AMERICANS MAKE

dangerous, delusional and self-destructive decisions on a regular basis. Just look at the statistics: Plenty of us smoke, overeat, unbuckle our seatbelts, use drugs and have unprotected sex, just to name a few acts of random idiocy performed by seemingly intelligent and well-educated people every day.

Here's the thing: Sooner or later, we pay for our stupidity. Whether it's cancer, a car crash, a heart attack or herpes, most people who tempt fate end up losing. George Burns is the exception, not the rule.

And so it goes in our portfolios. More than any other endeavor, trading comes down to a series of choices made over time. The best advice I can come up with is also the simplest: Do the right thing.

Of course, that's easier said than done. Navigating our place within the financial markets is quite a challenge.

Most of us follow a religion, or at least have a general philosophy that governs our actions. Indeed, from Christians and Muslims to atheists and anarchists, most of us have strong feelings about how best to approach the world. In the markets, some advocate growth investing while others put their faith in value. Some buy only large companies while others swear by the small caps. Technical traders trust only the charts while most purists follow the fundamentals.

Is there a "right" way to trade? Yes, I think there is. And no matter which security we're talking about, doing the right thing starts by taking responsibility for one's actions.

I know far too many money managers, both private and professional, who seem to specialize in excuses rather than returns. Advocates of index funds like those based on the Standard & Poor's 500 take top honors. From the election to the economy, corporate crime to the war on terror, they've always got a reason why investors should sit tight, hold on and stay in it for the "long haul." Things will improve, they say, once the bad apples are discarded, or what have you.

But even active managers those who attempt to pick specific stocks or time the market get in on the blame game. If they lose money, it's always the analysts' fault or the media's doing. It's the short sellers or the message-board denizens. Indeed, when we lose money, we tend to make everybody and everything a scapegoat everything, that is, except our own supposedly sound judgment.

It's time to fess up. By taking responsibility for our accounts both the winners and the inevitable losses we immediately begin moving toward a position of strength. We can't control the market, only our exposure to it. As long as our losses are someone else's fault, there's never any incentive to do much about them.

From Henry Blodget to Jack Grubman, the problem was never really the analysts, but that too many people willingly subjected their portfolios to their advice. So in the most far-reaching sense, the right thing to do is to deal with the ups and the downs of managing your money. The wrong thing is to blame your actions and decisions on everything else but yourself.

We all lose our head from time to time. From logical (yet often familiar) fallacies to downright delusional thinking, we too often manage our money in a dream world where everything eventually comes back and a paper loss isn't a loss because we haven't seen fit to take it. Neither is true.

Another way to "do the right thing" is to trade with reason. As difficult as it can be, you've got to be honest with yourself about your situation and your approach to the markets. If you're not yet in a position of having real risk capital, don't delude yourself into thinking you'll turn $1,000 into $100,0000 in no time flat. Or if you bought XYZ at $50 a share and it falls to $15, don't make believe the stock is likely to snatch a 233% gain in a few week's time. Run the numbers and readjust your expectations.

You've also got to be reasonable about time. Unlike Web sites, newspapers and cable-news programming, the market isn't on a strict schedule. Indeed, it's got all the time in the world. And because the big moves the important moves often take time, the right thing is to trade with patience. Easy money made overnight is usually lost just as fast.

The final and perhaps most important way to do the right thing is to focus not on security selection, but on trading technique.

When the market is moving and money is flying, it's easy to forget that it's the basics that ultimately produce success. Even after trading everything from exotic over-the-counter options to plain vanilla Dow stocks, I still need to constantly and obsessively evaluate every single trade, every single day.

Am I trading with the trend or fighting it? Am I using consistent position sizes or just shooting from the hip? Am I taking losses early or dragging them around like old wine nobody wants. Am I trading products that are appropriate to my account or simply stroke my ego? Am I taking a smart risk or a sucker's bet? In other words, am I doing the right thing?

As I said earlier, in the final analysis trading comes down to a series of choices made over time. More often than not, doing the right thing works. And if your focus is on the bottom line, that should be reason enough.

Jonathan Hoenig is portfolio manager at Capitalistpig Asset Management, a Chicago-based hedge fund. At the time of writing, Hoeing's fund may have positions in the securities mentioned in this article.