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October 19, 2005

Reader mail re Refco, Wed., Oct. 19, 2005, 8:52 PM

Tonight I received reader mail from someone who took the time to thank me. He also asked a question that I'd like to share the reply I sent to him.

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Hello, Hope you don't mind me writing to you again. After reading your reply, I decided to withdraw my money from the regulated side of Refco and received my check yesterday. Thank you again for replying. I visit your site almost everyday - you have so much wisdom when it comes to trading. If you don't mind me asking, did you go through a rough stretch in the beginning of your trading career - how long was it before you figured out how the game was being played? Or, was it easy from the getgo? Thanks again from Atlanta, Georgia. /K"

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K, I started with a BA Hons Bus, /MBA where I excelled in investment finance. All theory. Then I went to work 5 years for CA CMA (CPA) firms and that was also a study of corporate fundamentals. Then I spent 8 years in business running my own management and tech consulting company, which taught me one thing: stay away from things others can do better. Then I went to work for the biggest broker-dealer in Canada (they solicited me after I had been their client) and I got to understand technical analysis for the first time. Then a year later they put me into the portfolio management group where I learned to apply ALL my knowledge, and where I watched foolish systems or narrow-minded people make numerous mistakes. I still made them, of course, but I learned to make fewer once I got to understand that managing risk was more important than chasing opportunities.

So, I learned (quickly?) that one must always be prudent, and use all the disciplines in one's approach to trading.

I don't call it investing because investing is buying and selling companies or products. We trade securities, which are just prices.

CBOT yesterday was worthy of a $54 price after months of negotiation between the smartest financial minds in the world all around the table. Then today it started trading in the securities market and opened over $80 and stayed there. That learning experience alone should be enough to tell all traders something: CBOT at $54 and CBOT at $84 is the SAME COMPANY, but it is a different price.

We trade prices.

K, I'm really happy that you are learning from this blog. It is a pleasure to have many thousands of students every day. Sometimes I'm right about the market direction, and sometimes I'm wrong (nobody's perfect), but I always trade on the basis of my education, experience and common sense, and never on the basis of what somebody tells me I should do.

I treat portfolio management and trading (i.e. portfolio decisions) as seriously as any business where I would be CEO and principal owner. I'm just better at trading prices than I used to be in trading goods and services, but business is business.

The single quote that my Dad gave to me (just 18 months before he passed away this summer) that I think is the best advice he ever gave me is this. We were chatting in the workshop about some commercial situation when he paused and remarked, rhetorically: Bill, why would anyone ever walk into a store and ask the sales person what was it he needed?"

But isn't that how Wall Street has dummied down the American owner of capital to think? So, all I try to do in this blog is to get people to think for themselves.

Is trading easy? It requires a total commitment to do the best you can, which is never "easy", but it is extremely enjoyable and self-empowering, which represent qualities of life we should all aspire to.

Thanks for reading the blog, and thanks for asking a question that in answering for you here maybe I can also help others.

Cordially,

/Bill

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p.s., And here is K's reply (9:17pm):

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"Hello again Bill,

Your reply is truly a classic - thank you. 'We trade prices' - this is the essence of trading but I didn't know it until now. I have been looking for answers and your e-mail couldn't come at a better time. Thank you for sharing your knowledge and wisdom. I am out of words - what you mentioned in the last paragraph is also so true. It will be a while but I will write to you again. /K"

Posted by Posted by Bill Cara on October 19, 2005 08:52:59 PM | Category: Trader Tools

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