Validea is an advisory service which assesses stocks based on the investing criteria of many of the ...
Focus on the Method, Not the Money
07/15/2011 10:18 am EST
Profit/loss ratio (P&L) should not be a trader’s primary focus, says Michael Bellafiore, co-founder of SMB Capital. He strongly believes that traders should be fixated instead on their methods and embrace the journey that they are on while striving to become an elite performer.
We all get in to trading because we want to make money. We may want to make a living doing this, but should money be the focus of your trading success?
Our guest today is Mike Bellafiore, the author of One Good Trade, to talk about that.
Mike, you’re a big proponent of the fact that money should not be the primary focus of a trader, and yet that P&L is our measure of success, isn’t it?
No, absolutely not. I know we’re good friends, so I actually can give you a hard time about that, and you probably were playing somebody—you being devil’s advocate—but the object of trading is to find out how good you can be at something that’s important to you.
It’s really about being an elite performer in this game that we call trading, and that’s the real reward, that you have the confidence and you understand that you have the knowledge to be able to become good at anything.
For instance, if you want to be a better brother, you have the skills to be able to do that. If you want to be a better husband, you have the skills to be able to do that. That’s the real reward other than money.
I think if you don’t get into trading to embrace the idea that I am an elite performer, I am trying to do something like play center field for the New York Yankees, or create a new country hit, or become the best classical musician, then you’re not going to actually ever make money as a trader if you don’t embrace those principles of being the best you possibly can.
What is it about the focus on the money itself that keeps people from reaching that potential as great, elite traders?
It’s just not what elite performers think about. We were talking about this a little bit before. Phil Mickelson is a really great example of that.
There are so many things that happen during a particular day that you can embrace as a trader, and you should learn to embrace them.
You should learn to embrace coming in and preparing for the open. There’s a lot of value in that.
You should embrace the people who sit around you, the friendships you create with them, the banter that goes back and forth.
You should embrace watching your film back; you should embrace a trade gone well; you should embrace journaling that trade; you should embrace the terrific lunch that somebody makes for you.
You should embrace your workout. Are you trying to get physically fit; are you benching more?
There are so many things during the day that can bring you joy and value, and that’s what trading really pinpoints.
Interview Continues on Page 2|pagebreak|
I wrote a blog recently about how…it was a really interesting blog, it was one of the blogs that really got the most attention of anything that I had written, and I asked is there something about yourself that you need to improve to become a better trader? I got a great response.
Really, the truly difficult challenge of trading is that a lot of times we’ve got to fix things about ourselves first. Are we patient enough, is there something that doesn’t allow us to hold winners long enough. There’s something inside of us that we’ve got to work out to become better.
So if I’m following my rules, I’m following my trading plan, and I don’t have a great day—maybe I’ve lost money for the day—are you saying that as long as I keep that focus on doing those good trades, the money will follow?
Yes, that’s why we wrote the book One Good Trade. You make one good trade, and then one good trade, and then one good trade.
Again, this is a journey that is a test of how good of a person you can be. It’s a very, very difficult test. There are a lot of things to enjoy along the day other than how much money you make.
You’re pretty holistic about the trading and there’s something about it that’s a little bit different than we expect of Wall Street.
How did this come about; how did you get to this point where you thought there is more to this than just P&L at the end of the day?
Because I’ve seen a lot of traders and I’ve seen the ones that do very well. I understand their mindset.
A lot of them are triathletes outside of work. A lot of them are in perfect condition. A lot of them can tell you everything you possibly would want to know about sailing. A lot of them have interests like movie making and they’re doing this on the side.
They’re elite performers. Traders are elite performers, period. They have actually mastered themselves. It just carries over to making money.
Related Articles on STRATEGIES
The Roman philosopher Seneca wasn’t talking about the stock market when he wrote that “T...
The Dow Theory was originally referred to as “Dow’s Theory,” since it was based on...
When stocks are selling at valuation extremes and consumer optimism is at one of the highest levels ...