“IT’S NOT WHETHER you win or lose, but how you play the game.”
Most of us understand that old saw to be about style — about winning or losing with equal aplomb and sportsmanship. But to a trader, it’s a lesson in technique. It reminds us that whether you win or lose is a function of how you play the game.
I can’t say it often enough: It isn’t what you trade, but how you trade, that ultimately determines success. And nowhere can this be seen better than in the case of energy giant Enron (ENE), whose spectacular 99% decline has left more than a few investors out in the cold.
Most pundits would suggest that Enron’s woes first became apparent in mid-October, when the company took a $1 billion charge and reduced its shareholders’ equity by $1.2 billion as a result of a number of questionable off-balance-sheet partnerships. But from a trader’s perspective, the problems for Enron and its investors actually started much earlier. While Enron’s collapse was stunning, good trading technique could’ve limited the damage to investors’ bottom line.
Many are now blaming the company for their losses, but regardless of any alleged corporate wrongdoing, following a trading discipline would’ve prevented a position in Enron from hurting your portfolio too badly. That’s the essence of investing. You win a few, you lose a few, you keep on fighting. (more…)