SPEND TIME ON THE PROCESS

There is an oft-repeated cliché that is used and it is Time in the Markets. Usually used in the context of making an argument against technical trading and timing of the market, the argument is presented for remaining in the market for long periods of time because it is difficult to know when the market chooses to reward. So, the logic goes, better to ensure that you are in the market as much as possible to give yourself a chance to be rewarded by the whimsical markets.

I for one do not subscribe to this cliché much. Not because I am don’t believe that it is untrue. There is an element of truth in the logic as stated. However, it is meant for those who cannot forecast market swings. Since these covers much of the investor spectrum, you could say that it is good advice. But for those who have developed this ability to forecast market swings in advance or those who are able to quickly understand when the market does swing around, timing their purchases and sales can be of great boon. It would make a big difference in the net return on an annualized basis. For example, the current fall in the market was indicated by the charts and was mentioned as a warning in these letters. Taking an evasive stance by liquidating a lot of investments and moving to cash, one could have saved at least 10-15% in the erosion of portfolio values. Money not lost is also money earned. The same stocks that one wanted to buy a month ago are now probably available at least 10% lower if not more.

But the point I want to make is not about timing but it is really about time spent. I speak about time spent doing what we wish to practice. It is time that unlocks a lot of insights into what we are doing or what we wish to do. That is best done by revisiting the item over and over again- what we call in common parlance as practice. Take trading as an example. Everyone starts it thinking it is easy but soon finds out that it is not. When we find that there has to be a process to trading and it is the implementation of the process that brings success, then we get to the root of creating a process and then practice its implementation. Over and over. The longer you do this, the more likely you are to uncover the flaws that are contained within the process as well as within you.
If process is the key, then one must spend the time creating one carefully. Think about how you get your child ready when it is going to school for the first time. Don’t you fret over just about everything? You start providing for every eventuality you can think of! Just so that your child can be safe under any circumstance. Well, preparing your trading process should be something along those lines. After all, you are dealing with your hard-earned money and that, I am sure, is as precious to you as your child.

Take it this way- once you have decided what is important to you, then you should have the courage of to get rid of or out of the way, whatever comes in the way of you doing what you need to do. Once you do that, the process is ready. Then it is a question of spending a lot of time running the process. Obviously, it is impossible to find whether the process you have thought of is really as complete as you think it is. Only repeated implementation of it will reveal warts that exist (despite your best efforts) for you to weed out periodically. This means that the process has to be run repeatedly without really be bothering about the outcomes too much. Therefore, the process has to be run at a low key (with minimum exposures, that is) so that hits to the accounts are not meaningful.

The longer you keep running the process, the more insights you will develop into it, recognizing strengths and weakness that you didn’t know existed before. You can then keep fine tuning the process until such time that the way it shapes up is quite acceptable in terms of the output it produces. Of course, there cannot be any process that will keep churning out profits in the market. Everything is therefore a trade-off between risk and reward.

Understand that this is just about one process. It is rare that the market will keep rewarding us if we just keep running with one. The market is a dynamic environment that keeps shifting like sand in the desert. So, we will need more than one process to deal with shifting market trends. Say, one each for a trending market and a ranged market. This is the least. Depending on your ability to spot more market conditions, you can then design more systems or processes to deal with other market conditions. This is what the whole game of system-based trading is all about.
So, we come down to the basic element that I spoke about at the start- that of spending Time in the market. I trust the point is now clear- it is not about being just present in the market, for, that is just being passive and hoping for the best. Instead, what I am calling for is a more dynamic effort- of addressing the market at all times and responding or perhaps even anticipating, the state of the market and creating approaches that can address it in the most efficient manner.

So, spend Time in the Markets. But do it so that you can prepare yourself to Time the Market.