Pursuing a ‘driverless strategy’ – be it automobiles, hedge funds or individual investing – is counterfactual thinking, in my opinion. The new BMW iVision car has knob-less gesture controls, 3D displays and an auto function that switches the car into driverless mode. Perhaps this will work on highways of the future, but don’t bring that sort of thinking to the stock market.
You’ll recall all those hedge funds that flamed out because they believed PhDs had uncovered new algorithms and derivatives that created virtual driverless portfolios. For all my years in the markets, I have yet to meet an investor who has ever made money for a significant period of time by pursuing a similar driverless strategy using some third party’s black box. Inevitably, investors doing that get sucker punched. I refer to these efforts as the pursuit of dark money. It’s always been with us, and it will continue to be with us. But successful investing is 180 degrees from there.
Market chivalry requires that investors risk their own money based on their particular beliefs, their tools and their methodology. As our Seahawks coach, Pete Carroll says, “a person has a chance to be much closer to their potential if they get true to who they are.” He won a Super Bowl with that attitude.
In other words, investors can’t cultivate artificial skills or adopt another’s trading methodology lock-stock-and-barrel. They must be willing to activate the investor self within themselves. They must be listening for their inner investing voice. And once they find that voice, they must then take action based upon what the inner voice tells them. Long term investing success is built upon this foundation. There are no shortcuts.
I truly believe that novice investors should spend however much time it takes to identify the timeframe they’re most comfortable trading, assemble an asset allocation profile that they can live with emotionally, build a personal methodology that’s worthy of their trust, and then finally acknowledge that their investor self must remain humble to the market as a sort of mistress.
Blackrock’s Weekly Advisor recently presented its research identifying five distinct types of investor personalities: the five “Ws”.
- WATCHERS: In my introductory classes, I’ve seen students who fit this bill. They have savings and some curiosity, but no interest to invest beyond a money market account.
- WAITERS: Similar to Watchers, they take multiple classes and seem interested, but they don’t possess the ‘action’ chromosome.
- WANDERERS: A synonym for these investors might be ‘dabblers’. They take action – any action – as long as they don’t have to make a plan or create an investment roadmap. They are the quintessential bumper-car investor.
- WONDERERS: These investors are empowered with a plan and a methodology. This empowerment has led to some action, but they remain far too tentative and unable to fully commit because they seek ‘perfect information’ or the ‘perfect market’. As a result, a majority of their assets remain in money market accounts.
- WINNERS: These investors have arrived here by transitioning through the previous four personalities. These investors have galvanized their intentions to become successful long-term investors, and I am always gratified to see their commitment rewarded.
Two closing observations. The transparency of my Tensile Trading methodology is that it presents an eco-system I have personally built for myself and used for 25 years. I encourage level 5 investors – those winners – to thoroughly understand all the elements of it, but moreover to use it to build their own personally appropriate eco-systems that will create opportunities for them to succeed.
Secondly, we serious investors spend too much of our lives focused on our investing efforts to not find deep meaning in how we spend our time there. This can only happen if you live within an eco-system of your own design. Deep meaning is not to be found with some third party driverless black box.
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.
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