— Michael Jordan
Last Thursday, before the last game of the season, Magic suddenly decides to announce his resignation as President of Los Angeles Lakers. The PR people are baffled and media is surprised. The decisive move comes as a shock to everyone, and Magic explains the reasons for his actions to the reporters. Subsequently, media unanimously dismisses the decision as a cop-out, and the choir synchronously labels Magic Johnson a "quitter."
But Traders can learn a few valuable lessons from Magic's abrupt decision to step down. Other than the fact that there's value in quitting and quitting fast (when you're wrong), what can we learn from a quitter who has managed to accumulate just under a Billion dollars over the course of his life?
1. When it's time to cut your loss—cut it. Don't hesitate or have second thoughts or begin to rely on hope. One of the main reasons for cutting your loss is to free up idle capital to allocate to a better trade. A loss isn't a benefit at any time. The sooner you dump it the better. In trading and in life.
2. Make the decision to cut the loss no matter what the inner impulses say; even if it's the hardest thing to do. (Once you cut your loss, you're no longer wrong nor losing.)
3. Embrace being wrong. Magic knows he isn't delivering as promised (a lot of bad trades and an excellent trade gone bad) and willingly admits to it. This is why Magic is a big man. It takes a big man to admit when he's wrong. The greatest traders/investors admit to being wrong more often than they brag about being right.
4. Face the music. Keep your chin up when you lose and don't look at yourself as any less of a man for it. Magic's decision to resign in public and in front of the cameras takes...guts. Most people quit via resignation letter or over the phone. Magic shows up and shows you his face and let's you see what it is. Facing the music by being open about your losses is the ultimate form of transparency, and has a lot to do with Accountability, Integrity and Achievement.
5. Ignore stupid people. If you pay attention to random critics, you end up living for other people. Independent thinking is mandatory for the speculator and the investor. Despite attempts from the media to shame Magic into maybe giving it a second thought, you can bet the decision is final. Successful traders quit positions all the time, but they don't take tips.
The gist: by always sticking to the basics, cutting losses short, you're always in the position to have enough dry powder to be able to cash in on the big trade, when it finally comes around.