The key to success in ANYTHING – whether it be in trading, business, or life – is to have an open and optimistic mind. Look at the most successful people in this world. Almost all of them who achieved their success did so because they were open and optimistic.
- Closed minded people remain stationary. They don’t improve.
- Pessimistic people can never see the potential for growth. They mostly see the potential for downside. Successful people lean towards the opstimistic side of things, but they are CAUTIOUS optimists. Blind optimists get slaughtered when the economy and markets turn down, or when they experience a streak of bad luck.
Let’s focus on the first point – the need for an open mind.
The one concept that most traders, for one reason or another, just can’t wrap their heads around is that INVESTING and TRADING are the exact same thing. While the 2 may seem different, they both want the same goal:
- To make money from buying and selling securities or assets. How do you do that?
- By buying at one price and selling at a better price.
It’s literally that simple. Of course, the words “investing” and “trading” have a different connotation. “Investing” is seen as more of a long term game, while “trading” is seen as more of a short term game.
And here is where a lot of more experienced traders get stubborn. I know this, because my mother (who started our family’s fund) had this exact problem. A lot of traders get caught up in the menality “I’m only a trader! I’m not an investor! I can’t hold positions for a long time!”. Other traders will say “I can’t do that strategy! That’s investing! That’s not trading!”
This mental block is silly, to say the least. In the financial markets, your job isn’t to “trade”. Your job isn’t to “invest”. Your job is to make money.
When you first started trading, you didn’t get into the markets to “trade”. When you first started investing, you didn’t get into the markets to “invest”. You got into the markets to MAKE MONEY, no matter how you do it.
Trading and investing are the same thing, just with different time frames. So who cares about what time frame you trade/invest. The late Chinese president Deng Xiaoping said “it doesn’t matter if it’s a black cat or a white cat. If it’s a cat that catches mice, it’s a good cat”. (He said this at a time when China was transitioning from a socialist economy to a market-oriented economy.)
In financial markets terms, this means that it doesn’t matter if your strategy is a “trading strategy” or an “investment strategy”. If it’s a strategy that makes money and outperforms in the long run, it’s a good strategy. That’s all that matters.
Throughout the rest of this Membership Program, I will use “investing” and “trading” interchangeably, because there is no real difference.
There are 2 big groups in the trading/investment industry. This is infortunate.
- Most “investors” tend to buy and hold forever, thereby ignoring every risk while convincing themselves that “no one can time the market. If the market crashes 50%, it’ll eventually come back up”.
- Most “traders” focus too much on the market’s short term fluctuations, thereby panicking about every little risk.
We need a middle ground.
Many people who buy and sell stocks don’t want to call themselves “investors”. Instead, they call themselves “traders”. To them, being an “investor” is synonymous with being an “amateur”.
This is a silly mindset block.
A lot of traders have seen too much of “Wolf of Wall Street”. For one reason or another, many traders see trading as a “high IQ job”. They make a few successful market predictions and then they feel like a “master of the universe”. What a load of self-inflated BS.
It’s easy for someone to feel like a”master of the universe” when they win. But remember – even blind gamblers have lucky streaks. Never aggrandize your own success.
I read some financial twitter, and it’s really a train of thought into how most traders (retail and professional) think. The level of arrogance and snarkiness in some people is amazing.
The funniest thing about traders and fintwit is that every thinks everyone else is a contrarian indicator. “You’re an idiot”, “they’re an idiot”, “the central bank is an idiot”, “the government is batshit crazy”, “mom and pops are pigs to the slaughter”. Those are phrases you hear all the time. Which is funny, coming from an industry that can’t even beat “dumb” buy and hold.
Don’t get caught up in the romance of trading. Forget about what you see in movies. Shows like “Billions” are based on a fantasy. The only thing that traders do is buy and sell. They push pieces of paper (or electronic paper nowadays). There’s nothing “glorious” or “genius” about it. It’s a job, like every other.
The average hedge fund doesn’t even make anywhere close to 30% a year. The average hedge fund can’t even beat buy and hold, which even a monkey can do. Replace all the Ivy League graduates in hedge funds with monkeys, and those hedge funds’ performance would actually increase.
*I don’t mean this to be rude, or to say that people in finance have low IQ’s. I’m saying this in a factual way. Factually speaking, if hedge funds randomly selected what stocks to buy, their performance would = buy and hold, which is better than the average fund’s performance.
So let’s be open minded and honest. Radically honest.