President Barack Obama

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President Barack Obama: The Temperament of a Champion Stock Trader

by Alexander Green, Oxford Club Investment Director
Chairman, Investment U
Friday, January 30, 2009: Issue #925

I think President Barack Obama would make an exceptional short-term stock trader.

I’ve never met the man, personally. And I know nothing about his stock portfolio or whether he even has one.

Yet what I’ve seen indicates that he would make a lot of money trading stocks. Why? Because Barack Obama has a world-class temperament. And so do all great traders.

Let me begin by saying I’m not endorsing or opposing any of President Barack Obama’s policies here.

But I noticed that he took down the Clinton machine in the Democratic primaries without so much as raising his voice.
When his former pastor Jeremiah Wright made outlandish remarks and then took to the media to defend them, Obama distanced himself with dignity and class.
When his Republican opponent pointed out in the debates that Obama had the thinnest resume of any Presidential aspirant since Wendell Wilkie, Obama just smiled and shook his head.

Nothing rattles him. I like that in a leader. And in a trader.

Investment great Peter Lynch once remarked that, “A stock market decline is as routine as a January blizzard in Colorado. If you’re prepared, it can’t hurt you. A decline is a great opportunity to pick up bargains left behind by investors who are fleeing the storm in a panic.”

He also noted that, “Everyone has the brainpower to make money in stocks. Not everyone has the stomach. If you are susceptible to selling everything in a panic, you ought to avoid stocks and stock mutual funds altogether.”

Stock Traders – Moderate Your Investments & Maintain Your Temperament

At the very least, moderate the size of your investments so you can maintain your composure and temperament. Let me give you an example.

Let’s say you bought 10,000 shares of XYZ Corp. at $75 a share. That’s a lot of money for most of us. If after you bought XYZ, it promptly fell to $69 the next week, you would be down $60,000.

How would you feel?

It might make you think the deal you cut on your last car wasn’t such a triumph after all.
It might make you think twice about private school for the kids.
You might wonder why your spouse is over there clipping coupons out of the Sunday paper.

In short, you might be agitated, nervous, or upset. Sixty thousand dollars is a lot of money to see disappear in a week.

But first off, you haven’t lost anything if you don’t panic and sell. After all, the stock has only fallen 8%.

Traders With Nervous Temperaments Imagine The Worst

Yet a person with a nervous temperament immediately begins imagining all sorts of negative possibilities:

The stock may never bounce back.
The market may never bounce back.
The company may have poor fundamentals. (And indeed it may, but this is something you should ascertain before you buy a stock, not after.)

But, if you bought a single share for $75 and witnessed the same decline, my guess is your reaction would be somewhat different. (Ho-hum. What’s for dinner?)

Why is your reaction different this time? After all, the percentage move in the stock is the same.

The difference – because of the amount of money involved – is your nervous system’s response to the news. And if your next decision is based on an emotional reaction, chances are you’re going to regret it.

Traders With Good Temperaments Are Realistic & Unemotional

A trader with a good temperament considers things pragmatically, realistically – unemotionally.

He remembers that stocks rarely move up in a straight line.
He reminds himself that there is often no correlation between a stock’s short-term fluctuations and the outlook of the underlying business.
He knows that bear markets are sometimes ferocious, so he uses trailing stops to protect his principal and his profits.
And he understands that investors who stick to a proven discipline rather than counting all the ways the sky is falling generally do better over time.

In short, a strong stomach, not a big brain, is what makes a successful trader. And my bet is that President Obama would make a good one.

But for now, I hope he sticks to his day job.

Good investing,

Alex

Today’s Investment U Crib Sheet

As part of our continued improvements at Investment U, we’ve been providing our expert stock insight through our “Stock of the Day”. Here are some of this week’s hot stocks.

Baytex Energy Trust (NYSE: BTE)

Proshares UltraShort Financials (NYSE:SKF)

Danaher Corp (NYSE: DHR)

In addition, we’ll be touching on the some of the investment terms that are in the news. This week, our experts took a look at defining “Force Majeure.” Read “Defining Force Majeure” and make sure the latest investment jargon doesn’t trip you up.

Don’t know what a White Cap is? It’s time to find out. Take a look at what separates these fast movers, and what makes them so important, The White Cap Report.