Are great traders born or made?
That is a question that gets asked of many guests on one of my favorite podcasts The Market Huddle. (It does not have the same following as The Compound, but it’s must listen each weekend, at least for me. I highly recommend both.)
Responses always vary but each interviewee defends their position. A similar question I see in the “industry” is if you are a trader or investor and more importantly: can you be both?
Opinions differ but I think the majority will tell you the two cannot reside together. It’s UK or UofL. It’s Ohio State or Michigan. It’s Purdue or Indiana. It’s UNC or Duke. You have to commit one way or the other, left or right, there is no middle.
In sports (and politics) I would agree. You are either all in, Red or Blue, you decide, but no straddling said fence my friend.
My personal opinion on Trader vs. Investor: You can absolutely be both.
There was a recent article in the journal that detailed the exploits of a pandemic era day trader who made 1.5 million and lost it all in the market and betting on sports. He was also renting “Lambos” on the Vegas strip and posting tiktok videos on the antics (of course!).
Today he works in a deli outside Vegas making $14/hour and is broke. Starting from zero.
I can see how it can happen, once the “invincibility” kicks in of seeing your account in 7 figures. I’m sure he always “knew he could recover” and “knew all he had to do was make it back” after any losses.
Whether you consider yourself a trader, an investor, or both, mental discipline is more important than any investment decision you will ever make. If your mind isn’t right and if you don’t put in the work to keep it right, you will fail.
Which brings me back to the question. Can you be both? Yes, if you are mentally strong enough to manage the two.
The investor is focused on the future. Decisions made today are made so that future self is in better shape financially and has options, flexibility and stability.
The trader is focused solely on profit. Decisions made today are made so that real self is in better shape financially and has options, flexibility and stability.
I think the lure of the present, the bird in the hand is often too strong for many to overcome. They lose sight beyond their Robinhood account balance and don’t realize they are just asleep at the wheel and not making any true deposits on their future.
Efficient market hypothesis states that market prices reflect any and all information available at this given moment in time. Well, I hate to break it to you, but the mirror reflects any and all decisions you have personally made up to this given moment in time.
Mirrors don’t lie.
Investing is the foundation and frame of the house. You get those two things right, the rest takes care of itself and the bricks and mortar fill in quite nicely. Before you know it, you are safe, warm and comfortable inside your largest asset.
Trading is a walk to the mailbox. You leave the house, for a very short time, and you either return with mail or you return with nothing. You don’t stay gone long, you don’t go when it’s raining and you take the same path every time you do venture outside.
Everyone needs a home to return to.
So…if you fancy yourself a trader, just remember risk management is priority #1. Let winners run, keep your losses (very) small and always protect your capital. If you are trading without a plan, you might as well save yourself the trouble and just hit the casino for quick thrills.
For the majority, the investor only mentality is best. If you go it alone without a pro, just stay diversified and most importantly keep adding on a consistent timetable. If you are willing to read and learn along the way even better, a little knowledge of “the process” will go a long way.
Looking back I guess if I had invested in a single index fund each month to the max in all my accounts and never changed a thing, never read a thing, I would probably be even better off financially.
The trade off would be 20+ years of financial obliviousness I suppose…
Oh…and not nearly as much fun 😉.
Have a good weekend.
The Finance Stance 