I have been at this game of investing and trading for a long time now- about four decades. I lucked it thru the first and dropped a bundle in the second, improved and succeeded more consistently by the third. And have remained at that plane thru the fourth. There are many others, some my own compatriots, who have had a much greater level of success in the market in much shorter time. Should I begrudge them for their success or flog myself for the delay in the same? Neither, I would believe.
Not to sound fatalistic but everything happens in a certain time. To some, success comes early; to some others a bit later while to some it doesn’t seem to come at all! What creates this difference? My reckoning is, first, what you do with the ‘time’ that you have. Then second, what is the kind of appreciation of risk you have within your psyche. Third, what is your appetite for succeeding, attracting it, retaining it, building it and growing it? Everything plays its part. It’s not just one thing- it is often the three and perhaps even some others too.
Thru my career dealing with hundreds of clients, I have found a few common traits. A vast majority of the people who are engaged in the market simply do not have the right idea about succeeding. They just have this “idea” of success but have never gone beyond having it, never defined it in more detail, never thought of the process or created the strategy etc. This is what I mean by spending the “Time” appropriately. Having an idea of success is a wish. That is all. It won’t translate into success in market unless you do something about it. And whatever you do happens in the realm of Time.
Success comes to those that have utilised their Time well. Used it to their advantage. Planning and executing well within the bounds of time. Being cognisant of its passing and being aware of the progress that we are making while it is passing. Harnessing our actions when required, expending more energy when required, and conserving it when it is not. This converts into making lesser errors and burnishing your gains.
Most of us live as though we are here permanently even though we know we are on borrowed Time. Hence the thought of harnessing time and making it useful doesn’t enter our minds at all. Everything gets postponed to tomorrow or next week or a vaguely defined near-future. Errors slow your progress, digressing you from the main path. Veering back to it takes Time. Too much digression saps your energy and that means everything just takes so much more Time. There is a progressive sense of urgency as matters keep getting out of hand and things keep getting out of control but you want to deal with this urgency by looking away, sweeping below a carpet or just plain hoping that it would, somehow, right itself. You end up waiting- for someone to do something or for some fortuitous turn of events to occur. But all that happens is that even more Time gets away from you. Success, on the other hand, has a funny way of acting very positively on your psyche when you are very aware of the passage of time. You begin to experience a sense of urgency where you are driven to do more and more and since the efficiency of your action improves because now you are seized of the need to take advantage of the passage of Time, you taste even more success in market. This becomes a virtuous cycle of its own!
When you act, there are going to be results. It is inevitable. Since you do not know the consequences of your actions (not all of them anyway), you are always running a Risk as soon as you act. This is also the reason for procrastination in trading and investing. Inherently we know that until we do take a position in the market, there is really no risk. But as soon as you do, risk begins. It is not something that you can ever avoid. It is inherent in this business. Hence to succeed here, you must have the right perception of risk. George Soros Quantum fund has no specific investing style- they are simply opportunistic, going wherever they can sniff a profit potential. But if ever there was one thing that Soros can be credited for, it is his perception of Risk. And his ability to address it. This is what helps him decide his bet size. The point is that Soros fully understands and accepts risk down to his core — both the known and unknown kind. This allows him to maintain a healthy relationship with risk through which he can successfully manage it. That’s what it takes to win in this game.
Most of us seldom think about risk. We are too busy thinking about reward. We must realise that we never control reward- it is what the market gives us. It is a consequence of our actions in the market. It can be planned but it can never be executed. However, risk can be planned and executed. We can anticipate it, control it to some extent- at least enough to ensure that we don’t get blown out of the water. To someone unaccustomed to thinking deeply about risk, Soros may be seen to be one running crazy levels of risk. Imagine, taking a bet size that could bring the biggest Bank of that time down! But to Soros it made eminent sense- because he sized up the conditions and then took a bet size that would make a difference. And won. Big time!
This brings us to the third aspect- bet size and rewards. Mark Douglas has a fantastic line on this. He says “Traders eat like birds and shit like elephants”. It is a very succinct way of speaking about how most traders deal with their positions. It is an exact antithesis of what is needed to be done. Value investing heroes are written about because they eat elephantine meals. That is a strategy that runs over a long time, allowing time itself to do the trick, to allow the power of compounding to kick in. Traders, by definition, cannot do that. Michael Mauboussin, one of the finest market commentators, says, “To be an active investor, you must believe in inefficiency and efficiency. You need inefficiency to get opportunities and efficiency for those opportunities to turn into returns”. The market creates periodic inefficiencies, intraday to long term. It is up to us to bring in the efficiency- through our reading of it, through our design of strategy, thru our implementation of tactics. Here, as a trader, it is very, very necessary that your actions are indeed efficient. Without that you are lost.
My experience with many traders is that many of them are simply not interested to make money. They are here for the joy ride. They love the push and shove of the market, the thrill of being in losses and then recovering from those, the giddiness of being in profits even if they are not harnessed smartly. They love pitting their wits against others, seeing it as some sort of contest, some sort of validation of their smartness, a certificate to their ability and skills. They revel in flaunting their contacts, their position size, the big risks that they run and the brinksmanship that they engage in. In short, they are here for the thrill.
That you will get. In plenty. If that satisfies you, then so be it. Do not bemoan the lack of profits at the end of the year. But if it is not the goal, if the goal is to make profits, then there has to be the right attitude towards profits, towards money made and lost, towards money risked and money gained. There has to be a strategy not only to make money but to keep it and then grow it to success in the market. It is a process. It requires planning and execution of that plan. It requires time.
So, what seems like a simple business- buy low and sell high- is actually an activity that functions at several levels. It requires us to spend our time wisely, making the maximum use of available time and not behaving as though we have endless amount of it. It demands that we recognize risk exist and accept that. And then take efforts to address it and keep it down to the minimum. And it demands that we have the right attitude towards making money- not just enjoying a ride or having some fun. Together the three will ensure proper approach, the design of the right strategies and the proper implementation of those strategies thru time. When all of these happen together in an efficient manner, success in market has no choice but to kiss our feet! It is a personal journey. A long road which we don’t apparently recognize at the start. But as we walk it we begin to realise it. And as we go along, if we are aware enough, we pick up what is needed to succeed. Educating yourself, bringing a lot of common sense to your approach, developing counter-intuitive thinking, taking calculated risks and meaningful bets………..these are the steps that will take you to success in market.