to like the transparency and authenticity
00:01:41.000 | of today's interview.
00:01:43.000 | We're going to dig through some of the conflicts of interest
00:01:45.000 | that exist in trading, talk about how to get started,
00:01:47.000 | and how you can figure out if you should consider
00:01:50.000 | becoming a stock trader.
00:01:52.000 | [MUSIC PLAYING]
00:01:55.000 | My interviewee today is a man named Steve Burns,
00:01:59.000 | and Steve was introduced to me by a listener of the show.
00:02:02.000 | I wasn't previously aware of his work, but listeners--
00:02:05.000 | and by the way, if you have people that you'd like to see
00:02:07.000 | on the show, please connect them.
00:02:09.000 | The best way to do it is send me an email,
00:02:11.000 | joshua@radicalpersonalfinance.com,
00:02:13.000 | and then cc them on the email so that they know that you are
00:02:16.000 | recommending them and they'll have a little bit of a heads up.
00:02:19.000 | But I love recommendations from the audience,
00:02:21.000 | and I'm happy to bring all kinds of people on the show
00:02:23.000 | if you can suggest them.
00:02:25.000 | So this is one example of that happening.
00:02:28.000 | Steve has been fascinated with financial markets
00:02:31.000 | for a very long time, and he's been trading his own accounts
00:02:34.000 | for a very long time, and he's working hard
00:02:36.000 | on his own financial independence plan.
00:02:38.000 | As you'll hear in today's interview, he's almost there.
00:02:41.000 | What's interesting about Steve, though, is with the exception
00:02:44.000 | of his current project, which is called New Trader University,
00:02:48.000 | which we will talk about in today's show,
00:02:50.000 | he's primarily been investing in trading for his own accounts,
00:02:54.000 | and he's learned a lot of things the hard way.
00:02:56.000 | He's not working managing a mutual fund portfolio.
00:02:59.000 | He is not an advisor on any publicly traded funds.
00:03:02.000 | He's not establishing publicly traded funds.
00:03:04.000 | He's not involved in the formal side of the business.
00:03:07.000 | Primarily, he's been involved in running his own accounts,
00:03:10.000 | and then as he has learned over the years,
00:03:12.000 | he's gone on to write some books about investing
00:03:14.000 | and also to build out a website and a course about investing,
00:03:18.000 | and you'll hear the details of that in today's show.
00:03:20.000 | What I try to do with this interview,
00:03:22.000 | and I hope you like it, is just simply get past
00:03:25.000 | the normal professional side of things
00:03:29.000 | and try to find out a little bit about Steve
00:03:31.000 | and his actual experience.
00:03:33.000 | I know many of you are interested in trading.
00:03:36.000 | I'm interested in trading, and yet it's a bit daunting
00:03:39.000 | to figure out how to get started,
00:03:40.000 | so that's what I really tried to probe at in today's interview.
00:03:43.000 | Hope you like it. Here we go.
00:03:45.000 | Steve, welcome to the Radical Personal Finance Podcast.
00:03:48.000 | I appreciate you being with me today.
00:03:50.000 | Hi. Hey, how are you doing, Josh?
00:03:52.000 | I've been looking forward to this since a couple of listeners
00:03:55.000 | recommended you and your site, New Trader U,
00:03:59.000 | New Trader University, as being a good fit for the show.
00:04:02.000 | So what I'd love to do is,
00:04:04.000 | why don't you kick it off with a little bit about your background
00:04:06.000 | and how you got into the world of stock trading.
00:04:09.000 | Yeah, I've been fascinated with the stock market
00:04:12.000 | and the financial markets as far back as I can remember.
00:04:16.000 | I can't remember not looking at stock ticker prices
00:04:19.000 | in newspapers even before the internet existed.
00:04:22.000 | And I was fascinated with numbers and compound returns
00:04:26.000 | and interest and business and entrepreneurship,
00:04:29.000 | and it's just always been something I've always done
00:04:32.000 | and working on building capital for the last 20 years now.
00:04:37.000 | And it's just always been something I like.
00:04:40.000 | Other men love sports and ESPN.
00:04:42.000 | It's always been financial news networks
00:04:45.000 | and the stock market for me.
00:04:47.000 | Is your interest particularly tied to your own personal financial goals
00:04:53.000 | or is it more about the art of it,
00:04:56.000 | the expression of kind of the challenge,
00:04:58.000 | or is it tied to, "Hey, I want to be rich so I can accomplish these certain things"?
00:05:01.000 | I think it's all of the above.
00:05:03.000 | It's a game that I enjoy doing.
00:05:05.000 | I'd probably do it as a game just for the sake of it.
00:05:09.000 | And I also love the financial benefits of having phenomenal returns
00:05:13.000 | and great trades and large amounts of capital to manage.
00:05:18.000 | I enjoy all of those things.
00:05:20.000 | How long have you been trading?
00:05:22.000 | I've been actively in the market since the early '90s.
00:05:28.000 | About '92 is when I actually started with an investment account.
00:05:33.000 | And just with your own money?
00:05:36.000 | Are you trading other people's money for them?
00:05:38.000 | I've only traded my own money and family's money,
00:05:41.000 | and after just dealing with managing family's money,
00:05:44.000 | I'm perfectly happy trading my own account.
00:05:47.000 | Understood.
00:05:49.000 | Do you ascribe to a particular style?
00:05:52.000 | Is there a specific strategy that you use that would help the audience
00:05:55.000 | to relate to your approach to investing?
00:05:58.000 | Yeah, my background's really in trend following,
00:06:02.000 | all the way back to some of the legends of our industry
00:06:05.000 | was Jesse Livermore, Ed Sakoda, William J. O'Neill.
00:06:09.000 | It's really the trend following approach,
00:06:11.000 | where we capture long-term trends and trade in the direction.
00:06:16.000 | It's more a reactive technical analysis as opposed to
00:06:19.000 | fundamental analysis or investing.
00:06:21.000 | What would you say is the average length of your trading windows?
00:06:25.000 | Do you have any idea on how long you stay in a position?
00:06:28.000 | Yeah, in a good, normal, healthy market,
00:06:32.000 | I can hold positions for months at a time, for over a month.
00:06:36.000 | Probably recently it's probably been great trades
00:06:38.000 | for about three or four weeks in duration.
00:06:41.000 | And I'm interested to know, and I hope you don't mind my asking,
00:06:45.000 | at the moment, do you make all of your income from trading your own account?
00:06:51.000 | No, I primarily trade for capital appreciation of my account.
00:06:54.000 | I do have different businesses, I do have a website,
00:06:57.000 | I do have books I've published.
00:06:59.000 | I have multiple streams of income.
00:07:02.000 | I try not to spend my capital unless I have to, for daily expenses.
00:07:06.000 | Okay, so that leads into my gotcha question.
00:07:09.000 | I hope you're ready for it.
00:07:11.000 | If you're so good at trading stocks,
00:07:13.000 | why on earth do you spend any time doing all these other things,
00:07:17.000 | like writing and maintaining a website and all of that?
00:07:20.000 | That's what's so funny.
00:07:22.000 | I didn't want to actually blog.
00:07:24.000 | One of my friends who made websites made me the blog and said,
00:07:26.000 | "Here, do this. You're good at this. You like doing it.
00:07:28.000 | You talk about it all the time. Why not blog?"
00:07:30.000 | So instead of driving everybody crazy around me,
00:07:32.000 | I expressed myself through blogging, which I actually enjoyed.
00:07:35.000 | And actually, it helps me learn myself.
00:07:37.000 | And then the website evolved from there.
00:07:39.000 | I used to be a top book reviewer on Amazon for trading books.
00:07:43.000 | For me, it was a way to log what I learned in a book report format on Amazon.
00:07:47.000 | So I ended up being top couple hundred in the country at one time for Amazon Reviewers.
00:07:52.000 | So some other people approached me about publishing books about it
00:07:55.000 | since I had all these top reviews on all these trading books.
00:07:57.000 | So I thought, "Well, that'd be good."
00:07:59.000 | And actually, the books I've written, I've had my best trading years
00:08:01.000 | right after writing a book about it
00:08:03.000 | because the best way I think I learn is through teaching
00:08:06.000 | and getting my own thoughts clear.
00:08:09.000 | Interesting, because that's one of the things that I've often--
00:08:14.000 | it's often been recommended to me, and then I've also recommended other people,
00:08:17.000 | is to establish yourself as an expert in your industry
00:08:20.000 | by reading widely and then posting reviews and posting your own content.
00:08:25.000 | And it's interesting to hear someone who followed that formula
00:08:29.000 | and to hear how it worked out for you.
00:08:31.000 | Yeah, it's sort of accidental, almost.
00:08:33.000 | It's sort of like people ask me to do it, and I did it begrudgingly,
00:08:36.000 | and then I actually enjoyed it.
00:08:38.000 | And it worked out good for me. It worked out well.
00:08:40.000 | So your learning process to become a trader, where did you start?
00:08:44.000 | And what were some of the dead ends that you turned down?
00:08:48.000 | And what were some of the good decisions that really led to your becoming a competent trader?
00:08:54.000 | I had the unfortunate of in the '90s just being lucky.
00:08:58.000 | I just went all into tech. It made sense to me.
00:09:00.000 | I had all these high-aggressive tech mutual funds that I just bought and held for years
00:09:06.000 | and had some crazy returns in the '90s.
00:09:09.000 | By the time I was about 27 years old, I had enough in my investment account
00:09:14.000 | to pay off my house when I was 27 years old.
00:09:17.000 | So I thought, you know, this is amazing, this is simple,
00:09:21.000 | but I didn't understand all the dynamics of cutting losses and limiting drawdowns
00:09:25.000 | and risk exposure and ended up giving back half of that account.
00:09:29.000 | From 2001, 2002, into the crash after the Internet bubble.
00:09:32.000 | So I still had half of my capital left, so I had to learn to rebuild and grow it again.
00:09:37.000 | And that really helped me learn.
00:09:39.000 | From 2003 on, I've just had some nice, steady returns.
00:09:43.000 | It's been great.
00:09:45.000 | My biggest accomplishment, though, I learned was in 2008, I went to cash.
00:09:49.000 | I did not take the 50% drawdown in 2008, 2009.
00:09:53.000 | I went to cash in my major investment accounts,
00:09:55.000 | and then I actually day traded for a year and a half instead of longer-term trend following,
00:10:01.000 | which I actually stopped doing that, too.
00:10:03.000 | But it was a good way to predict capital at the time.
00:10:06.000 | Do you feel like you made your decisions in 2008 competently,
00:10:11.000 | or did you just get a stroke of blind luck?
00:10:15.000 | No, I knew from 2003, I knew if I could get back to where I started in my capital,
00:10:22.000 | which would take a 100% return after a 50% drawdown,
00:10:26.000 | if I could get back there, I would not give it up again.
00:10:29.000 | I would not give it up, you know, expose myself to risk.
00:10:32.000 | And I spent years, you know, those years, 2000, 2005, 2006,
00:10:36.000 | really studying risk management, position sizing, and trading,
00:10:40.000 | getting more away from investing and more into trading,
00:10:43.000 | being more of an active trader and being able to be defensive about it.
00:10:46.000 | And that, yeah, it was all planned.
00:10:49.000 | How old are you now?
00:10:50.000 | I am currently 42.
00:10:52.000 | Do you have a systematic way of tracking your returns?
00:10:56.000 | Yes.
00:10:57.000 | Are you willing to share what your annualized rates of return have been?
00:11:01.000 | Well, you know, it's not consistent as I would like,
00:11:08.000 | but, you know, I had in the '90s, I averaged for the entire decade
00:11:12.000 | around 25%, 26% for the entire '90s, even after the drawdown.
00:11:18.000 | And then from 2003 to--oh, the 2008, I averaged over 20% for all those years.
00:11:25.000 | Then I had a single-digit year in 2000--oh, the 2009 single-digit year.
00:11:32.000 | Then I've run around 12% to 20% since then.
00:11:35.000 | And I had 150% a year in an aggressive trading account.
00:11:38.000 | It gets complicated because there's so many different systems
00:11:41.000 | and different accounts and there's tax-deferred, non-tax-deferred,
00:11:43.000 | so it gets hard.
00:11:44.000 | It'd have to be, like, published on a spreadsheet, really.
00:11:46.000 | Of course.
00:11:47.000 | Any negative years?
00:11:49.000 | 2001 and 2002 were two negative years.
00:11:55.000 | Right, the tech--oh, and you got caught up in the tech,
00:11:57.000 | and then you've matured since then.
00:11:59.000 | Yeah, I have a much more steady flow--steady equity curve now.
00:12:03.000 | Do you have any sense of how many hours per week you spend
00:12:06.000 | actively trading and studying your trades?
00:12:09.000 | Yeah, active trading--mostly I trade in the morning and at the close.
00:12:15.000 | I don't really trade much intraday.
00:12:16.000 | I mean, every now and then there'll be a signal intraday.
00:12:18.000 | They'll have to step in and do it.
00:12:19.000 | But I limit most--probably 95% of my trading is either the open or the close.
00:12:24.000 | So I probably actually actively trade maybe 30, 45 minutes every couple of days.
00:12:29.000 | But the homework part is at least 3 or 4 hours a day every day.
00:12:35.000 | Okay.
00:12:36.000 | And then--so what I'm moving at is I have an interest in trading,
00:12:41.000 | and a lot of people do.
00:12:43.000 | And there's this constant question about whether it's possible or advisable
00:12:51.000 | for any individual to try to compete in the public markets today.
00:12:57.000 | Trading has--I would assume has changed substantially over the last couple decades
00:13:01.000 | in some ways, but then in other ways it hasn't.
00:13:04.000 | And so you, as far as from the perspective of kind of being the lone person
00:13:08.000 | out trading their account, you're a bit of an anachronism
00:13:11.000 | in terms of from what people used to think was possible.
00:13:15.000 | And so there's a lot of suspicion around--at least for me,
00:13:20.000 | there's a lot of suspicion around is it even possible for people still
00:13:23.000 | just to trade their own individual account and do well, or is it worth the time?
00:13:28.000 | What would be your response to that?
00:13:30.000 | I'm interested.
00:13:31.000 | Yeah, I think--I try to be the source for new traders.
00:13:34.000 | I don't go in saying you're going to be a millionaire.
00:13:36.000 | I go in saying I'm going to help you survive your first year of trading
00:13:38.000 | because there's so much sharks out there that's going to take money for nothing
00:13:41.000 | and don't teach risk management or psychology or anything.
00:13:44.000 | But I think if you're not really passionate about trading or investing
00:13:48.000 | or growing your own capital yourself, then you should put it in more safer index funds
00:13:53.000 | and really be more of a long-term trend-following investor more than a trader.
00:13:57.000 | I do think it takes a level of passion.
00:13:59.000 | It's a big difference in watching a football game and playing in the football game.
00:14:03.000 | Some people just want to watch.
00:14:05.000 | How would you know if you had that passion?
00:14:09.000 | I think it's something you're drawn to.
00:14:11.000 | It's sort of like for me it was a taste.
00:14:13.000 | I got a taste of what could be done when I was young,
00:14:16.000 | how much capital I could make in trading and investing versus selling my time for money.
00:14:22.000 | That was a taste that I just never could get rid of to this day to have months
00:14:26.000 | where I'm making a month what I used to make in a year when I started my first job
00:14:31.000 | and it's just something I can't walk away from, something I have to continue to pursue.
00:14:35.000 | So it's kind of a selfish question.
00:14:37.000 | The reason I ask is in the past I come from the background of being a financial planner,
00:14:43.000 | not so much a portfolio management.
00:14:45.000 | I've never been involved actively in managing portfolios,
00:14:47.000 | but primarily just on the planning side of things.
00:14:50.000 | And the interesting challenge that I've faced is over the last year I've become uncomfortable
00:14:55.000 | with just some of the ethical positions of some of the major U.S. corporations
00:15:00.000 | and various industries and haven't wanted to profit from their overall--
00:15:05.000 | I haven't really wanted to profit from their business models.
00:15:09.000 | So I've made the decision in the recent past and I've sold all of my mutual funds,
00:15:14.000 | which was formerly just simply my approach to investing,
00:15:16.000 | because I didn't have control over it.
00:15:18.000 | Now I'm in the position of being forced to reallocate my capital differently.
00:15:24.000 | And I'm willing to invest in publicly traded companies,
00:15:27.000 | but I am not willing that someone else who doesn't hold my own personal concerns
00:15:33.000 | invest the capital for me.
00:15:35.000 | And so I've always had a vague interest about investing
00:15:38.000 | and a general interest in the topics of selecting companies
00:15:42.000 | and I'm drawn to the concepts of value investing.
00:15:47.000 | But it's hard for me to know whether I'm actually that passionate about sitting down
00:15:52.000 | and following all the day-to-day news.
00:15:54.000 | And I tend towards thinking that it's not necessarily for me
00:15:57.000 | because I'm more interested in running my own business and things
00:16:00.000 | than actually sitting and trading.
00:16:02.000 | But there's not a lot of guidance out there for a guy like me.
00:16:05.000 | There's not a lot of--well, there's not a lot of guidance out there.
00:16:10.000 | How would you guide me?
00:16:12.000 | Yeah, I would get something simple that meets your personality.
00:16:15.000 | I mean, for you it may be as simple as finding--they do have--
00:16:19.000 | which I don't like mutual funds because of the fees
00:16:21.000 | and the vast majority never even outperform an index.
00:16:24.000 | So they get fees for nothing, but that's a whole other story.
00:16:27.000 | But for somebody like you, you could find even an ETF or a mutual fund
00:16:32.000 | that invests in only socially responsible corporations,
00:16:35.000 | and you could trend trade it using just a few moving averages and oscillators.
00:16:40.000 | And it would be just a simple system, and you may not even have to make any changes
00:16:44.000 | but once a month maybe with a longer-term trend-following system
00:16:49.000 | where you could even use like a 100 or 200-day moving average.
00:16:52.000 | You wouldn't have to make changes like once every six months or a year,
00:16:55.000 | and you'd be on the predominant side of the trend,
00:16:57.000 | and you'd be in socially responsible companies.
00:16:59.000 | So set aside the socially responsible for a moment
00:17:01.000 | and tell me more about the mechanics of that.
00:17:03.000 | What would that bring me as far as--
00:17:06.000 | what benefits does that bring me as an individual investor
00:17:09.000 | if I follow that strategy you just outlined?
00:17:11.000 | See, trend followers beat buy-and-hold investors.
00:17:14.000 | You know, buy-and-hold is what's sold mainly, I think, by the mutual fund industry
00:17:17.000 | because they're going to get fees for doing nothing.
00:17:19.000 | You go to a bear market and they just buy and they hold
00:17:22.000 | when the market's down 20%, 25%, or even 50%, and everyone loses all that money.
00:17:27.000 | And there's no reason for that when you simply--
00:17:30.000 | something as simple as selling when your investments get to the 200-day moving average.
00:17:34.000 | Like a 200-day moving average of prices should be going up, not down.
00:17:40.000 | And on a chart you'll have lines that are an average of the prices,
00:17:43.000 | and all you're doing is capturing trends.
00:17:45.000 | You want to see what you're buying is making higher highs and higher lows.
00:17:47.000 | When it starts making lower lows and lower highs, it's under distribution.
00:17:51.000 | And you want to be in investments that are being accumulated, not distributed.
00:17:54.000 | And that's really the basis of trading.
00:17:57.000 | And while investing is more what people believe something should be worth,
00:18:01.000 | trading is trading what it actually is worth.
00:18:04.000 | So if it's so easy to do, then why doesn't every computer that's involved in running a portfolio
00:18:12.000 | do exactly the same thing?
00:18:13.000 | Where do you find your ability to compete?
00:18:16.000 | Well, my edge is I do small risk.
00:18:20.000 | Most people approach the market like a gambler.
00:18:23.000 | They're just gambling. They don't know what they're doing.
00:18:25.000 | They're just gambling.
00:18:27.000 | I approach like the casino. I'm making bets that are in my favor.
00:18:30.000 | I'm going to things that have a great risk/reward ratio,
00:18:34.000 | where the odds are I'm going to have a big win or a small loss.
00:18:37.000 | I also cut my losses.
00:18:39.000 | If I'm wrong, I'll have a small loss.
00:18:40.000 | If I'm right, I could have a big win.
00:18:43.000 | People say, "Why don't I put my losing trades on the blog?"
00:18:46.000 | It's because they last about a day.
00:18:47.000 | My winning trades last a month.
00:18:49.000 | That's an asymmetry where when you make good decisions, you make a lot of money.
00:18:53.000 | You have bad trades, you lose a little money.
00:18:55.000 | That's part of the profitability is unlimited upside, controlled downside,
00:18:59.000 | small risk for trade, and following trends in your time frame.
00:19:04.000 | The problems start when there are different market environments.
00:19:07.000 | There are bear markets. There are bull markets.
00:19:09.000 | There are volatile markets, and there are range-bound markets.
00:19:11.000 | So different things work at different times.
00:19:14.000 | Everything doesn't work at all times.
00:19:16.000 | That's where it gets tricky.
00:19:19.000 | Do you have a sense of where we are as we record this on May 7, 2015?
00:19:23.000 | Do you have a sense of where we are as far as a market cycle
00:19:27.000 | and what types of strategies are appropriate at this point in time?
00:19:30.000 | From the long-term chart, we've entered a new secular bull market.
00:19:36.000 | It's breaking down to all-time highs.
00:19:38.000 | Now we have the growth of China and India and emerging markets all coming in for the first time.
00:19:43.000 | So it looks like we did break into a secular bull market,
00:19:47.000 | but we're really extended right now in this cycle of the bull market.
00:19:51.000 | We're way overdue for a correction of 10% to 20%.
00:19:55.000 | I don't know when that's going to happen,
00:19:57.000 | but I'll be trading those moving averages in the direction that they're moving.
00:20:00.000 | This year has been completely range-bound.
00:20:03.000 | We've only had a little bit over a 1% return on the S&P 500,
00:20:07.000 | so it's been difficult to trade in that tight range.
00:20:10.000 | Many leading stocks are breaking down, like Twitter and LinkedIn.
00:20:14.000 | A lot of the bubble 2.0 stocks have really fallen hard the last few weeks.
00:20:18.000 | So it's not been an easy year this year.
00:20:21.000 | What are the bubble 2.0 stocks?
00:20:24.000 | This time, when the Nasdaq was $5,000 in the year 2000,
00:20:30.000 | it was crazy PE ratios of 100 times earnings.
00:20:33.000 | This time it's more stable.
00:20:35.000 | It's a reasonable 20 times earnings this time around that ballpark.
00:20:39.000 | So it's not as crazy as it was in 2000, but there are still stocks.
00:20:43.000 | Twitter had close to half a billion in revenue, but had very little profits, if any.
00:20:48.000 | LinkedIn is still trying to monetize.
00:20:51.000 | Facebook is already making billions per quarter.
00:20:54.000 | But a lot of the prices of stocks and those kinds of stocks are all based on expectations.
00:20:59.000 | When the expectations aren't met, then they plunge.
00:21:01.000 | That's what happened in the year 2000,
00:21:03.000 | and that's what happened recently to several of the growth stocks.
00:21:08.000 | As opposed to value stocks, where you're getting good earnings with a very low price.
00:21:14.000 | So growth stocks are the opposite.
00:21:16.000 | You're paying for future expectations.
00:21:20.000 | So I recognize there's a reason why you started New Trader University.
00:21:25.000 | And I'm interested in your commenting about what would be the learning process.
00:21:31.000 | Let's say someone like me, familiar with the basic aspects of--
00:21:41.000 | pretty competent when it comes to finance and pretty competent with all of the stuff that's required for CFP exam,
00:21:48.000 | which is modern portfolio theory and all of that, which is actually going to be a follow-up later question in a moment.
00:21:53.000 | But I'm not at all competent when it comes to trading.
00:21:57.000 | So what would be, after 20 years of experience, what would be the learning process that you would encourage someone like me to go through,
00:22:05.000 | as far as building an educational system for myself, starting to work my way through it, and where would I go and what would I do?
00:22:12.000 | Well, I created a New Trader 101 e-course for just such an occasion,
00:22:17.000 | so people could shortcut the 100 books you're reading to try to learn how to trade.
00:22:23.000 | Because trading is just like any other entrepreneurial business, where you have to have the right psychology and mindset to do it.
00:22:29.000 | You've got to control your risk in every decision you make, and you've got to have a methodology.
00:22:33.000 | You've got to have a trading methodology you're using.
00:22:35.000 | You have to create a trading system on how you're going to use your trading methodology.
00:22:40.000 | Then you've got to have a trading plan on how you're going to execute your trading system safely.
00:22:45.000 | It's the big three, psychology, risk management, and methodology.
00:22:50.000 | And then the methodology, breaking it into a system and a plan, and then you execute it while managing risk.
00:22:56.000 | And that's sort of from the big picture going down.
00:23:00.000 | How do you figure out where to start learning and then when you've learned enough and you're ready to kind of wade in and start doing?
00:23:08.000 | I think you have to get competence before you have confidence.
00:23:14.000 | When you have a trading plan, you know where your entries are going to be based on technical signals, where your exits are going to be,
00:23:20.000 | how you're going to exit your winners, how you're going to exit your losers, how you can control your risk,
00:23:23.000 | exactly what your watch list is and what you're going to trade, your patterns and the charts you're looking for.
00:23:31.000 | Then you're ready. When you have everything, everything is quantified that you're about to do.
00:23:35.000 | That's when you're ready.
00:23:36.000 | When you're going in with emotions and opinions and fear and greed and doubt, that's when you're going to have trouble.
00:23:42.000 | So it sounds super overwhelming. Here's the question that I want to ask.
00:23:47.000 | You don't seem to have a high opinion of mainstream brokered mutual funds, but what's the solution for somebody who's not as dedicated as you?
00:23:59.000 | I think it's just a simple trend following system. I think that's as simple as you can get it.
00:24:06.000 | You're simply trying to be called being long in bull markets and you can be out in bear markets.
00:24:12.000 | You're simply capturing trends and you're finding ways to capture those trends with simple technical indicators like moving averages.
00:24:19.000 | Maybe even really simple, which keeps them moving averages.
00:24:23.000 | If you keep them moving averages and you have some strategies how to stay out when it's volatile and to stay out of bear markets, you'll outperform the S&P.
00:24:31.000 | I think it was seven or eight straight years easily and then I didn't participate in the bear markets.
00:24:38.000 | Once it broke down to key support levels and moving averages, I just got out.
00:24:42.000 | So when all the markets in turmoil on CNBC was around the clock, I wasn't even in it.
00:24:48.000 | I had to bank my profits in 2007 and get out in January 2008 and I was just watching.
00:24:54.000 | So where does somebody start to learn about systems like that in addition to new trader universities?
00:25:00.000 | Is that what you start with or do you have a book, some book recommendations or resources?
00:25:05.000 | I've got a book, New Trader, Rich Trader, I wrote long ago that just has all the basic principles to start with.
00:25:11.000 | I'm sort of the entry gate into it.
00:25:14.000 | There's also a trend following system. Michael Covell, he wrote a book called Trend Following.
00:25:18.000 | That's a great book.
00:25:21.000 | Alexander Elder wrote Trading for a Living, which he covers all the dynamics of trading and all the technical systems.
00:25:28.000 | I blog, I have all kinds of examples on my blog of real trades.
00:25:32.000 | I trade live on Twitter. I put entries and exits on Twitter as I execute trades.
00:25:37.000 | What is your point of competition with the computers?
00:25:44.000 | High frequency traders, they will outrun you and outgun you.
00:25:48.000 | And the way I beat high frequency traders is to be a low frequency trader.
00:25:52.000 | I don't participate in their madness.
00:25:54.000 | In intraday, there's crazy things that go on nowadays where I don't know how some of these day traders even compete unless they have state of the art computers.
00:26:02.000 | But I'm not trading on the intraday timeline. I'm trading on the daily timeframe.
00:26:08.000 | I have position sizes that still limit my risk exposure.
00:26:11.000 | And then I make my decisions at the end of the day and the beginning of the day before a Skynet takes over.
00:26:19.000 | But are you not also in competition with people who've taken your approach to trend following and simply created algorithms to influence their own?
00:26:29.000 | Oh, yeah. There's people I know that were – there's another methodology called Can Slim.
00:26:36.000 | William J. O'Neill invented where you're buying the hottest growth stocks and there's these patterns, cup and handle patterns and tight flags and all these different patterns that they trade off of for 20, 30 years.
00:26:47.000 | And they were very effective. And now, like you said, there are computer programs that game those systems.
00:26:52.000 | They game the entries. They enter when they do and then they sell into the – they front run their entries and then they sell into them when they're all buying.
00:27:00.000 | And that has gone on. It has changed and evolved. You're exactly right.
00:27:05.000 | I try to stay outside of all that even though there's a group of legendary traders called the Turtle Traders that were trend followers that made amazing amounts of money.
00:27:14.000 | Oh, gosh. I guess it's been 30 years now. And now there's even a system called Turtle Soup where they have the opposite of their system because everybody adopted their system.
00:27:22.000 | So they game them. So, yeah, that does happen.
00:27:26.000 | So aren't you concerned that by publishing and publicizing your own approaches and your own systems and your own trades that you're creating the competition that's ultimately going to remove your ability to follow your own system?
00:27:38.000 | Yeah, I think I've grown more contrarian over the years. Like a lot of the things I almost do opposite.
00:27:45.000 | Like I'm really trading the other traders more than I'm trading – more than I'm trading the charts anymore.
00:27:52.000 | It's like we know what we're all about to do, so I either front run or fade.
00:27:57.000 | And it's pretty – it's even funny what happens intraday with some of the backtesting I've done.
00:28:02.000 | It's just amazing the things that go on. And even the flash crash day was – took the market down so bad and then everybody got such great bargains that it ran right back up.
00:28:12.000 | So then are you – is your strategy to post your trades on Twitter and then follow up with trades you don't post on Twitter to trade the traders?
00:28:23.000 | No, I'm not that big of a deal to do that.
00:28:26.000 | But it's so funny you say that, Josh, is that I know my best trades when I – it'll be – they think the world's going to end.
00:28:35.000 | There's going to be a sequester of the government or Greece is going to default and everybody's freaking out.
00:28:39.000 | The Dow is down four, five, 600 points, and then I go in and go long off of an oversold oscillator.
00:28:45.000 | Everybody thinks I've lost my mind. When I know everybody thinks I've lost my mind, I know they're all out of that trade.
00:28:51.000 | There's nobody left to get out that wants out. People have even taken short positions against it.
00:28:57.000 | So I know I'm on a good trade because everybody thinks I'm crazy.
00:29:00.000 | So how do you develop a structured and strong psychology as a trader and an investor?
00:29:10.000 | I think for me, I've studied so many charts. I've gone by hand back years ago, just thousands and thousands of charts and all the leading gross stock charts and all the indexes.
00:29:22.000 | I'm really down to trading mainly the stock indexes now with leverage and to look at a chart knowing that I've looked at every tick back in 1987 and during the crash in 2008.
00:29:32.000 | I've traded in lifetime for a really deep study for the last decade, and I just feel the confidence that I know certain things don't happen, certain levels don't happen.
00:29:42.000 | Even if they do, my position is small enough where it's not going to change my lifestyle.
00:29:46.000 | It's just the confidence, like the 10,000-hour rule. I feel like I've crossed my 10,000 hours, and I feel very confident.
00:29:55.000 | It's amazing to me, all the books I read even from 70 years ago, all the traders made the same mistakes.
00:30:00.000 | The vast majority, probably 90% of traders are just gamblers.
00:30:04.000 | They're just trading their emotions, their opinions, their greed, their fear, and it just plays.
00:30:09.000 | It's like a big emotional soup over and over again, and now it's amplified by high-frequency traders.
00:30:15.000 | There's very few approach like a business.
00:30:18.000 | How do you sniff out a well-written and useful investing book specifically regarding trading versus one that is poorly constructed and basically just written to make sales?
00:30:33.000 | Oh, gosh. I can tell the ones written by writers and authors and written by people that have put the six figures on the line and have held the risk themselves or had the drawdowns, have lost the money.
00:30:45.000 | You can really tell quickly. If they're not focused on psychology and risk management, then they're just talking book reading.
00:30:53.000 | I mean anybody who really trades that kind of money has that instant feedback of wins and losses, knows the importance of risk management and psychology because most people can't handle that.
00:31:03.000 | I don't know how buying holders handle it, getting their 401(k) statement in a quarter when they were down 10%, 15%, much less to see thousands of dollars evaporate in front of their eyes when they're wrong.
00:31:14.000 | Why don't you trade for money or trade other people's money for money?
00:31:19.000 | I've done experiments with that, and they don't understand how the equity curve works.
00:31:25.000 | The only person who ever had a steady equity curve was Bernie Madoff. He returned 1% to 2% every month for whatever it was, 30 years. It was just steady, and that's not the way it works.
00:31:36.000 | If somebody was that good, then they could own the world pretty quickly compounding their money.
00:31:41.000 | A phenomenal trader is going to return about 15% to 20% a year on their capital. They're going to have about a 5% drawdown at some point.
00:31:50.000 | That's a phenomenal trader, but most professional money managers blow up accounts, even hedge fund managers.
00:31:56.000 | They blow up, they have 25%, 30% drawdowns. They might have a 50% return year or a 60% return year, and the odds are that they're taking on far too much risk and they're going to give it all back the next year.
00:32:08.000 | They can make money in the right markets, but somebody has to consistently make it and keep it. That's where the problems start at all levels.
00:32:16.000 | So are the portfolio managers on those accounts – do they know better and they're just being forced by the market because their returns are being publicized?
00:32:26.000 | They're being compared to the benchmark. Are they being forced to take on these more aggressive scenarios because it's all a hunt for capital to flow in?
00:32:35.000 | Oh yeah. I'm friends with lots of professional money managers and hedge fund managers, and they all have the pressure of the clients because the clients will withdraw funds.
00:32:43.000 | I mean they want to see returns every single month and quarter, and they get nervous after a quarter.
00:32:48.000 | And the funny thing is a lot of them underperform their funds because when they have a bad quarter and they're down 4% or 5%, then they start pulling out their funds and locking in those losses.
00:32:56.000 | And the client pressure on professional managers is just incredible. That's not my path to happiness, I'm sure.
00:33:04.000 | So this leads to the real problem that guys like me face is how do you – as kind of the in-between – how do you help individual people?
00:33:14.000 | Because I recognize a lot of the problems with portfolio management. I recognize a lot of the problems with mutual fund structure.
00:33:22.000 | Hedge fund structure has its own benefits and its own drawbacks. But the majority – I mean would you agree that the majority of people are not going to follow a trading system like you have created on their own without somebody to help them do it?
00:33:36.000 | Oh yeah. The vast majority. All the market wizards books and a lot of the greatest traders like Paul Tudor Jones and Ed Sakoda, they all manage money.
00:33:45.000 | They all manage hundreds of millions. Well, Paul Tudor Jones did and Ed Sakoda turned it into tens of millions and they all managed money and then they slowly evolved into their own thing.
00:33:56.000 | But it's just – I think people have to be educated. Educated enough to follow a simple long-term trend following system.
00:34:04.000 | Just like you have to make a budget for your household or you have to be wise about what you spend and you have to get your car maintenance done.
00:34:10.000 | You have to plan vacations. You have to have a career. I think you have to have a basic knowledge of investing or trading for your own good.
00:34:18.000 | I just can't imagine someone not taking that seriously enough to have some kind of a process in place even if it's a buy and hold, a stock index mutual fund.
00:34:30.000 | When you started trading, how did you accumulate your initial trading capital?
00:34:35.000 | I was fortunate that I was in a company at the time that had a profit-sharing program and I was getting a 10 to 15% distribution in a tax-deferred account when I was 18 years old.
00:34:47.000 | So I kept building that capital up and I was putting everything I could into tech mutual funds through the '90s with little understanding of what I was even doing.
00:34:55.000 | I was mainly just an investor in tech companies from up until 2000 for the most part.
00:35:00.000 | I did do some trading in and out of the NASDAQ. I tried to do some swing trading but I had no idea what I was doing but I did very well.
00:35:06.000 | So that was a bad start.
00:35:09.000 | But really the compounding, I mean until I started getting trading, started building other trading accounts outside of my tax-deferred account to spend on living expenses, I just let that one account grow for all those years.
00:35:23.000 | So it's amazing how it just grew and grew. You compound at 12% for six years, it doubles.
00:35:30.000 | You compound that again for another six years and that doubles.
00:35:33.000 | And then suddenly your returns are substantial when you get into multiple six figures for normal people.
00:35:41.000 | But I think it's crucial not to eat your seeds when you're young. To start young, let it grow.
00:35:48.000 | And if your company has a 401(k) plan, always maximize your match.
00:35:52.000 | If they will match you at 5% of your income, you need to put in 5%, they'll give you 5%, then you're getting a 100% return on your capital.
00:35:59.000 | And that's amazing. Then if you're investing in any kind of index funds and you're returning 12% a year, you're getting a 12% return after you get your 100% initial return.
00:36:09.000 | So that's something huge a lot of people are missing.
00:36:11.000 | But doesn't that violate your rule of not using just the mutual funds that are commonly available in 401(k) plans?
00:36:19.000 | Well, most of them now have an S&P 500 fund and that's one of my major trading vehicles is the S&P 500.
00:36:25.000 | And I use options, I use leverage ETFs, I use different things. I like the S&P 500.
00:36:30.000 | But as an index fund itself, I mean it outperforms like 80-90% of all mutual funds that are managed and get fees.
00:36:38.000 | And then over long periods of time, it outperforms all managed mutual funds that are in the big cap mutual funds.
00:36:45.000 | So that's a way to beat almost all the mutual fund companies simply going to an S&P 500 fund that simply manages the index.
00:36:52.000 | Because it itself is a survivor-biased fund because the good companies come in, the bad companies go out.
00:36:58.000 | The S&P 500 is an actively managed index. And most fund managers can't beat it.
00:37:06.000 | What's your opinion on the efficiency of the US public equity markets?
00:37:13.000 | The efficiency of raising capital for…
00:37:17.000 | No, the efficient market hypothesis and your personal experience.
00:37:20.000 | When someone says – if I say to you, "Efficient market hypothesis," what's your reaction to that term?
00:37:25.000 | If the markets were efficient, that would mean everyone was logical and rational and did what was in their own best interest from all available information.
00:37:34.000 | And that's the funniest thing I've ever heard in my life. I think 2008 proved that wrong.
00:37:43.000 | So would you hold to – so you've got – in the efficient market hypothesis, you've got the strong form, the semi-strong form, and the weak form.
00:37:49.000 | Would you hold to at least the weak – I mean would you hold to the idea that the markets are mostly efficient with occasional inefficiencies?
00:37:58.000 | Or would you just simply say, "I can almost always find a little corner of the market where something is available for me to exploit"?
00:38:06.000 | Oh, I can say it's like runoff animal spirits. It's just animal spirits of greed and fear.
00:38:12.000 | It's just – I mean it's so funny the contrarian thing where everybody thinks they're efficient when they're out of the market.
00:38:18.000 | When the bottom is in and they can't go any farther down in a short-term timeframe, it's when everybody thinks they're out and it's going to plummet to the abyss.
00:38:27.000 | Because everybody is already out. And they think that – they really think that's when it's over and that's the perfect time to buy.
00:38:33.000 | Because it's the most inefficient thing for everyone to be out when everyone should be in.
00:38:37.000 | Do you have kids, Steve?
00:38:40.000 | Yes, I have three children.
00:38:42.000 | How old are they?
00:38:43.000 | They are 16, 17, and 23.
00:38:46.000 | Have any of them taken an interest in investing and that you've taught them anything?
00:38:51.000 | Well, my older daughter, Jana, she's actually my co-author of my New Trader, Rich Trader books one and two because her big thing was fiction writing.
00:39:00.000 | So she brought some nice storyline to the books.
00:39:04.000 | So she co-authored those books.
00:39:06.000 | And she's already started her 401(k) and her stock option plan and her job.
00:39:10.000 | And my middle daughter, Kelly, won a stock trading – stock market game they played at school and she won out of a class of 20-something.
00:39:18.000 | Did you predict her trades for her or did she do it herself?
00:39:20.000 | No, she had – they played like a time frame and it was like she went all into railroads, I think, and then she got out of it toward the peak.
00:39:27.000 | She did use some principles she learned and actually won.
00:39:30.000 | But it was based on a historical stock market game.
00:39:35.000 | How have you taught your kids about investing?
00:39:38.000 | What methods and strategies have you used to do that?
00:39:41.000 | I try to teach them they should be entrepreneurs and they should always be looking to not only be an employee somewhere when they're starting out
00:39:48.000 | but be an investor in the company and be a trader and an investor as well as an employee.
00:39:53.000 | I like Robert Kiyosaki's four quadrants and to participate in all of them, not just the employee one.
00:39:59.000 | I explain to them you're not going to ever get rich selling your time.
00:40:03.000 | And just explain to them entrepreneurism and how the future and the real things, the real opportunities in the future are going to rely on everybody now.
00:40:12.000 | Everybody now can have their own YouTube channel, their own blog, their own podcast, their own – they can create their own e-books on Amazon.
00:40:21.000 | I mean this is like the golden age for entrepreneurs in the world and I encourage them all to be entrepreneurs in whatever form it takes.
00:40:28.000 | Have they followed your encouragement?
00:40:32.000 | Yeah, they've all got big plans which a lot of them are going to go down the realm of academia and military and different things.
00:40:42.000 | But they do know the importance of starting young, building their nest eggs.
00:40:47.000 | Did you use any tools to actually teach them because that makes sense from a personal finance perspective and a philosophy perspective on entrepreneurship.
00:40:57.000 | Did you use any tools to actually teach them about the mechanics of valuing a company following a trend, the mechanics of choosing companies that they had an interest in and owning the stock and following the news of that company?
00:41:10.000 | Did you use anything specific with them?
00:41:12.000 | Yeah, I have shown them charts and explained to them on charts and I even explain them like life lessons.
00:41:16.000 | In the end of my book, New Trader, Rich Trader, I go into the whole thing about every principle in trading, the risk management, the psychology and the methodology all apply to all areas of life.
00:41:28.000 | Cutting your losers short is a big trading advice.
00:41:33.000 | You never have big losses but that applies in all parts of life.
00:41:36.000 | You shouldn't have negative friends or be in horrible relationships and be in horrible jobs.
00:41:42.000 | You should cut all your losers short in any area of your life.
00:41:45.000 | You should never risk ruin by making bad decisions in any area of your life, not just in trading.
00:41:50.000 | You should approach all things with a known methodology that works, not just random and you should always be goal-oriented and have a plan.
00:41:59.000 | I think a lot of it translates and that's something I try to instill to all of them.
00:42:03.000 | What's the hardest lesson that you've learned in your career as a trader?
00:42:08.000 | Taking the drawdowns and the – I'm going to get some water.
00:42:19.000 | Taking the big losses and not quitting, persevering, putting in the work, and persevering because all entrepreneurs, I'm sure they have that thing where they want to quit and they're down and they have to keep the hope alive and keep their future goals in place.
00:42:33.000 | There's been a couple of times that was bad time, bad market environments, really tricky times, and I had multiple losses in a row.
00:42:41.000 | You have to really take a check and realize it's worth it and you go back in.
00:42:46.000 | What always kept me going is there's nowhere else I know to go to make that kind of money.
00:42:50.000 | There's just – I mean unless you start your own business and I don't want to deal with employees and leases and inventory and all that stuff.
00:42:58.000 | So I think this is my best path to prosperity and continued growth of capital and one day having enough money to do nothing.
00:43:08.000 | I mean I have enough money now to do whatever I want to do, but I don't want to have enough money where I don't have to do anything.
00:43:13.000 | What are you going to do with your money when you reach the point where you don't – where you have enough money where you don't have to do anything?
00:43:20.000 | I think I'm always going to – so funny is I think no matter what, I'm always going to trade my own accounts and I'm always going to be on social media.
00:43:26.000 | I just – I don't know why I've always had a – I've loved Twitter and Facebook from the beginning.
00:43:31.000 | I just enjoy the interactions. I enjoy seeing how many favorites and retweets I can get.
00:43:36.000 | I enjoy meeting people. I've met a bunch of great traders and people that used to be my – were my heroes as trading authors and traders.
00:43:43.000 | I've met them through Facebook, through connections, and it's just been an amazing journey to be able to – in modern time to connect with all these people.
00:43:52.000 | I enjoy it. It's something I'll always be on social media and I'll always be trading.
00:43:57.000 | Do you think of yourself as an introvert, an extrovert?
00:44:01.000 | It's funny. I think I'm an introvert and I've always loved to kind of help people and educate people and teach people.
00:44:08.000 | It just gets frustrating to see people make bad decisions, so I've always been an introvert, and I think social media has really given me an outlet where I can express myself on social media without being face-to-face with people.
00:44:20.000 | I think that's helped me be more open and meet and share things with people.
00:44:24.000 | How long ago did you start New Trader University?
00:44:28.000 | I think it was 2011. My buddy made it for me and I did it for a few months.
00:44:33.000 | I thought, "What's the purpose of this?" and I quit doing it, and then I got bored.
00:44:37.000 | I'm like, "What the heck do I do? I'm not doing – what am I doing with my time? I'm not into sports. I'm not really into video games."
00:44:44.000 | So I ended up going back to blogging and to social media because that's what I do. It's just something I do, entertaining. I don't know what else to do with my time.
00:44:52.000 | There's only so many movies you can watch or TV.
00:44:55.000 | So your experience in four years of being involved in the business, has it been profitable? Has it been fun? Has it been something that's made a significant financial contribution to your life?
00:45:11.000 | Oh, absolutely. I've had my absolute best trading years right after writing a book.
00:45:18.000 | Just really nice, really great trading years. It's just crazy.
00:45:22.000 | I don't do it for the royalties. I make far more off the actual trading itself and get myself in the higher tiers of trading capital amounts.
00:45:30.000 | The people I've met and the fun I've had and the profits and starting the business and helping, I think I've helped a lot of people.
00:45:38.000 | I think I have the most affordable helping system for traders in the industry.
00:45:42.000 | It makes people angry I publish e-books for $2.99 while other people are selling their technical books for $79.99.
00:45:49.000 | I don't think I make any friends in the industry doing that.
00:45:52.000 | What I'm trying to drive at I guess is just I'm interested in your – so I'm an online entrepreneur. My business is in some ways similar to yours.
00:46:03.000 | I'm trying to follow through. You're ahead of me in terms of the value that you've been able to deliver and the e-courses and some of those things.
00:46:11.000 | I've been primarily in the beginning stages kind of building the platform.
00:46:15.000 | My area of focus is not on technical investing or technical trading but rather it's on personal financial management.
00:46:22.000 | So I'm just interested in I guess the lifestyle that's come out of the online business because in many ways it seems like – piggybacking off the comments you made –
00:46:32.000 | it seems like we have an amazing opportunity to be able to build these online businesses in areas that we have expertise.
00:46:43.000 | There's never been a better time in the history of the world for this kind of thing.
00:46:46.000 | Yeah. It's like you have to – my wife is a web developer and she's believed in content marketing her whole life.
00:46:57.000 | So she's been an amazing asset for me to have as I keep going down this journey.
00:47:00.000 | But like you said, you have to create value for people online and get the following and then be known as the expert in the room
00:47:09.000 | and then provide them with materials that they're happy to pay for and then delivering a value that's far above what they paid.
00:47:16.000 | It's not an easy process. Not an easy process.
00:47:21.000 | I've watched so many people around me fail over the last five years trying to do it.
00:47:26.000 | I think as long as I keep providing – I provide more value free than most people provide paid.
00:47:33.000 | So I feel good about my position in that and then I always give great values when I want to go to another level for people with books or with e-courses.
00:47:42.000 | Well, we're trying to do the same business model. So I'll keep following you and that's what I've been trying to do.
00:47:49.000 | Three final questions. What is the best trade you've ever made and what was the psychology behind it in your memory, the one that stands out in your mind?
00:48:00.000 | This was a great morning. It gets a little bit complicated because it is using derivatives.
00:48:04.000 | Go for it.
00:48:05.000 | But Apple was my big long play of 2012. I was long Apple from $385 to $700 a share.
00:48:16.000 | But I never owned any Apple stock. I was playing in the money weekly options all the way up in the trend.
00:48:21.000 | And of course everybody thought I lost my mind. I bought Apple at all-time highs, which is contrarian.
00:48:26.000 | Everybody would think it's efficient. That's the high. It shouldn't go any higher.
00:48:30.000 | But I understood more of the possibilities of the psychology of Apple with their iPads and their iPhones were just taking over the world at that time, which they still are.
00:48:40.000 | But – so I traded it on the long side all the way up. I had a phenomenal – you had a 50 percent return quarter, which is just unbelievable for my risk management parameters.
00:48:51.000 | That's just incredible. And I never owned Apple. I was also doing price lines at the same time.
00:48:56.000 | Those stocks were just – kept going up every day, $10, $20 a share. It was just an incredible time.
00:49:00.000 | But I had a great quarter. Then it started falling from $700 and I was out most of the time.
00:49:05.000 | But it plunged for several days in a row. And it was so overextended.
00:49:11.000 | And so I went in and I – on Friday, the weekly options expire, so they're really cheap because you've got to have a big move to make anything or they'll be worthless.
00:49:19.000 | So I ended up buying and controlling half a million Apple – half a – $500,000 – was it five – let me think – five – half a million dollars in Apple long and then half a million dollars in Apple short.
00:49:31.000 | So if it moved dramatically in either direction on Friday, I would make a good amount of money quickly.
00:49:37.000 | So I ended up – I owned Apple calls and Apple puts. Big position size but small amount of money at risk.
00:49:44.000 | It was going to be all or nothing pretty quickly. I was going to exit in the morning before the time decay kicked in on the options.
00:49:50.000 | So it ended up gapping – I'm going to have a blog about it. It ended up gapping down.
00:49:54.000 | I don't know what it was, some crazy $30 a share or something in one direction.
00:49:58.000 | And one of my – one side of it went in the money and one side of my play was up like $7,000, and I only held them for – I only held them for like 15 minutes in the close and 10 minutes the next morning.
00:50:09.000 | So in a 20-minute trade, I was up almost $7,000, and I was just – at that time, three years ago, that was a crazy amount of money.
00:50:16.000 | And then I had to get out of it as quickly as I could.
00:50:20.000 | It was like I was controlling a million dollars worth of Apple, half a million both directions.
00:50:26.000 | It was a very clever, complex play for me, and it ended up plunging and then reversed.
00:50:32.000 | So that was a good morning. That's after I played it on the long side all year.
00:50:37.000 | That sounds fun.
00:50:39.000 | I can just kind of sense the adrenaline kicking back up in your voice as you tell the story.
00:50:44.000 | I will never forget that morning.
00:50:46.000 | How about the flip side?
00:50:48.000 | What's the worst trade and what happened that caused it to be really bad?
00:50:53.000 | Oh, boy.
00:50:54.000 | I think the two – I think the big, hard one was my main account.
00:50:59.000 | And then in March of 2000, they had a Nasdaq 5,000, and I thought I was a genius.
00:51:04.000 | And I had enough in my account to pay off my house at 28 years old, and I had chosen to do so at the time.
00:51:10.000 | So I felt really good about it.
00:51:12.000 | And then the plunge began.
00:51:14.000 | And then I would go out, wait for the plunge for a few days, get back in, continue to plunge the entire Nasdaq, the tech stocks.
00:51:21.000 | And everything I had done hadn't worked.
00:51:23.000 | Everything I had done up to that point stopped working because we went from a – really a secular bull market into a secular bear market.
00:51:31.000 | A lot of that – until this year, Nasdaq didn't come back to 5,000.
00:51:35.000 | So just to lose money day after day after I had made money consistently for almost seven or eight years and then just to lose and lose and get down to the point of being down 50 percent of my main account by 2003, early 2003.
00:51:48.000 | That was just such a long, brutal beating and taught me so many lessons on not holding losers and having risk management and not over exposing myself to a sector.
00:52:01.000 | It just taught me every lesson I learned, I learned banged into my head day after day what felt like was literally years to never come back and make those mistakes again.
00:52:11.000 | When you're emotionally connected in that kind of pain, you do not make those mistakes again.
00:52:15.000 | Was it – was your major problem that you were trading emotionally or was the major problem that you didn't have the right cues?
00:52:21.000 | What was the major issue going on in your head at that time?
00:52:24.000 | I think the major problem – I think I couldn't believe that the Nasdaq could go from 5,000 to 2,000.
00:52:29.000 | I thought that was impossible at that time.
00:52:32.000 | And not having an open mind to any kind of price action happening kept me stubborn.
00:52:36.000 | We kept trying to swing trade to the long side thinking that that was the dip.
00:52:39.000 | It would rebound.
00:52:40.000 | And it did have some small rebounds, but the plunge downward was just relentless for the majority of that time for the entire market until halfway through 2003.
00:52:51.000 | So, yeah, just being – not being flexible.
00:52:54.000 | If I'd have been flexible and knew how to play the short side or put options at that point, that could have been some of my best years of trading.
00:52:59.000 | But instead, it was my worst because of just stubbornness and ignorance.
00:53:04.000 | Well, you've learned, right?
00:53:08.000 | Yep.
00:53:10.000 | You've learned.
00:53:12.000 | My final question is this.
00:53:14.000 | When you think about the impact of goal setting and financial independence, let's just simplify the question.
00:53:22.000 | What does financial independence mean to you, and how will you know when you're there?
00:53:28.000 | Financial independence means that I can get up every day and do whatever I want to do.
00:53:35.000 | And that to me is financial independence.
00:53:37.000 | And it can come from cash flow where I've got cash flowing assets to pay all my bills or it can go from having a large enough savings of capital that I can live off the interest or I can trade it.
00:53:49.000 | But it's just having the freedom to do whatever you want to do.
00:53:52.000 | You don't have to do anything you don't want to do anymore in any aspect of your life.
00:53:56.000 | And I think goal setting is a key.
00:53:59.000 | I read Tony Robbins' book Unlimited Power in 1991 when I was 18, and I wrote goals next to it, which seemed crazy at the time because I come from a very, very humble background.
00:54:09.000 | And I ended up achieving all those goals within years because I knew what I wanted and I was going after those things.
00:54:15.000 | It changed my decision-making process.
00:54:17.000 | So many people don't even know where they're going, and they just don't end up anywhere.
00:54:21.000 | They just wander around.
00:54:22.000 | So I think knowing where you want to go and making all the decisions that lead you in that direction, then if you get the goals in place and you're willing to do what it takes to get there, then only time separates you from your ultimate destination.
00:54:34.000 | Seems simple, doesn't it?
00:54:36.000 | Yeah, until you put those hours in, though.
00:54:39.000 | A lot of hard work connected with it.
00:54:42.000 | Are you financially independent or do you have an idea of when you might be there?
00:54:48.000 | I think I'm – on paper, I'm financially independent.
00:54:52.000 | I mean I could – I should be able to live off my assets and my businesses for the rest of my life right now theoretically, but there's so many wild cards in place.
00:55:02.000 | I feel like I just need – I probably just need a couple more years, and then I will truly be financially independent where I should never have to do anything again for the rest of my life.
00:55:13.000 | Exciting.
00:55:15.000 | It's a lot of – just a few more steps in my process.
00:55:18.000 | Very cool. That's exciting. Well, we look forward to watching you finish out the game plan.
00:55:24.000 | So I'd like you to just take a second and plug your stuff, plug your website, plug your courses, plug your books, tell people kind of where they should start and who might be interested.
00:55:35.000 | Give your sales pitch on your stuff. I want to give you that opportunity here at the end.
00:55:38.000 | Yeah, I've created an e-course called New Trader 101 that has video explanations of all the elements of successful trading to give anyone who wants it a shortcut to reading 100 complex trading books just to get to the meat of the matter.
00:55:53.000 | So there's an e-course available on my website, newtraderu.com.
00:55:57.000 | And then I've also got an e-book, New Trader 101, that's a quick Kindle edition read for people that would like to read the e-book.
00:56:06.000 | I've also got my best sellers, New Trader, Rich Trader and New Trader, Rich Trader 2.
00:56:11.000 | Actually, my New Trader 101 was a best seller when it first launched, so that was good.
00:56:16.000 | Number one in stock market investing on Amazon Kindle.
00:56:19.000 | And I also have forums inside of my New Trader 101 e-course where people can come in and ask questions and go through any kind of dialogue they'd like to to be coached through the process on their step one of learning how to trade.
00:56:33.000 | And I blog almost every single day, well I do blog every single day, newtraderu.com.
00:56:38.000 | Every day I blog and I'm on Twitter at S. Joseph Burns on Twitter.
00:56:44.000 | And how much does your New Trader 101 course cost?
00:56:49.000 | It is, just for the student forum and the student course, it's only $49.
00:56:55.000 | I spent that much on almost every trading book I ever bought.
00:56:59.000 | I know the feeling, my wife was talking to the neighbor today and she was talking to the neighbor's wife and the neighbor's wife was talking about her husband and the fact that she gave him a bookshelf in the house.
00:57:15.000 | And he said, "Yeah, but he just filled it up."
00:57:17.000 | And she's like, "Yeah, I gave Joshua two bookshelves and his books are stacked to the ceiling now."
00:57:21.000 | Sometimes I look at the amount of money I've spent on books and I just think, "Man, maybe I shouldn't have done that."
00:57:27.000 | But I've always felt like the knowledge is worth a lot more than the price of the book.
00:57:31.000 | Absolutely.
00:57:32.000 | Steve, thanks for making the time to come on.
00:57:34.000 | This has been super fun and I hope that it gives people an opportunity who are interested in trading and come over and start to get involved with your community.
00:57:44.000 | And I appreciate your making the time to come on today.
00:57:46.000 | Thanks, Joshua.
00:57:47.000 | If you're interested in getting started in stock trading, I think it sounds like New Trader University would be a good place to start.
00:57:54.000 | I'm sure there are other programs out there. I'm sure there are other good ones out there.
00:57:57.000 | But this one sounds like it would be worth checking out.
00:57:59.000 | So I would love y'all's feedback.
00:58:01.000 | If any of you are involved in his community, come by the show notes for today's show and comment.
00:58:04.000 | Or if you get involved, I would love your feedback for the listeners and to find out more about what's there.
00:58:11.000 | I haven't participated in any of Steve's programs, but I hope that maybe some of you will do that for him.
00:58:15.000 | Just go to NewTraderU.com and you can check that information out.
00:58:20.000 | Remember this. Paying for education is almost always a wise investment.
00:58:23.000 | All of us, all of us, who was it that originally said it? We stand on the shoulders of giants.
00:58:28.000 | Every single one of us.
00:58:30.000 | And oftentimes the path of progress is not pretty. It's not always smooth. It's often difficult.
00:58:38.000 | And when we're learning things and debating things and arguing about things, it's often hard to keep that perspective.
00:58:45.000 | Because so many times we forget that the things that we now take for granted at one time weren't so-called common knowledge.
00:58:53.000 | At one time, people argued about them vigorously. And then the best ideas won out.
00:58:59.000 | My point is just simply that investing in education and understanding about what other people have done
00:59:05.000 | can probably go a long way towards helping you to avoid the mistakes.
00:59:10.000 | You can certainly go and build wisdom from making all kinds of your own mistakes.
00:59:14.000 | That's one approach.
00:59:16.000 | Or you might consider working and learning from other people's mistakes.
00:59:21.000 | That's the approach that I think makes a lot more sense.
00:59:24.000 | Paying for education that's generalized can often not be such a great idea because we don't have application.
00:59:32.000 | And if there's no application for knowledge and for education, then oftentimes it just flits out of our brain.
00:59:38.000 | But for education that's specialized, that has hands-on practical value to your goals, that can be incredibly useful to you.
00:59:45.000 | So don't have any special sales pitch for that. I don't have any affiliate link or anything like that.
00:59:50.000 | And again, I haven't been into Steve's products, but he was recommended by a listener.
00:59:54.000 | My point is more general than just specifically his information.
00:59:58.000 | But if you're interested in trading, it sounds like it would be a good place to start, NewTraderU.com.
01:00:03.000 | That's it for today's show. Thank you all so much for listening today.
01:00:06.000 | I hope this interview was useful to you.
01:00:08.000 | I hope it can help you to steer clear of some of the mistakes that so many of us can make.
01:00:12.000 | If this content has been valuable for you, I don't have any affiliate links for Steve's stuff.
01:00:16.000 | But I do have my own stuff at RadicalPersonalFinance.com/patron.
01:00:20.000 | It's a model of voluntary support where if this information has been valuable for you,
01:00:24.000 | you can come by RadicalPersonalFinance.com/patron and you can support the show voluntarily.
01:00:29.000 | Details at RadicalPersonalFinance.com/patron.
01:00:32.000 | Thank you all so much for listening.
01:00:34.000 | [Music ends]
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01:01:08.000 | Details are at RadicalPersonalFinance.com/patron.
01:01:12.000 | If you'd like to contact me personally, my email address is Joshua@RadicalPersonalFinance.com
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01:01:24.000 | This show is intended to provide entertainment, education, and financial enlightenment,
01:01:30.000 | but your situation is unique and I cannot deliver any actionable advice without knowing anything about you.
01:01:37.000 | Please, develop a team of professional advisors who you find to be caring, competent, and trustworthy,
01:01:44.000 | and consult them because they are the ones who can understand your specific needs,
01:01:49.000 | your specific goals, and provide specific answers to your questions.
01:01:54.000 | I've done my absolute best to be clear and accurate in today's show, but I'm one person and I make mistakes.
01:02:01.000 | If you spot a mistake in something I've said, please come by the show page and comment so we can all learn together.
01:02:07.000 | Until tomorrow, thanks for being here.
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