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A Lesson Learned the Hard Way (w/ Jim Rogers) | Perfect Timing - YouTube
Channel: Real Vision Finance
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When I first was in the business, I used to
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assume that everybody knew a lot more than
I did.
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They were educated.
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They were experienced and everything.
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And so I just assumed they said x, x was probably
the case.
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It took me a little while, but not too long
to figure out they didn't know any more than
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I did.
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Well, the different answers to that question,
I used to work for somebody named Roy Neuberger,
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who founded Neuberger Berman back in the '30s.
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And Roy Neuberger was an astonishing trader.
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He would be sitting there reading the Wall
Street Journal, and he would say to me, there's
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100,000 shares of IBM on the floor.
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Bid 90 and an eighth.
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I would say, what the hell was he talking
about?
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So we'd go to the floor, and sure enough,
100,000 shares of IBM for sale.
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I don't know how he did it.
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He just had a sense of watching-- that they
had the tape in those days, you know?
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He just had this unbelievable sense of timing
and trading.
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He was a remarkable trader.
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Now, I'm horrible.
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He might have been the best trader I ever
saw.
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Mike Steinhardt's another great trader, some
great, great old traders in the business.
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If you're going to be a contrarian investor,
which you've been very successful at, and
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you've had some epically great calls-- I was
in Asia when you started talking about mainland
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China, when even lived in Hong Kong, no one
thought there was a future for it.
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So you've got a record to prove it can be
done.
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But I think for an awful lot of investors,
both professional and people doing it with
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their own money, it's incredibly hard to end
up with a level of conviction that allows
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you to be a contrarian investor.
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I mean, how do you develop that level of conviction?
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Well, first of all, you just used the term
"contrarian."
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And by definition, I guess that's right.
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I never thought of myself that way.
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A contrarian would just say, they're all buying
x.
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I'm going to sell x.
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That's not what I do.
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You're an independent investor.
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Right.
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That's a better way.
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I like that.
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That's what I'm trying to teach my girls,
to think independently, to be curious.
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First of all, to be curious, to go and look
at that thing that nobody's looking at.
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And then to think independently and say, they
all say this is terrible, but I know-- it
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goes into my brain, and I spin it around,
and it comes out that I know this is going
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to be good in the end.
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When I first was in the business, I used to
assume that everybody knew a lot more than
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I did.
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They were educated.
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They have experience in everything.
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And so I just assumed if they said x, x was
probably the case.
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It took me a little while, but not too long
to figure out they didn't know any more than
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I did.
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In fact, they might know less than I did,
even though they were experienced, and knowledgeable,
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and well-educated.
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So I guess that came from experience, I was
insecure like everybody else.
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But it came from experience that, hey, when
I see something like this, it's often right.
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Maybe I should do more and more of this.
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And I learned that from experience.
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Don't think I didn't make plenty of mistakes
along the way.
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I was just thinking of one of my great mistakes
along the way, but that built up my confidence.
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Well, for the sake of the--
OK.
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Back when it was a time when the market, everybody
was bullish, I became bearish.
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I put all my money into puts.
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And lo and behold, 6 months later, I had tripled
my money.
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Everybody else-- I mean, it was really a massive
bear market, and everybody else was losing
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their share.
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And on the day of the bottom, I sold my puts.
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I mean, bad timing, because it was pure luck.
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And I said, OK, I'll wait for the market to
rally, and then I'm going to sell short.
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I don't want to pay the premium this time
at buying the puts.
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So I waited for the market to rally, and it
did rally.
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And I said, 2 months later I waited.
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And I sold everything I had in 6 stocks, so
short 6 stocks.
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Well, 2 months later, I was wiped out.
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I'd lost everything.
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But the main moral of that story is within
2 years, all 6 of those companies had gone
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bankrupt, literally bankrupt.
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I mean, I knew what I was doing.
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So it's a sizing issue or is it a timing issue?
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Well, in that case, it was a timing issue.
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I told you I'm the worst trader in the whole
world.
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I can prove it many, many, many times.
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Literally within 2 years, they were all bankrupt,
but I went broke first because of my timing.
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Jim, how do you know the difference between
being early and being wrong?
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You teach me that, OK?
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I'd like to know.
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I'm still trying to learn.
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Well, I really don't know either.
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I mean, one of the things that has confounded,
I think, a lot of us in this recent unprecedented
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rally-- I mean, it's not unprecedented in
history, but the sort of things that have
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gone up and the level of volatility that has
been unprecedented.
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I mean, the only period that I can compare
it to would be the late '90s, where just everything
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in a certain area went up.
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Now, it looks like at least in the states,
it's almost everything across the board.
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And there have been plenty of people who've
wanted to short the FANGs, to short some of
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the tech stocks, to short some of these very
expensive blue chips.
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And they have been very badly punished.
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And even in the case of very good mutual fund
investors, people with tremendous track records
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like Grantham, Mayo, who've moved to a higher
cash position, they've seen massive redemptions
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because their own investors don't seem inclined
to stick around and see how it plays out.
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So both on a personal and a professional level,
being early seems to be incredibly painful
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and destructive to your business.
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It sure can.
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If you've got a conviction, what do you do?
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Do you wait for a change in momentum?
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Do you use moving averages, which is something
that I know people have used, and I've used
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something myself, which is to wait until the
5 and the 20-day diverge, and that gives you
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a signal that momentum's coming out of a trade?
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Or do you just need to size it to a degree
which you can be persistent?
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Well, I usually, since I know I'm always early,
I make a decision and then wait, and then
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just make myself wait a month, 6 months, whatever
it happens to be.
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And I'm still too early.
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I'm still too early nearly always, because
I make the decision too soon, I realize.
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So maybe I better start making the decision
later in life.
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Sometimes, you just have to throw in the towel,
especially on the short side.
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You have no choice.
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If they're just racing against you all the
time, you can sit there and meet the margin
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calls all day long.
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But one of the old adages is never meet a
margin call, which you may have heard from
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old-time traders.
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If you get a margin call, just don't meet
it, because that means something is very seriously
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wrong.
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Right.
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That's your stop loss.
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Yeah.
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Well, stop losses are usually before a margin
call comes.
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But I want to go back to something you said.
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You're not is experienced I am, obviously,
because you're not as old as I am as is what
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I'm saying.
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But I remember in the early '70s, there was
something called the Nifty 50, and they were
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50 stocks that everybody, JP Morgan bought
everyday.
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Didn't matter.
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Avon, Xerox, IBM, they were stocks that always
were eternal growth stocks.
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And they just kept-- we were short them.
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And they just kept going up.
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They'd never stop.
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Polaroid, that was another.
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And they just never stopped going up.
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Everything else stopped going up, but those
Nifty 50, which would be something like the
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FANGs today, or maybe in the late '90s, some
of the other kinds of stocks.
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So this has happened before in market history.
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They eventually crack.
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There's no question.
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And to today, if you look at the S&P 500,
for instance, in the US, I think there are
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only 40 45 stocks that are above their 50-day
moving average, to use technician's kind of
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talk.
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Everything else is in a downtrend.
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So there's a lack of breadth.
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And yet the market is making all-time highs.
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And so there's a lack of breadth of the market.
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Definitely a that of breadth, you know?
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What it is that?
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Over 90% of the stocks are in downtrends.
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10% are in uptrends, but they're big companies.
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And since the S&P is capitalization-weighted,
those 50 stocks, 40 stocks, whatever it is,
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drag the average to all-time highs.
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Now, that doesn't mean it's not painful if
you're short those stocks.
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Even if you were-- well, if you short them
yesterday, it's OK, because they collapsed
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yesterday.
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But basically, this has happened many times
in market history.
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It gets narrower and narrower and narrower,
the advance does, until it's just down to
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a few names.
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And eventually, they crack, too.
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That doesn't mean you're going to make it.
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No, I told you I shorted 6 stocks once.
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They all went bankrupt 2 years later, but
I lost everything first.
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There's a lack of diversification in having
all of your money in 6 shorts, though.
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Yeah, but I knew I was right.
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OK.
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Well, we just started about the time I'd had
it, I get that confidence.
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I knew I was right, but it was very early
in my career.
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Well, that's how I learned.
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That's how I built my confidence.
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Because even though I lost everything, I was
right.
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And so I learned, OK, it takes more than being
right, apropos of this conversation.
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It takes a lot more than just being.
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Right you have to get your timing right.
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You have to get a lot of other stuff.
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I always assumed that everybody knew what
I knew.
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I now know in those cases, nobody knew what
I knew, because those stocks went up and up
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and up.
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There was a company, University Computing.
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I shorted this stock at 49.
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It went to 96.
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I had to cover before that.
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But then it went to zero.
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Well, I was right.
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Big deal.
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Big deal.
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But that helped build my confidence that I
knew what I was doing, but it destroyed my
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confidence as far as market time.
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