What Traders Can Learn From Air Crashes

losing and winning

Airplane pilots say that you need 3 things to save a plane from crashing:

(1) Speed;
(2) Altitude; and
(3) An idea…

The famous “miracle” airplane crash of 2009 is a good example. Minutes after take-off, a flock of birds flew into the plane’s engines and caused them to fail. The pilot, Captain Sullenberger, then made an incredible decision…

I watched several reports of this plane crash and here is what amazed me.

The Captain knew that his plane was in trouble. He admitted that he felt a”sickening feeling in his stomach”. He only had minutes to save 155 people on his airplane. He also realised his bad luck: he was losing speed and altitude… all that was needed was a runway. But there was no runway that was close enough…

So he managed to keep calm, assess the situation, and made the decision that saved everyone on that plane: to land the plane on the Hudson River, New York.

So what does this have to do with you… and your trading or investments?

I think as investors we can learn a lot from how people think and decide in moments of extreme stress and pressure.

Many people do not realise how many air crashes could have been avoided if only the pilots had made better decisions…

For example, in June 2009, just a few months after the “miracle” landing in the Hudson, an Air France jet crashed in the Atlantic Ocean killing all 216 passengers. Nobody knew why it crashed until investigators made a shocking discovery…

One of the pilots was pushing up on the controls causing the nose of the plane to point upwards. This put the airplane into a “stall” – causing it to literally fall out of the sky! All the pilot had to do was to push DOWN on the controls (not up) and increase speed. That would have saved the plane.

The official verdict on the Air France crash? Lack of proper training and preparation!

By the way, in case you’re thinking this type of crash was a one off, you’d be wrong. I can name similar examples from almost every decade in the past 40 years – where the pilot made a disastrous decision causing everyone to die.

I believe the biggest mistake investors make is that they mentally prepare themselves only for when things are “going right”. For example, when they are in a winning or profit situation.

Investors seem to give very little thought to preparing for when things go wrong.

And let’s face it. In investing more things can go wrong than right.

As you’re reading this, ask yourself this question: what was going through your mind the last time you made an investment? Was it thoughts of you winning? Did you at any point imagine in your mind how you would feel or act when your investment went into a loss? What preparation had you made for handling a “losing situation”?

For example, I got an email from an investor a couple of months ago asking what he should do with his stock investment which was losing him money every day. I have received similar emails from folks asking me about what they should do with their losing silver investments.

To me, this shows a lack of preparation. Just like our airplane pilots who had fallen into a false sense of security that “nothing can go wrong”, they did not have preparation as to what to do when things actually did go wrong.

I would strongly urge you to use this week to seriously consider this for your own portfolio. What measures have you set in place should your investments go into negative? How will you act? What decisions will you make? At what point will you cut losses short?

Try and adopt a Captain Sullenberger attitude to your own money (your passengers). How will you save your falling jet (your portfolio) from crashing into the ground?

If what you have tried so far has not worked, then consider trying a different approach. As in the Air France example I mentioned, maybe you should have been “pushing down” on the controls instead of up? In other words, the answer was staring at you in the face!

One thing I will say is this – doing nothing is the worst thing you will do. Even a little action is better than NO action whatsoever.

Finally – let me add a cautionary tale from the world of air disasters.

On 19th December 1997, the pilot of a Boeing 737 jet deliberately crashed his plane into a river killing himself and murdering all 104 passengers. His motive? He had been gambling and lost a fortune on the Asian stock market! As a result he became depressed and decided to “fake” a plane crash so his family would get the insurance money.

Lesson: Do not become obsessed with your investments either. There is more to life than money.

Alessio Rastani is a stock market trader at www.leadingtrader.com

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