Trading Goodwill
My wife and I recently had dinner with another couple at a local restaurant made famous by their chicken wings. In fact, it was Buffalo’s Anchor Bar that went down in history as having invented this culinary delight. Personally, I never cared much for chicken wings. This useless, non-nutritional fatty and boney part of the bird never had any appeal to me, but apparently the world went crazy over it. But I digress. While waiting for our dinners, we overheard the table next to us complaining about their wings being undercooked. The waitress promptly replaced their order, no problem at all.
Did that incident hurt their business at all? Not in the slightest. Even if the other party took to social media and slammed the place, I have no doubt the masses will stand up in defense of this famous restaurant. In these parts, it would be sacrilegious to denounce the birthplace of the chicken wing. Don’t even think about it.
The Anchor Bar carries a lot of “goodwill.”
Goodwill is an intangible asset that represents the excess value of a business from the fair market value of its identifiable net assets. It accounts for non-physical assets that contribute to a company’s value, such as its brand, reputation, customer base and established relationships. If a business has been in existence for a long time, is well-established in the community and well-liked, it will have a tremendous amount of goodwill.
The business of day trading options on the SPDR S&P 500 ETF (SPY), on the other hand, carries no goodwill. None. Nada. Never has, never will.
You can have 1,000 great profitable trades, but there will never by any goodwill to carry you over into the 1,001st trade. You can make a fortune along the way, then instantly lose it all should you lose control. That is the simple reality of this endeavor, and the trader needs to recognize that characteristic of the business. Conversely, one can have a series of losing trades, then strike it rich with their next position. You sometimes see this as someone will luck out with a great trade, then believe they found the secret sauce. They then pose as a highly skilled guru but are usually culled out quickly. Watch that you don’t get pulled into their web. One trick ponies rarely last, especially if they cannot replicate their trades.
It is for this reason that 100% care must be given each and every trade. Never let your guard down. Assess every single detail, from fundamentals to the technicals to ensure all bases are covered. Never trade unless you are 100% attentive and mindful. Suffering a bad cold? Take a break. Your pocketbook depends on your full mental capacity, and anything short of your complete attention risks a severe loss. If there was goodwill in this business of trading, that would not be a problem.
Every trade is independent, completely separate from the trade prior as it is from your next position. Keep an awareness of this and stay out of trouble. Should you find yourself struggling, it may be time to pull back and assess the situation. Perhaps the market is changing; maybe you are slipping. As part of my internal control, I stop trading after the morning, lest I fall into falsely believing I have goodwill. This keeps my emotions cool and my trading hot.
We discuss this and other issues in our programs. Click the links to find out more about our Trading Room. Jon Johnson and I host this every morning, 9:20 to 10:30 a.m., ET. Learn and earn as we teach all aspects of this business. Take full advantage of our 45+ years of combined market experience.
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Incidentally, I had the Anchor Bar’s delicious beef on kummelweck… yummy!
Great trading!
Hugh
