The Traders Journal

100% of Investors from Lake Wobegon Are Above Average

Ninety percent (90%) of Americans believe that they are above average drivers.  Multiple studies have corroborated this impossibility over the years.  I’m certain that the equivalent surveys of American investors would yield a similar fanciful number.

It reminds me of Garrison Keillor’s radio show featuring Lake Wobegon — the fictitious midwestern town where all of the children are above average.  My point being that most drivers and investors — like those Lake Wobegon kids — believe they are exceptional.  When you have a Ferrari for a brain but brakes made for a bicycle, you are dangerous — whether driving or investing.  


The truth is that statistical reality tells us otherwise.  Frankly, there are indeed good investors with above average profitable behaviors, as well as below average investors with behaviors which often lose money.  The best investors can peer into the looking glass and summon the honesty necessary to see both behaviors in themselves.  Note, I do say the best investors.

A recent article in my BMW Club magazine addressed this fact with respect to what makes a good driver and what makes a bad driver.  As I read the list compiled by the author, Mi Ae Lipe, I was astounded by explicit parallels to investing.  Previously, I wrote a blog titled “Where Investment Lessons Reside” about Michael Jordan who wrote a book laying out his rules for success. As investors and traders, we aspire for excellence too — simply in a vocation different than Michael Jordan’s.  His little 36-page book, I Can’t Accept Not Trying,  offers impressive insights about investing excellence if you merely replace the word “investing” whenever Jordan writes “basketball”.  Honestly, the analogy is uncanny.

It’s precisely for the same reason that I reflected on good and bad driving habits which led me to insights about investing and trading.  Here are ten of my reflections on what makes a good investor in parallel to good driving habits.  I won’t go down the bad driver road because it’s generally simply the flip side of what makes a good driver.

  • Car:  A driver who does not equate knowledge with skill and ability.
  • Market:  Investors who make a serious effort to educate themselves first before plunging head first into the investing pool.
  • Car:  A driver who is self-aware of their bad habits and who constantly seeks to overcome them.
  • Market:  Investors who understand and embrace the reality that over 50% of their success will be determined by what we call in our book “The Investor Self” (Chapter 3).
  • Car:  A driver who knows what leads to collisions (distracting activities, visual fixation, fatigue, etc.) and is proactive about avoiding these risks.
  • Markets:  Investors who commit to monitoring routines and sell disciplines after they have made an investment.  If you fall asleep after buying an equity, ETF or mutual fund, you are dead.  Don’t get distracted or fatigued.
  • Car:  A driver who focuses on improving the drive ahead and doesn’t fixate on mistakes of the past.
  • Markets:  Investors who are able to take appropriate action and move on when the markets move against them.  Engaging in the mental gymnastics of  “could have — should have”  not only is non-productive but is likely to negatively impact your future trades.
  • Car:  A driver who doesn’t panic in an emergency.
  • Markets:  Investors who have formulated both a bullish and a bearish scenario before every trade and who are prepared to execute whichever the markets show them to be the most appropriate.
  • Car:  A driver who knows not to sweat the small stuff.
  • Markets:  Investors who do not live and die with each data tick or each sensationalized pronouncement by a CNBC talking head.
  • Car:   A driver who knows his or her physical, mental and emotional limits.  (Think weather, alcohol, speed, etc.)
  • Markets:  Investors who can focus and who know their own personal investing timeframe, individual methodology and the universe of equities they’re most comfortable with. (Don’t jump into options, currencies or pork belly futures just because someone sells you a pie-in-the-sky bill of goods.)
  • Car:  A driver who is not overly fearful.
  • Markets:  Investors who appreciate that at every historical point in time, there have always existed billions of irrational reasons to be fearful and not invest in the markets.  It’s the optimists who invest and secure their financial futures, not the pessimists.
  • Car:  A driver who is assertive, not aggressive.
  • Markets:  Investors who have carefully assembled a logical asset allocation profile can still exercise their need to be bolder at times but always under the diversification umbrella of CORE, EXPLORE and SUPER EXPLORE.
  • Car:  A driver who is smooth with steering, braking and other inputs. (Race car drivers contend that it the ‘smoothest’ drivers who invariably win the races.)
  • Markets:   Investors can be smooth operators if they have personalized investing plans and individualized personal trading methodologies with monitoring and sell disciplines in place— truly, an investment force to be reckoned with!

In summary, driving and investing are both skills that primarily involve ‘the Self’.  If you continue to believe you are ‘above average’ and therefore don’t need to constantly make an effort to improve your investing behaviors, skills, and tool kit, then you are like a Polaroid camera in an Instagram world.  Humble yourself.  Get with it.  Get current.

Trade well; trade with discipline!
- Gatis Roze, MBA, CMT

StockMarketMastery.com

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