How to Make a Million Dollars

Many years ago, a successful commodities trader told a story I’ll never forget. It was the tale of how he made his first million in the cotton market.

The details are a little fuzzy now -- as I said, this was many years ago -- but the moral of the story is what stuck with me. I’ll give you the Reader’s Digest version here.

At one point in time, this now-wealthy trader was a scrappy young guy with nothing to lose. He had little more than a passion for markets, a modest trading stake and really big dreams.

Our hero didn’t have enough money to be active in multiple markets. His account was just too small to handle big swings like the big boys. So he chose to focus on one market: the cotton market.

He didn’t pick cotton because it was exciting at the time. It was just the opposite, in fact. He went with cotton because it was dull and sleepy, virtually ignored by other traders. Our hero knew that, eventually, cotton would rise and run like so many other commodities had. It was just a matter of time.

After a long stretch of dullness, cotton finally began showing signs of life. Cotton futures broke out to the upside from a choppy sideways pattern that had seemed to last for years. He bought as many contracts as he thought was prudent.

There were a handful of false starts and disappointments before the trade really got going. He was stopped out a few times, and had a few frightening moments where his precious capital reserves seemed to be at risk. But eventually, his patience and persistence paid off. By the time cotton really began to move -- and the big boys finally took notice -- our hero had a strong base position.

From there it was a matter of pyramiding, the discipline of carefully adding to a winning trade. It was also a matter of hanging tough -- not taking profits too early, not losing nerve when the inevitable shakeouts occurred.

Over many months, cotton kept rising, and our hero kept adding contracts at the right time. Never in a rush… never getting too greedy… always picking his spots. Soon enough, he had his first million, and he never looked back.

The moral of the story, the thing that stuck with me, wasn’t to keep an eye on cotton (although interesting things are certainly happening in the cotton market these days). Nor was the big lesson that sleepy markets can turn into massively trending markets over time (although that is certainly true, too).

No, the thing I’ll never forget was how he ended the story.
“You can’t save a million dollars,” he said. “You have to make it.”

Mediocre Is as Mediocre Does
The traditional advice says anyone can be a millionaire; that they can, in fact, save a million… if they’re willing to just chip away for 30 or 40 years or so. (Very little is said about the fact that a million bucks might not be worth a hill of beans by then, thanks to the ravages of inflation.)

The traditional advice says, “Don’t do anything controversial. Forget about being bold or unconventional. It’s safer in the middle of the herd.”

For many investors this is decent advice. But that’s precisely why most investors will never be happy with what the markets hand them. You can’t get above-average performance doing what everyone else is doing.

Find the Biggest Waves and Ride Them
Fortunately, not everyone is satisfied with mediocrity. (If they were, there wouldn’t be a newsletter business.)

Those of us who want more from markets -- and from life -- are challenged to find the big waves and ride them. The most profitable trends aren’t the little blips and squiggles that quickly get lost in the fray. They are the epic monsters, the sweeping waves of change you can see from a distance. (If it doesn’t make its mark on a monthly or even a weekly chart, it’s probably not a major trend.)

There are certain challenges to mastering this task, this odd mix of art and science known as trading and investing. You have to stay cognizant of the big picture and not get bogged down in details, but you also have to pay close attention to what’s happening in real time.

Picking one’s spots is critical… but while trying to do that, it’s all too easy to get distracted. The trick is not losing perspective.

Tying It All Together
I’ve been passionate about markets for nearly 15 years now. In fact, I’ll probably love markets until the day I die. (I know I’ll be writing till that day, too.) It’s even easier to be passionate now, with everything that’s happening.

One of the greatest benefits of this new position I’ve taken on, editorial director for Taipan Publishing, is the chance to coordinate such a powerful stream of investing and trading ideas. I’m very excited about working closely with the Taipan team and communicating those ideas to you more clearly than ever before.

I see a significant part of my job as helping you, the reader, keep track of the big picture. (I am a “macro” guy at heart; the big picture is what I live and breathe.) One of the things Taipan will do in 2008 is focus more on the idea of “themes,” sorting all these trading and investing ideas into various baskets, making them easier to connect and understand.

Some of the themes we see dominating the markets now have been building up for years (and many of us have been writing about them for years). Other themes are just now taking hold. They are all sources of fascination -- and danger -- and potentially great wealth.

Notes From a Friend
To that end, I’ll be writing you on a regular basis for Taipan Daily. That is what we’re calling this e-letter now. You’ll still be receiving the same great content from the Taipan team, of course. My focus will be on connecting the dots. The general idea is that I will write a bit, and then introduce the essay for the day.

Usually my contribution will be shorter. Sometimes I’ll write you a little more, sometimes a little less. But it will always be with a focus on markets -- or investing and trading -- in the casual tone of notes from a friend. My hope is that Taipan Daily will earn an honored spot in your daily routine, like the morning paper or that first cup of coffee.

Let Us Know What You Think
I’m really looking forward to writing you. But I hope you can write to me too on occasion (and not just me, of course, but all of us).

We want to know what you’re thinking -- your questions, your comments, your requests. What topics would you like to hear more about? Are there any specific questions you have? Any market-related concerns? Just curious about something? Now you can let it fly.

We can’t dispense any type of individual advice, of course. But other than that, the reader mailbag is open. I look forward to opening it from time to time and responding to your thoughts.