Establishing Yearly Profit Targets | Podcast Episode #387

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Hey, I’m Ryan Mallory and this is my Swing Trading the Stock Market podcast. I’m here to teach you how to trade in a complex, ever changing world of finance.

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Learn what it means to trade profitably and consistently, managing risk, avoiding the pitfalls of trading, and most importantly, to let those winners run wild.

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You can succeed at the stock market, and I’m ready to show you how. Hey everybody, this is Ryan Mallory with Swing Trading the Stock Market.

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In today’s episode, I’m going to talk about establishing yearly profit targets. Now, for those who have been listening to the show for years, you know, I’ve talked about this and you know that I’m not a huge fan of doing that because, well, to be frank, I think that you’re putting on the market expectations that the market doesn’t care about.

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So why establish those?

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And I’ll get into that a little bit more because I know some of you probably might be already thinking, Ryan, you should have goals in life. Goals are important.

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Why would you not have a profit goal in mind when it comes to trading? And I’m gonna talk about that more.

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First off, this comes from an e-mail from a guy. He’s a regular listener of the show.

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He’s written me multiple times, always comes up with good questions. So I like using his emails whenever he sends them my way, as well as anybody else’s for that matter.

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But for this e-mail, I’m going to give him a good Florida Redneck name because because that’s what I do.

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I don’t use people’s real names, I give them Florida Redneck names. Being that I’m from Florida, feel like that’s appropriate.

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It goes along with who I am. Not necessarily redneckish, but I am from Florida so I like to do that.

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So for this episode I’m going to give the guy the name Floyd and Floyd writes Hey Ryan, I started the new year off right by listening to your podcast.

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I’m making some trading resolutions for 2024. I need to start really trading with 10% of My Portfolio.

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Stop over trading and don’t try to get back into trades I was just stopped out of. Every trade has a defined stop loss and target price.

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I know you don’t like counting money you don’t have, but I think I should have a target for the year.

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I’m trading with $100,000 portfolio and I’m thinking 30% off the total portfolio by the end of the year is a good goal which would be about $600 a week.

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I know this goes against what you tell us. I have listened to every episode of your podcast twice now and you never he puts that in caps.

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Never mention what you try to make as a percentage every year. I don’t know if you ever give us a straight answer, but I thought I would try to get it out of you.

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Could you give me an idea of what a good target percentage is for the portfolio by the end of the year?

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At the end of the day, I realize I can only get what the market is willing to give me, but I like having a target.

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Sincerely, Floyd. That was a really good e-mail.

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He tries to call me out a little bit on it and I appreciate that he does it in a subtle way, I guess you would say by saying that I’m not necessarily giving straight answers when it comes to what I would want to get out of the market each year.

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And to be frank with you, I don’t really give any thought to how much money I want to make out of the market each year.

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I don’t want to establish a goal in that regard.

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Now in the beginning I was establishing really lofty goals and when I’m talking about in the beginning, I’m talking about more like 20 plus years ago when I was trading, I was establishing some goals that were not attainable.

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And that’s often times one of the problems that we get ourselves into is because when we start establishing these goals, we have high hopes for the year.

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And achieving goals that you know might have a high outcome or a big outcome for it is not necessarily a bad thing in most aspects of life And trading I think there can be a lot of downfalls in it.

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So as we’re starting up this new year, we’re more than halfway through the first month of January. I think it’s important to think about those goals some.

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And now if you’re a person who has established a goal, whether it be lofty or not for the new year, start looking at where you’re at relative to that.

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There’s a movie, You guys have all heard it. If you’ve been trading for almost any amount of time, you’ve probably watched the movie Wall Street.

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It was a old movie. I don’t remember the exact year.

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It was like, I think it was like the 80s, right? It came out in the 80s because I haven’t seen the first one in a long time, but it had Michael

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Douglas in it. Good movie.

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A lot of stuff that we as traders to get tickled by. And there was that infamous line.

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Greed is good. But now there was a second one that came out with Shia LaBeouf and the guy who plays Thanos and the

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marvels, I never can remember. Gosh, what the heck is that guy’s name?

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Can’t remember it off hand, but he plays Thanos. He’s a good actor.

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Gosh, it’s gonna kill me not knowing what his name is, but a good actor.

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Thanos was a Wall Street banker. It was based off of the events of the 2008 Great Recession.

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And Shia LaBeouf was a young banker, aspiring banker, I guess stockbroker. He was getting mad at this guy because his mentor had killed himself and he was upset.

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He largely blamed Thanos for killing him, or at least driving him to his wit’s end. And it’s been a while since I’ve seen this movie, so I I might be a little bit sketchy on the

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details. But there was a line that was unforgettable in that movie, and Shia asked Thanos.

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No, this is if you’re jumping into the middle of this podcast without hearing my opening remarks, you’re probably like, what the heck is he talking about?

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Shia asks Thanos. What is your number?

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And the guy’s like what every and child responds. Everybody has a number.

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What’s your number? What would it take for you to just walk away?

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And he looks at him and smiles and says more and he walks away. And I thought that was such an interesting moment in that movie.

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I thought it was probably the most profound moment in that movie. Because so often times I wonder to myself, what does Elon Musk keep working for?

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The guy is worth hundreds of billions of dollars. What is Jeff Bezos stay so involved?

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And probably better yet, why is Bill Gates so involved in so many things? I mean, the guy’s got to be 70 something years old at this point.

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Maybe I don’t. I think.

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I’m pretty sure he’s in his 70s and yet he still works hard. He still wants to do things from my perspective.

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If I was in Bill Gates shoes, I’d be hanging it up. At this point, I’d say, you know what?

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I don’t know how many more years I have on God’s earth, but I’m going to enjoy them. I’m going to go places perhaps I’ve never been or enjoy experiences I might not have ever had the

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chance to experience or go spend some time with family more than I did in the past. That’s what I would be thinking of.

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Maybe that’s the rational way to think. You know, is like go do things, relax.

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I mean you make another $300 billion. What does it really gain you at that point.

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But it really goes back to the you know whether it’s Bill Gates or Elon Musk or you know the guy that plays Thanos but is playing a Wall Street banker and Wall Street Part 2.

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The answer was more, and I thought it was kind of a sad answer. But as I was preparing for this podcast, and clearly I didn’t prepare for it enough because I didn’t

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get the names of the guy who who actually plays this actor and what the guy’s name was. But the Wall Street banker said more I I started relating it to my traits, my own trait, what is my

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goal as a traitor? And I would say it’s more I want to walk away from the next trade with more money than what I had in

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the account in the last trade. You can even tie it to greed is good.

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And I’m not necessarily a greedy person by any means. At least I don’t think I am.

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But when it comes to trading, I want more. I want the next trade to be even better than the last trade.

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That’s not always the case. But I want it to be better.

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I want to make more money. I wanna add to the portfolio.

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And that’s really why I don’t set profit targets. Not because I’m afraid of meeting them.

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Sometimes I’ll meet them, sometimes I won’t. It goes with all the goals that I set each year.

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Some of them I attain the goal that I set out at the beginning of the year to attain. Others I don’t.

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But if I attain it, I don’t want to just be content with that in my trading. Let’s say because Floyd here, he sets a goal for 30% in the year and that’s great.

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If you make 30% on the year, that is an awesome result. Kudos to you for doing that.

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You should be very proud of yourself. But then let’s say you pull off an incredible trade.

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Let’s say out of your $100,000 account you put $15,000 down on the trade. I think he wants to only use 10% of his portfolio.

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But just for the sake of making the numbers easy, let’s say he puts $15,000 or 15% of his portfolio down on a single trade.

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And this trade is like a biotech stock. And they come out with a cure for cancer the next day and all of a sudden the stock is up to 100%

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and now he’s within one day. And let’s say this happens on the first trading day of the year, January 2nd.

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And now on the first trading day of the year, he has met his goals for the year. What should he do?

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Should he stop trading? Quit, Or do you risk continuing to trade throughout the year?

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Yeah, maybe you’ll make it into 60% territory or 100% double your portfolio. Should you do that?

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Should you risk it? What if you meet your goal in the beginning of the year, and then the rest of the year you’re just

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doing awful. You just can’t get a single trade to work out in your favor, and then all of a sudden, instead of being up 30% of the year, you’re only up 5% on the year.

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And when you have a big game like that, or if you meet your goals early on in the year, it can cause you to want to take bigger risks because you feel like you have that cushion because you’ve already met your goal.

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So early on in the year that you had the rest of the year, if you start to fall behind a little bit to make it up.

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But by the end of the year, when that rolls around, you might actually still find yourself having squandered some of the profits from the beginning of the year.

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And so you never know how the market’s going to go throughout the year when we assign a 30% goal target on our trading ambitions for the year.

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And it doesn’t have to be 30%, it can be 10 percent, 20%.

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Some people want to double their portfolio every six months. And I think that’s just outlandish.

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But you’re setting a arbitrary number that’s not based off of anything that the market’s giving you or providing you with no information that’s coming from the market.

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You’re assigning this variable, this need to meet this target. And if you don’t meet it, it’s gonna feel like a failure.

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So then looking at it from the other side of things, what if you don’t meet that target for the year?

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Let’s say in the first month of trading, you’re finding yourself falling behind and all of a sudden you’re thinking, OK, I was supposed to be making $600 a a week to in order to reach this target, but

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I’m only making $400.00 a week and at the end of the month I find myself I’m short $800. I didn’t meet that target.

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So now I’m in fear of meeting that target for the year because I’m already in the first month of January falling behind.

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What do I do? I start becoming more aggressive in my trading and becoming more aggressive in my trading.

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I might start taking trades I wouldn’t normally take had I not set out that profit target and felt like I was lacking or falling behind.

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So I start taking on more aggressive trades and then I start losing more aggressively and what was $400.00 a week or $1600 in gains, which is really good, is now being also squandered.

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So now not only was I $800 behind of where I where I needed to be at the end of the month, I’m even further behind now because I try to aggressively make up the ground.

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Or what if come November, you’re up 20% on the month at the end of November, but you need to make 10% in December.

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And gosh, it took you 11 months just to be up 20%. And that’s a good return.

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That’s that’s a good job. You’re doing something right there by being up 20%, but you don’t feel like you’re meeting your goal.

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So what do you do?

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You really get aggressive. Maybe you start tinkering with options that you normally wouldn’t have tinkered with.

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Maybe you’re selling naked calls or trying to just find every way to make enough money to be able to meet those goals for the year.

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And in the process, instead of making 20%, you go all the way back down to 0 because you got way too aggressive with your money.

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And so when you go back to Wall Street Part 2 and the guy says, what is your goal and he says more, there is a couple of things there worth noting.

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One, he’s not setting an arbitrary number that he’s trying to impose on the market and say I need this from you.

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Instead, he’s just trying to say whatever I got from my last trade, I’m gonna want more. The next time I’m gonna want more, I’m gonna want to add more profits to My Portfolio.

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And that to me is a much better approach for trading than trying to say give me 30% or give me 20% or I just want 10% on the year.

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Because then we’re not trading based off of or we’re not setting goals based off of what the market’s doing.

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And maybe it could be too, that you see teams, they get ahead by, you know, 21 points in football, for instance.

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And I’m making a little bit of a switch here. They’ll get up 2030 points in a game and they could have added more points to the game, but they’re already winning because they have a 20 or 30 point lead, but they could add more touchdowns.

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But instead they just start punting all the time.

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The Miami Dolphins in the early 2000s used to drive me nuts because Dave Wanstadt, who was a coach at that time, he’d get up like 3 points in the first quarter of a game and all of a sudden it was like, oh, we cannot squander this lead.

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So he just starts punting the ball every time.

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It’s just like he was. It would be like third and long and we’re doing like a screenplay line, the line of scrimmage that goes for like a 5 yard loss and it would just continue to be that we were trying so hard not to lose that we actually did lose.

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And so with trading we can start doing that as well. We get towards our goal and when we could have had more profits, we start taking those profits way too early so that we can reach a goal that the market doesn’t care about, that the market didn’t set for us, but we’re squandering opportunities or we’re not taking trades that we could have been

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taking because we don’t wanna lose or miss out on that goal.

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So you see what I’m trying to say here is that setting goals works in most capacities and life, but in trading it really doesn’t help you as much as you think it would.

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So instead of having a goal of 30% or 20%, I think the best approach is to have a goal of more adding more to the portfolio, let the next trade be where you add more to the portfolio than what you had before and consistently looking for more.

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If I have a winning trade, that’s great, but the next trait I want more.

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Doing it a long time. So been there.

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