I’m a big fan of pithy quotes. When I teach my college class “Tensile Trading”, I use quotes extensively to help illustrate each of the essential 10 stages of stock market mastery. This week, I thought I’d have a guest blogger share his wisdom with respect to each of my ten elements for successful investing. These are some of my favorite quotes from Warren Buffett.
Having traded the markets for over 25 years, I am still focused on ruthlessly driving mind-bending emotions from my investing efforts. With novice investors, the first and most significant speed bump seems to be simply acknowledging the fact that investors themselves are the speed bump.
We need to accept two realities in particular. The reality is that we, as human beings, are hard-wired to an ancient set of gray cells that have us perpetually tethered to poor financial decision making skills coupled with the reality that the world’s most sophisticated disinformation machine (i.e. Wall Street) is set up to take advantage of this fact. Once you understand that profits are the product of behavioral control, you can appreciate why I continue to have to make the effort to remain even-keeled emotionally when trading the markets.
This is the tenth update to the Tensile Trading ChartPack. When I look back at the initial version, let me just say I am astonished at how far we’ve come and how many improvements we’ve made over the past ten quarters. At this juncture, I think it’s apropos to acknowledge two parties who’ve contributed to the ChartPack’s ongoing success. First and foremost, I’d like to tip my hat to our user community, now numbering into the thousands, which continues to make excellent suggestions for enhancements.
Secondly, I’d like to recognize my son, Grayson Roze, who has come aboard with important contributions to the last few updates. He is very much his own trader even though his investing style is foundationally based on the Tensile Trading methodology. His personalized style is reflected in these recent updates, and I’m certain you’ll notice his broader orientation.
If you are already a ChartPack user, I believe you’ll find this update to be profitable. If you’re not presently a ChartPack user, I suggest you sit down with a good cup of coffee and browse the previous user manuals and quarterly updates.
I think you’ll discover many useful investment tools and organizational tips. Frankly. I think existing users can profit as well from this little exercise. Don’t overlook the free 60-minute video of my presentation to ChartCon 2104 where I take you on a guided tour of the ChartPack.
Thomas Edison said “Vision without execution is hallucination.” Real estate experts love to claim that success is based on “location, location, location.” For his recent book, The Art of Execution (Harriman House 2015), Lee Freeman-Shor analyzed over 30,000 trades by 45 professional investors and concluded that success in the stock market comes down to “execution, execution, execution.”
Freeman-Shor groups investors into five tribes – Rabbits and Raiders whose behaviors put them on the losing side, and Assassins, Hunters and Connoisseurs who are winning tribes due to superior behaviors and strategies.
It all comes back to the challenge that emotions drive the investment decisions of both professionals and individual investors. I wholeheartedly agree with one of his conclusions that states “before you invest in an idea, you have to have a predefined plan of action that will govern your actions after the initial investment, and you have to have the discipline to stick to it.”
“I’m the only person I know that’s lost a quarter of a billion dollars in one year... It’s very character building.” -- Steve Jobs
I have to say this up front: I hate to lose. I work very hard not to lose. As Paul Newman said, “Show me a good loser and I will show you a loser.” The closest I’ve come is that I have learned to cope with my losses in a manner that results in the least amount of lingering collateral damage. In other words, I’ve learned to quickly move on.
As I see it, there are two types of losses. The first type of loss is simply a result of the laws of probability and is to be expected even if you follow your methodology. I tell my classes that I lose about 4 out of every 10 trades. The novices in the class react by asking themselves why they are taking an investment class from such a loser. The experienced investors nod their heads in approval. The point is that when I lose, I cut my losses quickly to minimize the costs and I move on. When I have a winner, I let it run. It works out to be a net positive as the winners more than compensate for the losers. For you sports fans, another way to look at it might be to ask: how much would a baseball team pay me if I hit only 6 out of 10 times at bat? Probably whatever I asked for.
For myself, one of the most momentous insights into life and investing happened over 25 years ago when Sir John Templeton, who was exceptional as both an investor and a human being, talked about the profound importance of pairings in determining the quality of one’s life. There are infinite examples all around us from which to choose – perhaps the most obvious being the pairing decision you make in choosing your significant other. But imagine these famous pairs, for example. Where would Lennon be without McCartney? Sherlock Holmes without Watson? Paul Simon without Garfunkel? You understand the depiction.
Templeton’s belief was that the best pairings act as catalysts to enhance and empower each individual element – literally resulting in an equation where one plus one equals three. Therefore, choose carefully.
“A disciplined mind leads to happiness and an undisciplined mind leads to suffering.”
--Dalai Lama XIV,
The Act of Happiness
Investors don’t always have the discipline to act like a Nike ‘Just do it’ advertisement. I recently had a trading buddy of mine lament about his struggles to stay motivated. He held me up as his model of a well-disciplined trader. I was both flattered and intimidated by his statement, but it’s hardly a secret that one of the keys to successful investing is to stay engaged and enthused.
To be candid, I’d never really considered that question in totality as it pertains to my trading, so his comment became the catalyst for some introspective exploration of how I stay the course. I’d like to share with you my thoughts – not in any particular order, just a stream of consciousness listing:
- I am a man of routines. No doubt all those years of doing two workouts a day as a track athlete ingrained in me a certain internal momentum. As a runner, I maintained my competitive advantage in races because of my daily discipline. The correlation was clear and unambiguous. I loved the athletic rewards, and I was able to focus on those rewards during my 6 AM workouts. With trading, I love a winning trade. I focus on that as I run through the 6 AM routines at my desk. Whether it’s the monetary profits won or just the personal sense of improvement and accomplishment, I feel I’m one step closer to my goals with each routine I follow.
- I always take a breather – sometimes within the trading day, other times after the markets close. I think it’s a mistake to be rigid and inflexible. I create my own schedule and feel blessed that I’m in a profession which accommodates that flexibility. I like the quote by Gretchen Rubin “to keep going, I have to allow myself to stop.” On an annual basis, I must be candid and tell you that I don’t trade actively 12 months a year. Read the Stock Traders Almanac and you can guess which months I pull back. If I managed other people’s money, I could hardly do that. When I jump back into the markets full-time each Fall, I invariably approach my work with recharged vigor and a refreshed outlook.
- This rejuvenation in part explains why I teach college stock market classes in the Fall. The contagious enthusiasm of a room full of like-minded investors brings out the best in me, not to mention the benefits bestowed upon me by the old cliché “when you talk the talk, you have to walk the walk.”
- To be brutally honest with myself, the last two decades I’ve been driven in part by wanting to be an outstanding role model for my son. I didn’t trade the market from home, but went downtown to my office every day as he hustled off to school. Those of you who are parents know that there is no greater reward than to have your own child embrace a similar work ethic. He’s now a business manager at StockCharts.com and a passionate investor in his own right.
- As I said earlier, I’m not rigid with my time or my investing approach. With a flexible mindset, I’m open to trying different methodologies, indicators and websites that break up my usual routines. I acknowledge that I’m a very different investor now than I was some two decades ago and that is a direct result of my willingness to experience new approaches. I’m motivated each day by the knowledge that I’ve progressed and improved as both a trader and a person, and I’m therefore energized to continue venturing out beyond my comfort zone.
- Each new year, I review my financial performance, revisit the vision I have for myself, and take stock (pardon the pun) of both the progress I’ve made as well as the impediments that have stood in my way during the year. When I identify any negatives, I pledge to remove them from my life if they threaten my well-being, my performance or my motivation. If I can honestly tell myself that I did a commendable job over the past year, then I reward myself which usually has something to do with cars.
- And finally, a tip of the hat as well to my trading buddies to whom I talk regularly and who are willing to share with me their passion for the markets. It is a truism that “you become the company you keep.” I’ve been mentored and coached by some of the best, and I keep mighty fine company! Thank you to all of you.
“When an individual is motivated by great and powerful convictions of truth, then he disciplines himself, not because of the demands of others but because of the knowledge within his heart.” -- Gordon B. Hinckley
Trade well; trade with discipline!
-- Gatis Roze, MBA, CMT
Presenter of the Tensile Trading DVD, Stock Market Mastery.
Developer of the StockCharts.com Tensile Trading ChartPack.
P.S. Click HERE for information on my future appearances & seminars.
Recently, I had a very personal conversation with my fellow trader, Harvey Baraban. I asked him what he did to “warm-up” before making a trade. I already knew that we both had specific warm-up routines. His response was essentially this: “I’ll tell you my routine if you tell me yours.” As traders, we love to barter. And just as professional athletes would never ever take the field without executing their personalized warm-up routines, successful traders are very much the same. But their warm-ups are a little different in that traders ask questions instead of stretching quads. Nevertheless, they all have essential and very individualized routines.
What follows here is a unique peek into the warm-up routines of two traders in particular. These are the questions we ask before we hit the buy or sell button. In this blog, we’ve combined both of our lists of questions since we each trade in different timeframes. Every one of you should also adjust your charts to reflect your own investing horizon, but your warm-up routine should ask questions similar to the ones we pose.
Amongst investors these days, there are a number of lively debates going on. Fundamental analysis versus technical analysis, the role of behavioral finance, or where the best investment ideas come from. Pulling no punches here, I maintain that in today’s modern stock market, you are either part of the Charting Age or you are in the Stone Age. The divergence of investor opinions on these subjects is not unlike similar debates in other fields.
In the scientific community, a significant number of pivotal ideas have historically come from “outsiders” who are not bound by the inbred conventions of a specific scientific discipline. In business school, I was taught to look for breakthrough ideas by surveying customers, interviewing market players and analyzing competitors’ strategies. On other fronts, various authors have written about the need to find your own individually stimulating space in which to ferment your own thoughts and thereby breed ideas either by the “slow hunch” approach or via the “aha moment” approach. Some have even suggested the bathtub or a fishing boat as creative options!
As a trader, I’ve found all of these woefully inappropriate. Revisiting my trading journal to find my most profitable trades, I realize that my best ideas have not resulted from some creative incubated hunch. Invariably, they have been the result of specific step-by-step disciplined investigation. My objective has not been to come up with unique undiscovered investment opportunities in the stock market. Generating new ideas like that yields a low probability trade for an individual investor. Instead, my objective has been to uncover what creative institutional investors deem as their most investable opportunities.
“Success is peace of mind which is a direct result of self-satisfaction in knowing you made the effort to become the best of which you are capable.” – Dr. John Wooden
Yes, it’s that time of year again, and I thought I’d invite you into my trading room. I look ahead to 2016 by considering my investment efforts of 2015. My regular readers will recognize this falls into Stage 10 of my Tensile Trading methodology. I have a number of techniques I use each year to accomplish this objective. One I use regularly is to focus on an extraordinary individual and try to understand how he or she succeeded and how I might compare my own efforts to those achievements.
This year, I turned my inspection upon the “Wizard of Westwood” – Dr. John Wooden. Dr. Wooden was UCLA’s Basketball Coach in the 1960s and won ten NCAA titles in twelve years, seven in a row. Remarkable when you consider that no other coach has ever won even three consecutive titles. With exceptional skill, Coach Wooden taught his players to succeed in both athletics as well as in life. The basis of his methodology was his “Pyramid of Success”. I caution any investor who might be asking, “what can I possibly learn from a basketball coach?” I challenge you to keep an open mind, put your ego aside and be receptive and ready to be amazed.
The foundational level of this pyramid encompassed five elements:
My motives in writing these weekly blogs and in teaching investment classes are in part selfish ones. I write and teach to become a better trader myself. By weaving together the key attributes that I deem most useful in trading the stock market and sharing them with other investors, I find that I’ve woven them together more effectively into the fabric of my own trading.
Two eyes are better than one, and I often benefit when students hold up a mirror and reflect their experiences back to me through their own investment lenses. A fine example of this occurred last year. The trading course I teach – Real Time Hands On Trading – has a strong group of 100 investors and includes a good number of full-time traders. After last fall’s semester ended, I received a detailed email from a student named Kelly H. who proceeded to list his key takeaways from the course. Coming from a full-time trader with more than 15 years of experience, Kelly’s comments were those of a colleague who had just spent seven weeks participating in my class. His comments were insightful and reinforcing, offering me a unique perspective as to what other investors felt were the most useful skills gleaned from the class. I was grateful to Kelly for the email, and I’d like to paraphrase his input. I hope I manage to capture his true intentions as I summarize the points he made.