Tuesday, February 28, 2012

Fahmy: On Mature Traders

Over at the Ritzholtz blog, Joe Fahmy on "5 Signs You’ve Matured as a Trader" (link).

The short version:
1) Self reliance
2) Stop celebrating winners
3) Let trades come to you
4) Feel no need to brag
5) Loss management

On #1 self reliance, I like to repeat an anecdote that may or may not be true, but it is instructive. It is about the great composer Mozart. A young man comes to a performance that Mozart is attending, and comes up after to talk to him. The young man asks "do you have any advice for me about composing my own music?" Mozart pauses and says, "yes, I suggest that you concentrate on simple pieces." The young man is startled, "simple pieces? But you were composing complete symphonies by the time you were 17 years old." Mozart calmly nods and says, "yes I was. I never asked anyone for advice about composing music either."

On #5 losses, few bloggers or Internet posters will freely write about their losses. I find that I tend to learn the most from the losers. From day one of this blog I have always owned up to my losers. This is how people tend to learn best, both the writer and the readers.

Often times on the Internet, I see folks asking others for advice. Often times it involves a great deal of money, and only the barest minimum information is given. An example might be: If you had $100,000 (or any other large amount) where would you invest it, or how much would you put into gold (or any other single asset class). These type of questions and answer sessions tend to have a negative value for all. The person asking usually doesn't have enough experience to discern good answers from bad answers, or sometimes even joke answers.

Stock picking contests also tend to be of dubious or negative value. The contests tend to reinforce lazy habits and poor risk management tactics. I am more interested in process than picks. The temptation for contest players is to pick the most volatile vehicles, often not suitable for long term investments, in the hopes of hitting a home run, but not caring if they lose because it isn't real money.

The Boglehead forum is a bit of an exception (link2), because they want all your personal information before folks are willing to answer in detail.

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