Forext Trading Strategy – What Business Are You In?

What Business Are You In?

What business do you think AMC Cinema is in? How about Cinemark or Regency entertainment? If you said the movie business you would be dead wrong. All the cinema chains in the United States, and for that matter the world over, are actually in the food business. Movies are very low profit items for most cinema houses. In US they have to pay out 70% of the first week’s gross to the distributor. That share ratio becomes more equitable the longer the movies stay in distribution but since only a few films have the staying power to play more than two weeks the movie revenues are basically a scratch for movie theaters. Movie theaters make most of their money on popcorn and soda which run 90% profit margins.

So given the fact that movie owners are really in the food business you would think that they would do a better job. You would think that instead of hiring lazy, glassy eyed high school kids to man the counter and process orders at the pace of postal office clerk they would invest in self vending machines that would cut the line times in half and offer a variety of cool products like customized sodas and gourmet popcorn. The technology is there, but movie houses still think they are in the movie business and that’s why most of them suck.

The mistake of misunderstanding your business is common one and certainly not limited to the hapless movie house sector. In the 1930’s and 1940’s US train companies thought they were in the train business rather than the transportation business and were promptly destroyed by cars and airplanes. Contrast that with Europe or Asia where high speed rail connects major cities in both comfort and style. Ever take an Amtrak train through the US Northeast corridor? It makes a 7 hour traffic jam on I-95 feel like a pleasurable experience.

So why am I suddenly so concerned with the question of understanding what business we are in? Because when it comes to trading most of us (and I put myself at the head of this list) think that we are in the market prediction business. Most of us think we are in the “being right” business. We are not. In trading we are in the making money business and making money comes from properly reading the mind of the market. So our opinion doesn’t matter. Only the opinion of the market matters. There are only two reasons for why we lose money in our trades.

1. We are dead wrong in our analysis of market opinion.

2. We are early.

In both cases we are losing money which means that we not practicing our business properly and we must cut our losses and look for a new idea or a better time to enter the trade. Once we clarify the question of what business we are in, the question of am I right becomes a lot less relevant and we can hopefully learn to trade more effectively.

Boris Schlossberg

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