Within you without you

So I want to talk today about hubris. You know, hubris is something that can pop up after you’ve had a winning streak or after you’ve avoided losses, whatever it is that makes you think really, really good thoughts. And I can remember this happening to me early on when I had put some trades on, I made some money, probably a few of them in a row. And I started to believe like, okay, now that’s evidence that I’ve made it. And when hubris kicks in like that, you can lose your discipline and drop your guard. And when that happens and the markets change on you, it’s a complete 180 because all of a sudden you’re making money. You’re feeling good about yourself. And then the markets turn on you and you’re like, what the hell just happened?

And whatever your daily loss number goes out the window. And that one loss could end up being like your weekly or your monthly max loss. And of course I blame myself for all of that. That’s part of it. You know, remember I said a million times that I’m responsible for everything that happens. I live in a paradigm of personal responsibility and you know, that means when bad things happen, it’s my fault. When good things happen, it could be good luck or good timing. Maybe it’s good analysis. Won’t know that for quite some time. Because in the short run, everything is really, really random. So what happens is over time, you realize that all of those feelings that you want to go towards can oftentimes betray you.

So this can, this is good wisdom for those of you that are trading in a simulator, paper trading in that whatever you think is happening to you just realize that the evidence of success could still be just good luck. And I don’t mean to pee on your parade at all. But in the short run you just don’t know, you say, well, Michael, I’ve been doing this for four months. That’s still not that long a time. You could have caught the bull market in NASDAQ and being fully invested in internet names from ’95 to 2000. And for some of you anyway, it might have just, you might have just been in the right place at the right time. Some of you might just have really good instincts. I don’t know. I can’t really tell, but you want to just always stay very, very grounded and realize that if you are making money awesome, but don’t look into it. Don’t try to infer that you’re good.

Enjoy it for sure. But the minute you let your guard down, it never works out in your favor. It always ends up hurting you. You see, what else could happen is you start taking flyers. A flyer is an example of a trade that you really have no business being in. Something catches your eye. You’ve got four or five winners, maybe you’re up 10% or a number percentage wise that’s very material for you. And now all of a sudden you’re like “I’ve got this.” And then you start trading everything under the sun and things that you really shouldn’t have and that you don’t have any business being in. And so again, when you start making money or even when you start losing money, the goal for you is to stick to your discipline. That’s where you want your feelings to come from. How does it feel to be you when you can be disciplined because you’ll have winning streaks and you’ll have losing streaks.

My experience though, the minute you let your guard down, things can get “Fugly” fast, and that can erase a lot of hard work. It could also annul many days, weeks and months of times when you did have great levels of discipline. So the thing about discipline, it’s not for a day or a week, it has to be consistent. And it’s in the consistency of you executing your discipline that you have solace and that’s where your good feelings come from. You don’t want to tie your emotions to making and losing money because losing money doesn’t mean you’re a frigging loser and making money. Doesn’t mean you’re onto anything in the short run. You don’t know. So detach your feelings and your emotional responses from making and losing money. Because it says nothing about your ability. It says nothing about your intelligence. Of course, if you’re trading without stops and you get blasted and yeah, you’re an idiot.

I mean, what do you want me to say? You have to put in protective stops and I don’t want to hear anything about, well, I just don’t want to get stopped. You know, I’m not trading that much. You need to get into the habit of having good habits and putting in protective stops because they will keep more money in your account and what you don’t lose. You don’t have to earn back. You see, anyway, I got a couple of emails and pings this week about those types of things. So that’s kind of like a summary answer to a few a few comments and responses this week. Remember the trading psychology part of this and your emotional intelligence is really the name of the game.

The how-to stuff…I would never pay for it. And two, get to know yourself. I know it’s tempting to want to buy into some of these hyped up things. My goodness it doesn’t make sense to buy into somebody’s program when they’re 24 years old and they had three months of success, they don’t have enough meat on the bone. They don’t have enough years of experience to be thick-skinned. There’s no such thing as a secret pattern. There’s no such thing as an undiscovered pattern. There’s nothing that’s “under the radar.” So just be careful, the solutions that you need are not technical. And if you, if you’re soft on the technical stuff, there are plenty of videos for free that you can get on YouTube.

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Going to school on yourself

So following up from the episodes from Monday and Tuesday of this week, you can look at, I think it was Tuesday. When you look at all the feelings that you have throughout the day, and then how those feelings repeat themselves, you can really learn a lot about your own behavior. Then when you could tie it to your productivity, you might be able to make some conclusions. And some of those conclusions might be that you’re spending a lot of time on things that feel good, but don’t necessarily make you money.

So this is where you might want to take a pause and kind of say, am I really cut out for this? Because a lot of the work is difficult. And a lot of the feelings that you want to feel are on the other side of feelings that you might not want to feel like taking risk home overnight, taking risk home over the weekend, or managing the risk and what we call “managing the trade.”

You might really enjoy the analysis and the charting and drawing the lines and all that kind of stuff. But you might be particularly weak on execution. Why is that? Why can’t you find, if you want to be a trader, why can’t you do the one thing that you need to do, which is know how to add and remove risk. So this way, look, being a trader isn’t a higher form of life. It’s just, it is what it is. I don’t personally think that it’s appropriate for most folks because they don’t have what it takes. And I don’t mean they don’t have the will, but it takes a certain and special type of emotional makeup to be able to do that. Especially since there’s so much failure. There’s the frequency of loss. Then there’s the drawdown and then the recovery and that takes a toll on people.

So it’s not to say that the people are losers. It just takes a very different mindset to be able to do that over and over and over again where other jobs can be much more rewarding and don’t have that much failure. So that’s kind of why I have you do those exercises because if it’s not a good fit for you, whether it’s trading at large or whether it’s trading a certain style, or whether it’s looking at certain timeframes or certain asset classes, then you keep time on your side because you’re able to fail fast.

People use that as a slogan, well, “fail and fail fast” and then get yourself back up and pivot. Well, you need to know the data. And so if you see like over the course of a month, that you’ve done a lot of things that have really felt good, because they’re on the periphery of trading, but you haven’t been able to pull the trigger. You haven’t been able to overcome feelings of fear or indecision. You need to investigate that and go to the root of it. Where does that come from? Because it doesn’t typically go away on its own and it absolutely does not go away by further intellectual study. You can’t read book after book after book and think that that’s going to cure your insecurities.

Doesn’t work that way. The best thing you could do if it’s appropriate and you think you’ve spoken to your financial advisors and the folks and your spouses or your partners. And you know, what you can afford to lose is to go buy one tiny micro contract or buy one share of something and see how it feels. Because the goal is to find out the feelings and then calibrate that with what you know how to do and then converge those two.

So knowing how you are built and taking inventory of all your activity, because behavior predicts where you end up. So this is actually a great exercise to do, because it has very, it has predictive value if you’re great at the study and you’re great at the knowledge part and you’re great at the mentoring, that’s awesome. You won’t make any money as a trader, but you could certainly help other people.

And that makes you feel good. There’s nothing wrong with that. And so I think that there’s a lot of that on the internet is try to make people feel good. They certainly market their solutions to you. But most of the solutions that you need have nothing to do with the “how to…” part that’s not going to cure your insecurities or whatever. Whatever’s holding you back from succeeding, it’s typically not an intellectual part of the business. So you can see, in conclusion, if you look at that over the course of a week or a month, it could be very fascinating because then you could kind of see, okay, what am I doing every day? That’s chronic. That feels good, but isn’t yielding any results. How can I pivot and change that? And then I get in, I can see for sure what my emotional model model is.

Maybe you shy away from the harder decisions again so that you could work with somebody on your insecurities. Maybe you don’t have clear goals. And so you don’t know what action steps to take. And that’s all a good thing because the sooner you come into that, that knowledge and that wisdom on yourself, the sooner you can work on it. So that’s a good thing. It’s not necessarily negative. You know, you read about all of mine. I wrote a book about it, so don’t tell me – I lived it out loud, so it’s all good. It’s not negative, but you can be your own best teacher by just doing a little bit of work on that.

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Learn to be an independent thinker

So I received a follow up email from a previous episode where the guy was saying he talked about isolation and my thing was like to just be a solo player, don’t get engaged with this stuff. So I received follow up. “Well weren’t you in the Trading Tribe? And so seems like it’s a little bit of contrasting views here. Like you, you’re saying one thing, but you did another.” And so let me address that – for one that was 20 years ago and I have the right to change as a human being. So do you.

The Trading Tribe is owned by Ed Seykota. It’s his technology, it’s his thing. I don’t have any control, ownership or anything of that. So let me just be clear. I’d just like to footnote that. I did participate in it for two years. I subscribe to the point of view that it works, but that was more about trader psychology and emotional intelligence for us as human beings.

For example, we would find that either in our trading, certain feelings would recur for us, or there were feelings in our lives that would recur for us that could impact our trading. And so the work was “can we get to the nth degree of that feeling to see what it’s trying to teach us?” But I can assure you that I can’t think of a single time when we were in a meeting and we talked about where sugar was going or any type of trading or any type of system or any type of a chart or any type of a segment.

Like my friend, Bud used to kid “Big Cap Pharma.” Like that was totally not the point of it. We never talked about trading. There were times outside of the meeting where Ed might say, “Hey, you in that sugar?” And I’d be like, yeah, he’s like, yeah, I saw that move. That’s your trade. That kind of a thing. But it was more like in passing it, wasn’t a sit down kind of a situation. My feeling about the Discords is that it’s a gigantic time suck. I know people who are pretty good people and again, they intellectually understand trading. So when you’re sitting in the Discord and you’re doing all the work for the people who own the program, how do you get paid?

You get paid because you have high self-esteem because you’re contributing to the community, but who’s making all the money? Maybe you don’t care about making the money, but if your goal is to be a trader and to manage a set of rules or a system with which you’re compatible so that you can trade and make net income, how in the name of Christ the King, just sitting on a Discord responding to every comment to be helpful help you? My guess is that it’s emotional and it gives you self esteem.

Maybe you feel like “I can’t be a leader as a trader. So I’ll be a leader in the chat room.” Sorry to smash you upside the head. Because I know that that’s what it is. I prefer to just say I wish everyone the best I do my show here for 5 to 10 minutes per day. And that’s how I contribute and give back to the community. But that’s as far as I’m willing to go. Anything else or any deep dive that you want me to do, that’s going to require more of my time. And that means we’re going to have to have some type of exchange of value. That’s only fair. So I have boundaries as to what I’m willing to do. You know? So that’s my take on the isolation. If you feel nervous or insecure about what it is that you’re doing for one, don’t do any trading because the market will only amplify whatever feeling it is that you don’t want to feel.

So get clear about what that feeling is and what it’s trying to teach you. Because I can assure you going to some chat or some morning group or this and that. That’s not going to allay any of your emotional issues. I’ve said a thousand times before, there are no external solutions to your internal problems. So you might as well start working on those by yourself. And so going back to the Tribe – a group of us decided to meet on every other Thursday at 7:00 PM in Incline Village, in the north shore Lake Tahoe, to work together as a group to explore those feelings that we couldn’t quite understand where they came from, but we certainly knew that they were recurring so that we could get to the bottom of it, trade better, but also live better lives.

So I appreciate the write in. I’m glad we could get clear on that.

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Controlling your environment

So another thing that you might find and this is kind of and interesting way to look at the world…you might have the TV on in the background. You might have it on and muted. And even though it’s subtle, that could be affecting your psychology, especially if you’re trying to stay up on the news, because that’s really like a “current events” kind of outlook on things. I don’t know, especially if you’re a chart reader or a technical trader, or if you’re purely systematized knowing the news might be interesting for when you meet folks for drinks after work have cocktails or if you have some insight that you’re sharing on social media, but I don’t necessarily know that it helps you trade.

And two, there seems to be the very negative overhang on things – there’s the Russian/Ukraine thing. Then there’s China, Taiwan. Then there’s all the stuff with former president Trump and then the midterm elections and then the Fed and inflation and find me a positive story. So if you’re feeling a little blue, turn off the TV, because there’s never really positive news, it’s always like how somebody is struggling, how the world is struggling, how a certain class of people are struggling. And then there’s all the trash talk between various parties like that doesn’t help you spiritually. It’s a type of emotional cancer, so I would get rid of it. And if you know, you’re a financial advisor sitting at a wirehouse, you don’t really need to know things up to the minute, right up to the second because you’re buy & hold. It’s not like you’re going to be making big trades.

You see? And so if your fee for service that’s just the way it works. I think you kind of talk yourself into thinking like, “well, I need to be cutting edge. I need to have all this information” when the reality is, is that you really don’t right? You kind of talk yourself into thinking that you’re more busy than you actually are, because for that business you’re getting paid regardless of what goes on in the market. And if you’re telling these people that they can’t time the market and you have to buy and hold, then whatever really happens during the day on any particular day is irrelevant because you’re not trying to time the market and you’re going to buy and hold.

And if you position size yourself – okay what are those money management programs? Usually buy like 30 to 33 names at about 3% a pop. So if one gets smashed by 50% the portfolio’s down 1.5% per day. If you’re doing that with a certain manager who has a specific style, like a Kathy Wood / Ark kind of a deal, but also in one of those fee for service things, and they’re loaded up in tech. Yeah. They could be blasted. But that was your choice to put that in the asset allocation model. The point of talking about all of this is that you can free up a lot of time and rejigger your day, and also put yourself in a much better move mood, because you’re not letting the negativity, encroach where your boundary is. And that’s why I never put the TV on because there’s nothing that they’re going to say. There’s nothing Melissa Lee can teach me about trading. And there’s nothing that’s that urgent that I’m going to hear on the TV.

There’s nothing that the folks at Fast Money are going to teach me. There’s nothing Jim Cramer is going to teach me because again, the best teacher for what you’re trying to do is you. So you get caught up into this thing because you see everybody else doing. It was like, oh I need a TV. I need a TV in, in my office. And my whole take on all of that is you can kill an enormous amount of time every day. And if you add that up every week, every month, every year, yeah. Do that too. Take a look at how much time the TV is on and if you’re paying attention to it. Because we only have so much time on planet earth and sitting around listening to the TV and people blathering on about the economy. What a waste of time – it doesn’t help you with your job.

It doesn’t help you. Your clients don’t understand it unless your client is Muhammad El Erian. You know what I mean? Or Larry Summer, so save yourself all of that, put on Netflix, watch a movie or put on you know, Spotify listen to some good music or go to Preply.com and study a foreign language, do something that’s progressive. That’s going to help you grow. So when you’re doing your time blocking, I guess tomorrow of today’s story is I don’t think you need to stay up on current events the way you think you do. And if you spend your day watching the TV, feeding your brain with the current events, very, very little of that is going to change how you handle client funds. And if the rare time that someone might pick up the phone and , ask you about it, it’s okay.

If you have to look it up on the on the spot because you don’t need to have the answers for that kind of stuff. When the clients can go look it up and see it on Twitter, which is what I would coach them to do. If you have any questions, don’t call me, I’ll call you if there’s anything material. So you coach them on how, how you want them to behave.

Folks, it just helps you understand where you’re spending your time and where you’re putting in your effort. Knowing things like current events doesn’t really seem to help people in managing their business. Neither as traders, nor as financial advisors who are doing fee for service style business. And before if you’re a trader and you trade off the news before you call and say, well, I totally disagree because that’s how I do it. You can program the computer to search for certain keywords so that you can take yourself out of that equation.

It might not be as much fun for you, but you can still delegate that to the machine, which is much more efficient and much more fast in terms of understanding and executing that style of trading.

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Net profit divided by time

So I got an email from someone who said, “Hey Michael I don’t know whether I’m spinning my wheels. How can you please help me to become more efficient in my day and help me know if I’m wasting my time or not.”

That is the big question because we have to be effective and efficient as managers, not as portfolio managers, but just as managers who have to create a surplus in an effective and an efficient manner. So that talks again about Pareto Efficiency and how much work are you putting in to get the results that you’re getting, or how much work and time are you putting in for the results that you want to get, but you’re not getting. If we work one on one, we would just have a conversation and you explain your process to me at the beginning and of I’d give you some feedback.

I’d do a lot of listening. You can’t really talk over people. There’s no point in doing that. So I do a lot of listening, ask some good questions and, and then I ask some solid follow up questions that might get you thinking in ways that you hadn’t thought before. And it’s not, not to sound like a jerk, but I can’t be bullsh*tted. You know, if there’s one culture of people that I know on planet earth, it’s traders. So, but, but it’s not like this, David Goggins “Be hard motherf*cker!” It’s not that, it’s like two people having a conversation. The slogans sound great for marketing: “Get some!” and they’re slogans. But it’s not, it’s not a good bedside manner to work with somebody.

A good homework assignment that you could do on your, on your own is this: if you’re not already time blocking your day, write down like you would with your food, like your daily diet what do you eat? And, and at what time what’s the quantity. You might also be concerned with how much money you spend on food, also, including snacks in the afternoon scone with your mocha frappuccino or whatever it is you’re into and take a diet of your day in terms of where you’re spending your time. You know, 5:00 AM to 6:00 AM. I’m doing this thing from six to eight. I’m working on getting my orders filled, blah, blah, blah. And just right out the day in the time block of how much time you’re spending on each thing, then what I would do is I’d go back and I’d think on a few levels, I think practically and I’d think emotionally. So the practical part is what, or how can you measure the effectiveness of that particular segment of time in the day? How is that serving you as it relates to your P&L? So this is a little bit of a brutal honesty kind of deal.

The other thing is go back and take a look at all the things that you’re doing. And since human beings are emotional beings by definition, and we’re all supposed to be pleasure seekers, even if you’re into BDSM or masochistic things look and diagnose during the day, what are you doing that actually makes you feel good? What are the feelings that you have attached to those same items? So that this way, by the time that you’re done, you can see this is what I think it’s adding up to or not. And this is the feeling that I get. What you want to do is have basically good feelings about the things that add up to your P&L. Now, if you can’t ascertain whether a particular task adds up or not try removing it or decreasing the amount of time that you do it, because those we talk about routines and rituals.

There are some things that you might be spending an awful lot of time on during the day that feel good, but might not necessarily add up to helping you become more profitable, which means perhaps better research, better trading tactics, better execution, more frequent winners or than losers or winners that are many multiples, more than what your losers are currently. That type of a thing, because you can only get better when you start to measure things. Because what gets measured can become improved. And that’s a good exercise to do on, on your own every day. Then you look at the week and say, okay, what did I do on Monday? What did I do on Tuesday? How do I put these together? Because what you’re going to find is that you have an emotional system that you’re running and a lot of it might be this busy work that makes you look and feel like a trader.

But at the end of the days, trader traders have to make money. Or they have to follow at least a set of rules or a systematized set of rules or a chart reading pattern with which they’re compatible to eventually create net income with rules that have a positive, expected value. So that’s a really good start. You could do that on your own and of course, if you’re, if you want professional help or whatever, then reach out. But that part I think you could do on your own for sure. And that’d be very, very insightful exercise to do.

Next, add up all your profits (or losses) and divide them by the amount of hours you’ve put in. Include research, reviewing charts, watching tv, and executing trades. That’s your hourly wage.

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