I Was Wrong.

You do not hear many investors saying this statement. In fact, you almost never hear investors saying this statement because it is simply a matter of psychology. Any active investor, myself included, is by definition stating that they are smarter than the person on the other side of the trade. This is clearly not always the case, which is why it is imperative that you learn early on in your investing career when to be persistent in remaining in / increasing a trade and when to pull out. Humility. Understanding and embracing that one word will go a long way in ensuring that you make the right trades for your portfolio. The truth is that the market will humble you at some point in time. The question is whether or not you listen to what it is saying, and more importantly, if you learn from that particular mistake. The greatest investors will admit they were wrong, and then will proceed to pull apart their own mistakes and the mistakes of others in trying to improve their investment process. This is what differentiates the good investor from the average. The good investor focuses on their process of investing, whereas the average investor focuses on the outcomes.

While I have made numerous mistakes in my investment portfolio, one of the ones that I have made on this blog is an entry I wrote in August 2009 entitled "The SEC Should Ban High Frequency Trading". In a very uncharacteristic moment of irrationality, I wrote the blog arguing that the SEC should be more responsible and should disallow HFT. I was wrong. Upon further thought and discussion, it is my contention that the SEC is not well equipped to deal with traders who are have more resources than and are faster and smarter than the market regulator itself. Banning HFT outright is a poor policy response to a natural evolution in the free markets. To disallow progress is to disrupt the very foundation upon which our capitalist system is built. Case in point, the Globe & Mail ran an article today about a new trading system named "Thor" that RBC Capital Markets has been developing for its buy-side clients. This product is designed to deliver much-needed relief to fundamental long-term investors who are getting out-gunned in the markets on a daily basis due to the natural advantages that high frequency trading systems have accorded to the quants and hedgies. This system is basically an evolutionary response by the markets to negate the abilities of HFT, and it appears to work successfully (for now). We do not need more regulation. Like animals in the wild, the markets have evolved and adapted to the hunting strategies of high frequency traders. Economics tells us that abnormal profits will eventually be eroded away through competition. The development of RBC's system is just the first step in the evolution of competition when it comes to HFT. My initial position was wrong. I believe in free markets.