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3 Trades for ‘Crazy’ Investors

These trades aren't for the sound of mind or faint of heart

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crazy investorI always knew stock traders had a screw loose. How else do you explain participating in a market as crazy as today’s? Anyone attempting to make money in this environment ought to have their head examined. And a new study backs up that sentiment.

According to a German study, first reported by German weekly Der Spiegel, traders are more ruthless than psychopaths. While traders might not be violent, the massive egos required to play the stock market game are indeed greater than those of criminally violent crazies. Anyone who knows a trader probably isn’t surprised by this revelation.

Michael Lewis’ book about Wall Street, Liar’s Poker, portrayed traders as a bunch of self-interested maniacs. Sit on the desk of any Wall Street firm, and you will find traders willing to win at any cost. Some will cross the line and break laws. They crave risk like children love candy. The psychological profile of traders is not pretty.

But that’s the nature of the beast. Traders walk a fine line between healthy and destructive behavior. And the article discussing the study says some traders manage this line better than others. Winning traders know when to walk away. The excerpt from The Rise and Fall of Bear Stearns about Ace Greenberg and his mandate that traders at his firm jettison losing positions on Fridays is insightful.

When traders get involved in a position, they have to love the story, but not too much. They expect to win every trade, but those that do best understand that some trades will not work out. With that in mind, here are three crazy trades you can fall in love with, but must know how to walk away from if things go south:

Sirius XM Radio

Those committing capital to Sirius XM Radio (NASDAQ:SIRI) do so from a very innate belief that Sirius’ business model will explode in a wave of massive profits and stock gains. Bulls buy the story hook, line and sinker. They will blindly buy the stock despite a valuation of more than $5 billion and a business that is barely generating profits.

A crazy trader might look at this story and ignore the major issues. Sirius certainly has the potential to clean up — it’s currently a monopoly and recently announced that it would be increasing prices.

A market correction during the past few months has crushed the bulls in Sirius. For now, the shorts are winning this battle, but don’t get too excited if you hold this position. The company could be a big moneymaker — if it can show increases in its subscriber base and growing revenues. It’s just hard to tell. Being on either side of Sirius is nuts for sure. This stock is not for average investors.

Article printed from InvestorPlace Media,

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