Thanks Mr. Buffett. You are the best day trading coach I ever had.

Let’s get first things straight. Never in a million years would Warren Buffett ever day trade. So this little missive of mine is just an exercise in make believe. But believe you me, the Oracle of Omaha Buffett has some very real life lessons to teach us day traders.

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You may think that Warren Buffett is in the investment business but he is actually in the insurance business and insurance is the greatest scam — ehh I am mean “business” — ever invented.

Think about it. In what other activity in life do you go on paying for months, years, decades -- for literally nothing? I still remember a classic scene from some movie where an exasperated customer starts screaming at insurance executives for refusing to honor his claim, “WHAT HAVE I BEEN PAYING FOR ALL THESE YEARS?!” and the insurance agent without missing a beat simply says, “Peace of mind”.

Now I don’t want to beat up on the insurance industry -- it does after all serve a vital economic function in our lives -- but if you look at their business model my exaggeration is not that far off the mark. The perfect insurance policy is one that never pays out.

This is where Warren Buffett comes in. If you read the history of Berkshire Hathaway you will note that Buffett bought NICO (National Indemnity Company -- a major reinsurer) precisely because he loved the way they did their business. Instead of chasing every customer in the market NICO kept its premiums extremely high and was happy to give up the business if the risk proposition did not make sense to them. In fact Buffett boasted in one his annual shareholder letters that he was very happy to own a company that did less business that year than the year prior.

In short Buffett was perfectly content to walk away from a trade if it looked even slightly risky to his portfolio. He always gave himself an extra margin of error even if it meant lower profits upfront.

I’ve been thinking a lot about Buffett this week as the volatility in FX continues unabated. Our day to day job in BK is to speculate on short term flows -- and we are always on the opposite side of the trend. We in fact provide a form on insurance by offering liquidity to those who must get out NOW.

Thinking like a Warren Buffett man, I managed to really tighten up my “underwriting” criteria this week by looking at my key levels buy and sell levels and then going one level further -- to give myself an extra margin of error just like Mr. Buffett. That little trick saved me a lot heartache this week and helped us to record yet another positive week in the BK Trading room.

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Thanks Mr. Buffett. You are the best day trading coach I ever had.

Boris Schlossberg

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