Today, I plan to share the investment insights Benjamin Graham, Warren Buffet’s mentor, gleane...
Learning to Enjoy the Obstacles
01/09/2009 11:52 am EST
In any endeavor in life, you have up and down periods. Dealing with the market has many such up and down periods. In order to profit from the up periods, you have to tolerate, or even "enjoy" the down periods. In order to enjoy the profits, you have to go through losses. And perhaps if would be useful if you could actually celebrate your losses.
I'm an NLP modeler. That means if someone does something well, I can figure out the essence of what they are doing by understanding their thinking. Thus, when such a person goes from A to B easily and effortlessly, I can determine how they do it and teach that skill to other people. Some people make money through trading easily and effortlessly, and I've been studying those people for 25 years.
It turns out that one of the major problems people have in going from their current location to their desired goal is all of the walls or obstacles they continually run into each day. There is a common solution to these obstacles: Make them okay. Don't worry about getting from point A to B; just enjoy bumping into the walls.
If you're in the market, one of biggest obstacles you'll face is the wall of losses. It's fairly difficult dealing with the markets if you are not willing to lose. It's almost impossible. It's like wanting to be alive, but always wanting to breathe in and not willing to breathe out. It's like walking, but only wanting to use your left foot and avoid your right foot. Neither works, nor does trading without losses.
When you want to be right, you're not dealing with the obstacles. Instead, you're forcing things. When you want to make a profit out of today's trade, even though it's a big loser, then you're not dealing with today's obstacle. Enjoy the obstacle-embrace it-and be willing to accept it. If the market tells you it's time to get out at a loss, then do so.
I've already told you that good traders typically have some point in the markets in which they know they must get out of a position in order to preserve their capital. Taking this loss is essential. It preserves your capital, so enjoy doing it.
However, if you don't understand that the loss has nothing to do with being right or wrong, it's just part of the process, then you could turn it into a monster. What then happens is that you fight with each loss, and in the struggle, they typically get bigger. For example, if you are afraid of a $500 loss and won't take it, then you could easily watch it become a $1000 loss. The $1,000 loss, when not taken, can easily become a $2,000 loss. And the net result is a losing trading system.
Think about it, if you have this problem with losses, you could easily turn a good trading system into a losing one. And if you don't realize that it's your problem with losses, then it might become the trading system's problem. Or, if you are following someone's advice, then it might become your advisor's problem, or your money manager's problem.
And guess what? Quite often, traders take the relationship they are having with the market and transmute it by developing a different system or by trading with a professional money manager. Now, the old struggle they used to have with the market-of not accepting what the market gives them-becomes a similar struggle they are having with their system or with their new advisor. Instead of giving up on the market after a string of losses, just in time to miss the really big move, they avoid their system until it is doing really well. When it is showing tremendous profits, they jump on board, only to be blown away by the market. And the same thing happens when they invest with money managers. This desire to be "right" motivates them to jump to the top money manager when he's hot, only to go through a big string of losses. It's all the same thing.
Psychologically, if you don't come to grips with your obstacles and embrace them, you will simply find another way to repeat them. Realize that the walls occur because they are there for you to bump into. When you accept this fact and embrace it, you'll accept bumping into walls. And strangely enough, you'll hardly even notice that the walls are there. The result will be a new level of success in the markets.
Good traders realize that they can easily have 10 to 20 losses in a row. It's just part of the business of trading. It happens. So just accept it and move on. And if you have trouble accepting it, then you need to realize that the problem is you and deal with that. But, of course, that's another topic.
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