We are all creatures of habits. Through our life we form different habits that stay with us or disappear depending on the feed it gets. The more we feed a habit, the longer it sticks. The more we practice a habit, the more ingrained it becomes in our personality and lead to success in market.
One of the contributing elements for the longevity of a habit is the environment. From ancient times, man lived in tribes and communities, together in villages and then towns and cities. Essentially then, the habits we have are shaped to a good extent by where we live and the groups and tribes we belong to. Where we live is the country, the state, the city. Tribes and groups are more like the neighborhood we live in, the schools and colleges we attend, the organization we work in etc. We tend to soak up the habits of all those around us during and after our formative years.
We then come to the market, which is another ‘group’. Even though we don’t really know people within this very large group, we are still a group because we are all united by the common goal of earning money. The thing with a group behavior is that we tend to do the same things that others in the group do.
So, if the common saying that 90% of the traders lose money, then many in the group are doing something that makes them losers! Hence, when we join this group, we look around and we start doing what others are doing, we will end up with similar results- loser! That is because the culture of that group or place sets the expectations for what is considered normal. So, even though your goal is to be a winner, you are not perturbed so much because loser is the normal setting.
Results in trading are almost instantaneous. If most traders are doing the same thing that other traders do and if the dominant result is that people lose, the impression that gets created is that all traders are losers. In investing the results vary across time- so it doesn’t become so readily evident that investing can also be a losing game! Since it is not visible immediately, it is simply presumed that investing, by comparison, is ‘less’ of a loser.
Since no one really wants to wear the title of a loser, everyone tries to belong to some club that can compose of seeming winners. Hence these Hosannas for Investing over trading. It gives people a false sense of ‘not being a loser’. Note however that it is never the same as winning.
Success requires a good plan and for a good plan to succeed it needs processes. It is only when the objective is defined that we can design the process to achieve the objective. It is the same for investing and trading. For most, investing is left to Time while trading requires focused action. Since markets are onto a sustained bullish path (because mankind is ever into growth), Time manages to deliver. This is the reason that the Buffet acolytes talk about being invested for the long, long term. Is that a skill? Perhaps- but I can think of only endurance of short term pain as being the only skill that is required. Over time, it seems that even dogs like RPower and JP Associates (if current market grapevine is to be believed) may end up delivering! See Tata Tele as an example of Time delivered returns. Was any skill involved in holding that stock for the past decade or more? More likely that most people forgot that they held the stock until the serendipitous discovery of it in their Demat account! Most of the time, the persons with the highest endurance factor (against short term pain) is declared a winner.
Trading on the other hand, pits you against Time! While it is never stated that a trade must close within X minutes or hours, popular perception and practice has made it so. Technology has driven this time factor into smaller and smaller segments now with Algos able to shave off micro seconds as a means to win. When time gets crunched, efficiency falls. This is the law. It requires a great deal of training and practice to win over time. Very few make that effort to get the learning, develop the skill and hone it into a weapon-like state thru practice. For those that do, the loser tag of trading never applies. They are the winners.
Since they have won by the dint of their efforts, they don’t really shout it from the rooftops. On the other hand those declared winners in the endurance test, are happy to take the credit for the win as though it happened by their wit and wisdom. This is normal human nature. So nothing new about it.
To become a winner through both routes takes time. So that is the first lesson. Traders need to take away the time label that they stick forcibly on their foreheads. Then it is a more level field. Investors need to understand that they actually have to work to win and win better to become success in market. Not just rely on the benevolence of Time. Both, therefore, have to create their own processes to achieve their objective- which, incidentally, is the same- make more money from the market and to success in the market.
My suggestion is to move away from this nonsensical debate of which is good or better and look at what is- the necessity to work for the objective. Training programs and tools designed to do that are the ones to attend/acquire. No matter how expensive they may see, they will still be a lot cheaper than the amount you will ultimately end up losing in the markets which will not led to success in market.
Trading and Investing is a thinking man’s game. While it is true that it is the faulty thinking that can get you into trouble, it is also true that the same thinking when righted, can lead to success in the market the riches that we all know is there in the markets.