Moneymunch.com

I thought I’d share a few thoughts today, kind of a “what I’ve learned in the past 10 years” post. This list was refined and crystallized by the process of writing the book, but this list was also a major reason why I wrote it in the first place. I saw so many people struggling, and witnessed so many abuses in so many forums, that I wanted to try to put down the lessons and truths I had found in a concrete format. True, there is no one way to trade, and many different approaches can be successful in the market, so long as they are aligned with some fundamental truths. These are some of those fundamental and undeniable truths, as I have come to understand them over the course of my trading career:

• Most of the time, markets are very close to efficient (in the academic sense of the word.) This means that most of the time, price movement is random and we have no reason, from a technical perspective, to be involved in those markets.
• There are, however, repeatable patterns in prices. This is the good news; it means we can make money using technical tools to trade.
• The biases and statistical edges provided by these patterns are very, very small. This is the bad news; it means that it is exceedingly difficult to make money trading. We must be able to identify those points where markets are something a little “less than random” and where there might be a statistical edge present, and then put on trades in very competitive markets.
• Technical trading is nothing more than a statistical game. The parallels to gambling and other games of chance are very, very close. A technical trader simply identifies the patterns where an edge might be present, takes the correct position at the correct time, and manages the risk in the trade. This is, of course, a very simplified summary of the trading process, but it is useful to see things from this perspective. This is the essence of trading: find the pattern, put on the trade, manage the risk, and take profits.
• Because all we are doing is playing the small edges as they occur in the markets, it is important to be utterly consistent in every aspect of our trading. Many markets have gotten harder (i.e. more efficient, more of the time) over the past decade and things that once worked no longer work. Iron discipline is a key component of successful trading. If you are not disciplined every time, every moment of your interaction with the market, do not say you are disciplined.
• It is possible to trade effectively as a purely systematic trader or as a discretionary trader, but the more discretion is involved the more the trader himself is a key part of the trading process. It can be very difficult to sort out performance issues that are caused by markets, by natural statistical fluctuations, by the trading system not working, or by the trader himself.
• There is still a tremendous bias in many circles toward fundamental analysis and against technical analysis. The fundamentalists have a facile argument because it is easy to point to patterns on charts, say they are absurd, and point out that markets are actually driven by supply, demand and fundamental factors—the very elements that fundamental analysis deals with directly. However, many times the element of art involved in fundamental analysis is overlooked. How much does your valuation change if your discount rate is off by a percentage point? How dependent is your model on your assessment of some manager’s CapEx decisions in year 4? Do you really have a good sense of how the company’s competitive position will evolve with the industry over the next decade? Does everyone else? There’s a lot more “wiggle room” in fundamentals than most people realize.
• One advantage of technical trading is that, done properly, it clearly identifies supply/demand imbalances from their effect on prices. This is a form of look-back analysis, but good technical tools force you to deal with the reality of what is happening right now. There is no equivocation, wishing, or emotional involvement in solid technical trading. The best risk management tools are technical, or are based on patterns in prices themselves.
• Most people (and funds) who try to trade will not be successful, and I believe this is because most of them are simply trying to do things that do not work. Taking a good, hard look at your tools, methods, and approach can be scary, but there is no other way to find enduring success in the market.

The problem: A lot of people come to ask you although not necessary. A problem that usually only a few people in a company have – but these few know it very well: They are known to have good knowledge in a lot of areas or have good knowledge about the company and it’s organization or environment. And so they get asked often and therefore get interrupted very often in their main work.

What often surprises most is that a lot of answers could have been easily found online (Google, Wikipedia, company intranet sites, e-mail in-boxes or archives and so on).

The reason: You are the most efficient way to solve their problems. When they look up the information somewhere else they have to think more and it takes longer. And maybe they at first have to think first where to look up (first). As they usually know already your phone extension or have their chair next to you it is the easiest, fastest, most efficient – and maybe also most reliable way to ask you.

Although this might be part of your daily job and might be a good motivation being such an esteemed person it may grow to a level where you cannot do your main job efficiently because you have too many other “little problems” to solve or “little questions” to answer.

The solution: Let them wait. If you let them wait a little for answers you are not the most efficient way for those little questions and problems that interrupt you more often. When they have to wait they will maybe “in the meantime” get an idea where to look up the information themselves getting there solution faster. – And the problem get solved without you.

If there are questions coming often not so easy to look up for them then write a documentation and publish it (on the internet or intranet or some wherever your company usually stores such information). When these questions come again you simply tell them to look it up. If your standard answer is “Look it up in our repository” it is even less attractive for them to call you because they could have looked up immediately without calling you.

HEARING uses just the  ears

We HEAR a lot of “stuff;” everything from the traffic going by our windows at night to the sound of a baby laughing in the park, to the radio in our car when we drive to work. However, we do not always LISTEN.

Most sounds do not require that we listen; therefore we don’t. However, if you’re dealing with someone that matters to you (whether that’s a co-worker, client, or life-partner), you want to make sure you LISTEN, not just HEAR. It’s important to remember, that unlike hearing, listening is a two-way process.

To listen well, here are a few techniques:

• Notice the feelings, do not get stuck on the words
• Make eye contact (without staring and becoming “creepy”)
• Adopt an open posture
• Confirm what you think was said
• Ignore distractions
• When it’s your turn to talk, slow down and speak calmly
• Speak in small chunks and make sure to pause
• Ask for feedback and acknowledge it when you get it.

Listening well is an undervalued skill. Learn it and watch how many fewer conflicts you get into and how much happier you are.