Everybody, it’s Michael Martin. Thanks for being here. So I got a good comment on a video that I did about the nature of some of the things that I talk about being from say yesteryear, and that a lot of that stuff might not, and that was the implication was that it might not apply to today and this and that, and how did I do in Q2? You know, I’m not that active the way some of you might be.
So Q2 doesn’t affect me the way it might affect you. I don’t, I don’t have struggles, right? Struggle means I expect something from the market. You see what I’m saying? And I, my expectations are generally very low.
The thing you need to focus on is your own behavior, right? Why do you struggle? Well, I guess you keep trying to pee in the wind kind of a deal. Like that’s not what I do. So you kind of have to go with the forces that are out there.
And if you’ve followed the channel, I’ve said repeatedly that when markets become difficult and you’re looking at your equity curve, you have all the information that you need to either stop freak, you know, cut your frequency and cut your position size. And, you know, that’s the best you can do at that period of time. I don’t think anyone’s immune from it.
But let’s talk about history for a while. You know, every, every decade brings new challenges, right? So the eighties had one set of challenges, right? The nineties had another. You could look at it over rolling 10, 10 year periods of time.
It doesn’t matter to me how you do it. So you could sit and pick there. Every generation is going to say, well, they had the hardest, right? My parents were depression era kids.
They actually probably did have it hardest than anybody. You probably know, um, cause it just wasn’t a lot of abundance around, but things have changed so much over time. It’s more of a history lesson.
When I speak about these things, it’s not necessarily, it just goes to show you that really what happens if you speak about the history, every, every window of time presented a different challenge that traders needed to embrace and find a way to overcome all the while. I think having the self-knowledge, which is the most important thing, you know, to learn how to succeed, because to me, the success comes from the person. Yeah.
You could say the bull market that started in 82 ended in obviously the crash 87. Then the next couple of years, people were very headshy. That’s the environment that I started with, but it was easier to talk to people because in a bull market, people are like, what the hell I need a financial advisor for, right? I think a screen Berg said something along those lines when he was talking about research, it’s in, it’s in a book that I quote a lot.
Um, he’s since passed away, you know, research in a bull market. I don’t need it in a bear market. I can’t afford it basically.
So, so you have these types of things that happen over windows of time. I could certainly go over the things that I’ve seen and the massive amount of change that I’ve seen over the years. But what, what, what I’m trying to demonstrate is that you need to have versatility because the things that you did maybe five years ago might not apply to today other than the general tenant of keeping your losses small.
And when you run into a string of losses, you might want to decide to cut your frequency, right? My general theory is that people are too active in the markets when they have decent positions on, they should just leave them, let the market do the work. But sometimes that’s not people’s nature. You know, there are interesting times is, you know, when you think about how everything’s done online, when I started a person had to physically go into a brokerage firm, why was that? Well, cause the only other way to get things done expediently would be to send them a FedEx with those tabs that say sign here, cause it was all physical paperwork, there was no online.
So you couldn’t go online to even download the forms, which was really the segue to online applications. Right. So it was very clumsy when you look back at it, right? You used to have to come into the office, sign the forms, and then some in, in the seventies, in the early eighties, people would oftentimes open up accounts and start trading with no capital.
So the firm was on the hook because settlements were so long that someone could deposit a check and have it clear in time for settlement because everything was like T plus five, which was really a seven day window of time. Now there’s a lot of risk in the system. So they’ve been compressing things, right? In those days, stocks traded and cleared T plus five options and government securities were next day, T plus one futures settled same day.
And since then settlements have compressed enormously to take a lot of the risk out of the system. I can remember people showing up at the branch office with attache cases with cash, like the wads of cash that you see with the bands around them and depositing cash, you know, considering financial fraud and, and, and Patriot Act stuff that went away in the nineties. You know, day trading, when I started, there was really no such thing.
Um, there were active clients who you could cut their commissions down to say one 16th, but that’s still 3 cents a share. So can you imagine some of the people today, if you looked at, uh, the warrior trading guy and them trying to do a lot of that, that trading at 3 cents aside, that’s just on the way in, right? So now you need three, whatever one 16th is, right. It’s half of, uh, it’s half of an eighth.
So it’s 6, 6, 25 or something like that. Right. So that’s a lot of money, right? Cause it’s, it’s actually 6 cents.
So not three, you’d have to break it down to a 32nd. So imagine paying a 32nd, which was almost impossible to get anyone to sign off on at the branch level because those things had to be approved. So you were paying 3 cents in and 3 cents out.
Some of you might be like, wait a minute, I’m at Robin hood. I don’t pay or think or swim or something like this. I don’t pay any commissions.
So commissions were an enormous hurdle to have to overcome, to try to make money. Cause then you still had the bid ask spread, which were in eighths, if not quarters. So there wasn’t, there wasn’t, if people, people got discounts because of their size, not because of the frequency with which they really traded, you see? So if you’re trading a thousand or 2000 shares, you could discount the client who was regularly trading that type of size, um, decimalization was an impact, but that didn’t kick in and go, you know, there was a trial program that started sometime, I think in 2000 ish or something like that, but I don’t remember it kicking in full term until like oh one, right? So everything’s still traded with eights with which still meant even if commissions were going down right in the mid nineties, you started seeing Kennedy Cabot, Waterhouse Securities, um, Schwab, they were doing flat rates.
Like you could trade any quantity for $30 flat rate. So that put pressure on the wire houses to cut their commissions. So we had to bob and weave with all that kind of stuff.
Um, but as far as chart patterns and supply and demand and being able to trade the crowd, I think those things remained consistent there’s there’s people are blinded by ideology, right? That’s why we had that conversation where they think like, oh, the world is going to change. Here’s the top 10 names that you have to have. Um, the, the way you could learn how to trade has changed drastically.
Remember there wasn’t YouTube. There were no video files cause no one had cameras. They certainly didn’t have video cameras.
They were these big separate things that you had to record on tape. Now digital recording, everyone’s a photojournalist in some way, shape or form. So, you know, I don’t want to sit here and say I had it harder than anybody because it’s really the same struggle with just a different, different criteria that we’re all in right now, right? We’re all in it.
We have people who are, who are, you know, blinded by ideology about AI and about crypto, right? And so they don’t want to see things objectively. And the minute you lose your objectivity, I think you become a very terrible risk manager, right? You have to kill your babies. You might love the technology and what the ideology about Bitcoin says, but it’s not the store of value that you think it is, right? I mean, you can’t have something go down 50% and tell me it’s a store of value.
A bond is a store of value cause you get your money back. Um, and two, the thing with the having and all that in the fixed quantity, first of all, anybody watching this video within a week, if it’s publishing, we’re going to all be dead by the time the having is done. Two, all the fixed quantity, quantity means is that there’s no organization or governing body that can inflate away the value.
That doesn’t mean that the value is going to a million because there’s a fixed quantity. You missed the point on it, you know, and I get it. It’s cool technology or what have you, but you still have to manage risk in the ever evolving moment of now, not what you think is going to happen five years from now, that’s investing, right? So there’s that kind of stuff that people were blinded, you know, when technology came out, people didn’t experience it the same way that they do now, why? Cause you can go to CNET, you can go to everybody’s favorite, you know, even if you buy stuff at the, uh, Best Buy, you go look it up on all the websites and you can see how does it work.
You can see demonstrations and things in real time. You can see reviews. All that stuff never existed.
You had to ask around. So you had the, the, the emotional intelligence about taking chances. That’s also evolved, right? Cause now people are much more informed.
Um, you know, mid nineties, the e-mini is really, to me, when the beginning of day trading started for the majority of people that you might talk to about day trading today, to me, that kind of started with the advent of the e-mini. And I want to say that that was around 95, 1996. Before that, the S&P 500 contract was a 500 a point, $500 per point move.
And the margin was $40,000. So it was purely institutional, right? So when people were getting online, they didn’t even know the right language to say about, you know, getting online, they’d say to me something. They’d say to me things like, what’s your email address? No, no, no.
They’d say, what’s your internet address? Meaning what’s your email address? They’d say, what’s your internet address? And I’d be like, I don’t know what you mean by that internet address. Now my dead grandmother has a blog that’s, that’s flourishing. So you can talk about URLs, but you know, that really got people thinking like, Hey, this is a smaller contract.
I can put up margin and I can, through my computer, start to trade through some of these online brokerages. So that really revolutionized, revolutionized things. So the window of time, I would say like that really changed things into the environment that you all know today was probably like 90, like a five-year window from like 95, 96 to 01 when decimalization cut in, because then with the compression of commissions, decimalization, cutting the spreads down, right, lower ticket charges.
Cause then the $30 thing that Charles Schwab was trading at the time eventually went to 999 and then that went to 499 and over time, what I’ve seen in my life and I’m not that old, I’ve seen a 99 to a 100% compression of commissions and all of that plus decimalization allows people to do what they’re doing today with hotkeys and all this kind of stuff that never existed either. You had a mouse or you had to pick up the phone and call the trader because we needed them to work the order. Right.
So that was another issue is that it was kind of clumsy. I have found that executing on the, on the phone though is very valuable because I get to hear back my order and that stops there from being errors in execution. Right.
So, so I think that these are, you know, these, these, I think the need for financial advice is very strong. I think most people who are investors should be working with an advisor. Um, the data out there about how they make their money is very poor.
Um, and I think they let their emotions affect their judgment so that their rates of return are actually not even what people spout at the mouth about in terms of people getting rates of return that are congruent with what the indices have returned historically. In fact, investors get about half of what you would say you would think they would get from a balanced portfolio of buy and hold and why it’s because their emotions affect their judgment. They sell at the bottom, right? They’re very, very active.
I thought that, I think Delbar did a study that showed that for mutual funds, right, like sleepy mutual funds, the average holding period for that was like just over four years, everything becoming ETFs now that I think there are more ETFs than there are actually individual stocks, so everything’s becoming stockified now and people are much more active, even if they want to consider themselves, um, investors. Um, and most of the, most of the licenses that I’ve ever had to take don’t really talk about making people money. They talk about regulatory things and diversification, which of course is risk reduction.
It’s not risk management by any stretch of the imagination. So you could go and get a CFP, which is, you know, the absolute international gold standard for financial planning. And there’s nothing on that exam to teach you actually how to make money for clients, the same would go for SEMA.
The only one that could really help you is enormously expensive. It was designed by a guy named Paul Wilmot. Who, you know, if you’re into that thing, Wilmot magazine is probably one of the best.
It’s quantitative finance. He designed a, um, a designation called CQF certified, you know, quantitative finance. Um, but it’s like 20K.
It’s not built for regular Joes, if you will, you see what I’m saying? The closest thing that you might get to it for trading would be like the CMT of course, right? And I learned all that stuff from Louise Yamada and a man named Alan Shaw since passed away. Two real legends in technical analysis at a time when most people weren’t using technical analysis. Why? Well, because it was very difficult to get access to that information.
And most people were trading off of fundamentals, if you can believe it. I know this sounds like heresy, but you have to remember the internet didn’t exist, so people were just thinking you have to buy quality, you know, everything was, people were, you know, Peter Lynch and Warren Buffett and this and that. So I feel like as far as it relates today, um, people change, right? I mean, and their behavior towards things change when you empower.
You remember what I said on other episodes where if you take the average person, but you infuse them with confidence, they kind of become unstoppable. So what ends up happening is now there’s such a deluge of information. People actually feel empowered because they’re in the know.
Now you and I know that knowing stuff is interesting and knowledge for knowledge sake matters, but that doesn’t mean that you can take and synthesize that information and make yourself a good trader because trading is an, is a skill, right? You can, in other words, I can tell you that three of a kind beat two pair, but that doesn’t mean I could play poker and win with it. You see what I’m saying? So there’s, there’s a bit of a disconnect in empowering people with all this information and having it readily available across any number of places where they can get access to it. But then being able to put that down and then realizing like that’s only really five or 10% of trading is knowing so much of it is behavioral, right? Which is psychological and emotional.
Like what motivates you to do what you do to make the money. So the, if I do speak about the past, it’s more of an analogy. It’s not to say that anyone has it easier or harder right now.
It’s really just a document that there’s a lot of change underfoot. I don’t like to make predictions, right? I don’t know who said it, whether it was Samuel Goldwyn or Henry Ford, but you know, predictions are difficult to make, especially those about the future. When I look at AI and what AI can do, AI is going to be a good third party kind of litmus test for traders and for investors alike.
Why? Well, you have investment advisors who are charging between say 50 and 200 basis points a year for financial services to their clients, right? Depending on what they provide. And now, you know, wherever you work, you’re probably going to get some kind of a monthly statement, either directly emailed to you or something that you can go get through your online dashboard once you log into your account, again, with your financial advisor, download that thing, you can take a year’s worth of 12 PDFs and monthly statements and upload those things into Claude and say, you know, am I getting a level of service when you look at my P&L, right? Is my, is my financial advisor moving quickly enough? You know what I’m saying? Right. Because it might be diversified, but that’s still not risk management.
So I think in advisor fees are going to come under pressure because right now they’re, and this isn’t a kick in anyone’s head, but a lot of it, what it looks like from the outside looking in, despite the phone calls is really you’re paying for asset allocation. Because if the client calls and they say they’re nervous about their Bitcoin or their MSTR after it’s pulled back 60%, the financial advisor is, is kind of stuck because they can’t really overrule. They can say like, Hey, we bought this with a 20 year plan, but if the client feels nervous, they’re going to sell the damn thing, right? So Claude might come back, having looked at the 12 statements and said, you know, your, your advisors missed the boat on a couple of material things that have led to an extra 15% drawdown on the account.
So everyone’s feet are going to be held to the fire because even if it’s not, even if it’s not a hundred percent accurate, there might be things that they’re missing out on, right? Cause you can, you can infer things by just looking at PDFs or, and statements, but I feel just in terms of the risk, risk management and trading in the markets and investing, the biggest thing that you could learn about is yourself. And how do you feel about making and losing money? How do you feel about being right or wrong? Because knowing that then to me, it doesn’t matter necessarily what’s going to happen in the environment. The technology will adapt and you’ll learn it too, just like you learned how to send a text message at one point.
So that to me is why I don’t think it necessarily matters the gen, the generation or the, the decade or the challenges when you have self-knowledge and you know, the answer to those questions. And if you go back to the episode, um, from a couple of Tuesdays ago, what was it, it was probably the 28th. I want to say, and how you have to plan for all outcomes, even as those changes start to take effect right under your nose, that might take you a week, a month or a half a year to figure out.
You’re still have the self-knowledge which should govern how you behave and behavior predicts where you end up in life. So that’s my two cents on the whole thing. It’s, it’s a pretty interesting conversation, but, um, it’s more of a walk down memory lane for the most part.
Anyway, I appreciate you all being here. I’ll see you tomorrow.
