Peter Brandt when referring to a saying on the trading floors in Chicago during the 1970s says "If you want to know yourself – all your insecurities, character faults, issues of pride, areas of greed or selfishness, unresolved traits, etc. – just become a trader."
I am here to tell you the saying is true and that trading has made me a better person. There is something about having your ego and your money put into a wood chipper with a few pennies and a lot of humble sawdust flying out of the other side that really gets to the core of who you are as a person. The next time your ego wants to drive a decision you remember the last time your ego was at the wheel and the carnage that ensued. Maybe while having a passionate discussion with your significant other, you find the strength to quiet your ego and instead lean a little less on your own perceived understanding while genuinely searching for what you do not understand about their issue with you.
Most traders know that at times your highest conviction trades are the ones that you should be most careful with. We have to be decisive in life and take action sometimes for better or worse, but just like in trading, high conviction moves deserve caution and risk management. For example, I absolutely KNEW I wanted to be a lawyer before it turned into sports talk radio host, then college athletic director, then aircraft engineer, then intelligence officer, then hedge fund analyst...you get the picture. Thankfully I managed my risk by not taking on college debt while fumbling through a few different academic programs and jobs. By all means have convictions and chase after them, just do it with some risk controls in place.
We all have insecurities, character faults, issues of pride, areas of greed or selfishness, and unresolved issues. Sadly however, many of us never realize most of these problems and they hurt other people and of course they hurt ourselves. Nothing is more powerful than introspection and trying to find and address these issues and grow past them as best we can. A lot of people either frown on therapy or cannot afford it and never look inside to find faults. These people often spend their lives moving from responsibility to entertainment (job to Kardashians to kid's soccer practice to Game of Thrones then to bed) it turns into a cycle that allows the years to pass by like blurry scenery out the window on a road trip. As a trader, there is no escaping facing down these issues. Trading taught me that I am greedy, insecure about being wrong, entirely too prideful, and I care more about being right than being profitable. Trust me it taught me a whole lot more but I need to keep this blog a reasonable length. Thankfully it did teach me these things and I have learned from the painful mistakes and have implemented both mechanical risk controls as well as mental and emotional resilience in trading and in my personal life.
These realizations from trading made me think about myself and address some flaws. If I used to prefer to be right over making money, maybe I prefer to be right over resolving a conflict? If I am willing to take on too much risk because I am greedy, maybe I am taking other shortcuts in my life to avoid hard work and patience. Where else do I want a sugar high easy fix in my life? I can assure you, I found some areas of my life outside of trading that were parallels to my prideful ignorance as a trader and my uncovering these issues in the markets allowed me to address them in my life.
So with all of that being said if you have learned a lot about yourself while trading and investing but have never thought to apply any of the lessons to your life and your relationships, get your journal out and go to work.
I will leave you with a list of trading principles I have learned and how they can apply to your life.
1) Cut your losses quickly. We all know this is the key to survival in the markets and although we do not all execute on this all of the time, we know its a pillar of success in the markets.
Well, if you apply this to all areas of your life, you will get the same results. Whether it is dating or friendships or books you read, if it is not working out just cut your losses and move on. I am guilty of pushing through crappy books and I finally had to realize that it is insane to read a couple hundred pages of something you are not enjoying when a million books you would love are out there waiting for you. Cut your losses and let your winners run at home and not just on your screens.
2) Use price targets for taking profits. It only takes a few times of having an investment rip higher making you paper rich only to have it scream back into the red for you before you start to understand this principle. Below is a chart of Cisco to illustrate my point (yeah I still managed to put a chart into this article). If you bought this bad boy at $15 in 1998 you went from the suburbs to the penthouse and you felt like a damn genius. If you had a price target or maybe even more than one, you took home some nice profits. If you rode her to $75 you four bagged this thing and retired on a lake. Well if you had no plan and no price target, maybe you went from the penthouse to the trailer park and watched your investment go from up over 400% to down 50% in about four years. Ouch!
Well sometimes the same thing can happen in your personal life when you take on some new job or relationship or activity or responsibility with no plan and with no end in mind. You know what they say about failing to plan. Obviously you cannot put a profit target on your new girlfriend or your newborn child, but you can enter a relationship or responsibility with an end in mind while knowing exactly how you want it to turn out and exactly what it would like like if it went off course. I am sure you can imagine some areas of your life where knowing what you want from an action can help you not only make a decision, but understand if you are getting what you want and where you are in your journey. I know I can always tell the difference between a parent who raises their child very intentionally versus a parent who raises their child one day at a time without a plan, just like they are holding Cisco in 1999.
NOTE: Cutting your losses quickly does not apply to your children
3) Never average losers - The quote "losers average losers" made famous by Jesse Livermore and Paul Tudor Jones is true in trading and in life. Ever doubled down on a dumb decision or a dumb job or a dumb friend etc? Of course you have, its what we do as humans. You keep pouring out your heart and resources into the friend or family member in need that has no interest in helping themselves or you finish your law degree well after realizing that you hate law. Maybe you renew your vows in Hawaii as a last ditch effort to save an awful marriage. Not averaging losers in life is really tricky because sometimes pushing through tough times and rededicating yourself to something that is not going well is exactly what the situation calls for and you are able to reclaim an important part of your life. In those situations you are the oracle value investor buying more below intrinsic value and that is okay. You just have to know the difference between that and buying more silver when it falls from $50 to $33 (still hurts).
That is only three trading lessons applied to life but I am sure if you examine what you have learned while being an investor and apply some of the lessons to the more important aspects of your life, you will find some high risk/reward changes you could make that will have asymmetric returns. It has helped me and always will because you never master any of this stuff, whether trading or living.
If you have any examples of a trading principle applied to your life send them to me and I may write a follow up with some great examples to help others apply them to their lives.