I was recently discussing trading and investing with Carlos Obando, former portfolio manager and graduate of a famous east-coast Business School – yes, Harvard. And as regular readers know, my MBA is from Stanford. Both schools are famous for their respective teaching methods, but as investment professionals, Carlos and I agreed that there are a lot of things business schools just don’t teach you about investing in the financial markets and portfolio management. There are things you have to learn the hard way. Here are eight things we both agreed upon quickly.
Many of you may have tried “simulated trading” which is offered by many brokerage firms through their on-line platforms. But as many of you may have experienced, it’s very different trading with real money. There is no substitute for actual trading and investing experience. In other words, hands-on with real money does matter. To quote Teddy Roosevelt (Harvard class of 1880)
“It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again.” Trading is not a simulation; it is not a one-day seminar.
A healthy dose of humility is essential to investing in the real world, and that only comes from experiencing – and equally important, documenting – your successes and your failures. This is precisely why this blog is titled ‘The Traders Journal’.
Investing is not just about buying and selling. It’s about a whole host of details, methodologies, money management, and the investor self to name just a few of the untaught subjects. My Tensile Trading DVD organizes it all into 10 essential stages. This is so that as you learn more, you’ll know precisely how to compartmentalize what you know. Business schools don’t give you a 10-stage roadmap.
Academic courses in finance, accounting and business strategy are all important to a foundational understanding of financial markets. Those subjects you can indeed learn in school. But only with time and the experience of putting real money at risk do you come to realize that financial markets can be a humbling experience. This is true even for those with fancy MBAs and years in the markets. It all comes down to how you individually are able to blend your academics with your experience. High IQs don’t guarantee high returns.
You have to expect markets to change. Plan for change. Embrace change so you can profit from it. Ask what might be the catalyst for change and the beneficiaries of that change. It will be the difference between a trade that brings you closer to your investment goals and a trade that hands you a painful loss.
It is important to be dedicated to your craft. You have to take time to learn, to have patience and most importantly, to love what you do.
Remember that Wall Street is the worlds’ most sophisticated disinformation machine ever conceived. No one teaches you that “stocks are not bought, they are sold.” You must learn to own the outcome of your decision to invest and its consequences. There is no “undo” command in investing.
Enjoy every aspect of the market. Understanding and learning both from what worked and what didn’t. And remember why you are personally in the investment arena. Always keep in mind a quote from one of my favorite Stanford grads, Richard Sherman (Stanford class of 2010.) “On the football field, you’re still going out there to win. And if you’re not going out there to win, what are you going out there for?”
Having said that, remember that you are not competing against other investors but against the potential of your own behavioral blindness. You are competing against the markets that always – and without exception – have the final say.
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.