Knowing right from wrong

Every so often I have to confess a mistake that I have made; and I rather like doing so because standing up and telling everyone that I bombed out on the Rand, or didn’t stick to a stop loss on some or other stock, helps keep me in check and ensures that I stick to my own rules.

I have also noticed that the times I mess up the most often, end up being with Sasol. In fact, the first blog post I ever wrote for Just One Lap was about my bias on Sasol and how it cost me. Once again, I am subject to my bias on Sasol, although this time I am starting to wonder about the difference between not being able to admit when I’m wrong, and having conviction in my assessment.

You see, the thing is that I truly believe that oil prices will move higher over the medium-term, based on what I believe is a solid case. I’m not going to go into all of the reasons why I believe this, as that is not what this blog post is about. I think though, that I have been looking at oil and the dynamics that drive it for so long from a certain perspective that I cannot see it from any other side.

I have from time to time tried to play devil’s advocate with myself to test my own thinking on whether or not my assessment is actually correct; but come to the same conclusion. So, either my bias is too deeply-rooted that I really cannot see the truth, or I am right. I find myself wondering if what I am doing is “sticking with my conviction” or “refusing to accept that I am wrong”.

In truth, right now, I cannot tell the difference. I would like to think that I simply need to remain patient and allow the market to unfold over the next six to 18 months and I will reap my reward. Although this goes against the trader’s mindset that I strive to maintain, which tells me: “It’s not working, get out”. Rock and a hard place… what is the difference between trusting your analysis and staying the course, and not admitting when you are wrong?

The answer depends on the outcome, but that seems a little like the winner writing the history book. There must be some way to differentiate between the two. I mean, I cannot admit that I am wrong if I don’t know that I am wrong. Sure, this is a trade, although it is a trade based on a fundamental case. This is confusing and I’m really not sure what to do. Not so much about what to do with Sasol, but more how to come up with some way of defining the difference between conviction and bias.

This is not a puzzle that I have managed to solve yet, although when I do I will most certainly share my thinking on the topic. If anyone has any ideas or comments on this, please do not hesitate to tweet them. I would really appreciate the insights (and questions).

Happy Trading!

Petri Redelinghuys