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Monday, 24 June 2013

10,000 hours, 10 years, 10,000 trades

10,000 hours

A common theme that appears in Malcolm Gladwell's book - Outliers: The Story of Success - is this "10,000-Hour Rule".
 
We know it kind of intuitively don't we?

Hardcore gaming friends that that play Starcraft and CounterStrike day and night will beat the pants off us casual gamers.

The same it goes with billiards (here's looking at you coconut) or mahjong (and all you tai-tais out there).


Curiously, when it comes to investing or trading, retail investors and traders seem to suffer from the Lake Wobegon effect - we overestimate our abilities and underestimate the time and effort needed to learn our craft.


10 years

For a part-time retail investor, 10 years would be about right. 

Within this time frame, if we are lucky, we would have experienced 1 or 2 bull/bear cycles.

A lot of ideas, plans, strategies, tactics - learned from books, seminars, courses, etc - did we implement them?

Did we jump in with glee during the lows of 2003 and 2009? What happened to buy when there's blood on the street? Not so easy when some of the blood is ours! No?

Some say they are waiting to scoop bargains if STI goes to 2700 during this current phase of correction. 

Eh... If 2700 is "good value", did the same "investors" take some money off the table when STI was above 3400 last month during May 2013? How about anytime during year 2007?

The mistakes and lessons I've learned from the crash of year 2000 to 2003 and the subsequent bull market from 2003 to 2007 were very enlightening.

Most of it was an understanding of myself - my own temperament, my TRUE pain threshold, and my own emotions.

Whether I am more comfortable with "go with the trend" or am I suitable for contrarian plays.

Whether I am more a value (buy low; sell high), or whether I am more a growth (buy high; sell higher) investor. 

Some buy at 52 week lows; some buy at 52 week highs. Where I prefer to buy that's more important!!!

I've experienced euphoria and I've experienced capitulation. Now these emotions come in handy when I monitor market sentiments!

I guess I am now more discerning what I read and learn. I focus on what fits me. Must filter! Less on which guru said this or that. I make a real effort to listen to my own inner voice.  

But I guess that's normal. Like a singer, most of us start by emulating others; with the passage of time, we realise we need to develop our own voice if we want to be successful. 


10,000 trades

For retail traders, I think we are luckier in a morbid sense.

We get to learn about ourselves a lot quicker!

Most will get washed-out within 6 months. We quickly realise we don't have the temperament or mental strength to handle making multiple trades in succession.

Some have problem squeezing the trigger. Some cannot take the emotional upheavals, some just have unrealistic expectations on themselves or on the markets.

It's not that trading is "harder" than investing. It's just a simple phenomenon that in 6 months, we probably make more trades than an investor in 2 to 3 years!?

But once we survived our first 2 years, I guess we're on your way towards our first 10,000 trades and the resulting epiphany - on who we are as a trader, and our position in the market.

I've not reached my first 10,000 trades yet; but I am so looking forward towards it. I just hope my futures account will be a significant stake then to profit from my then epiphany!

Meanwhile, I just plod along on my tiny futures account (what I can afford to lose) and focus on discovering more about myself and the markets along the way.

And another "advantage" for trading is that we can try out different strategies and setups with quicker market feedback. For an investor, the feedback could be 5 or 10 years later when they belatedly discover a flavour of the decade investing style may not work... Ouch!




  



36 comments:

  1. hahaha, in a battle field, you don't go and look who's blood is who's. ofcos you are going to bleed too.

    important thing is continue killing and try to survive.

    ReplyDelete
    Replies
    1. coconut,

      What you say is true.

      If we can live till tomorrow, there is hope.

      Tomorrow is another brand new day!

      Delete
    2. wow! this is really a nightmare for many.

      Delete
    3. Have a nightmare? Go do some riding at night. ;)

      Delete
  2. Hi SMOL

    I am bleeding now.

    For me, I tried to stay invested during this downturn. I even added a couple. Looks like I get to hold my cashflow tighter, otherwise I am just catching a knife fall.

    One thing that I remember I have reached 10,000 of hours is work. Sigh. But great article you hv there ;)

    ReplyDelete
    Replies
    1. B,

      Thanks!

      No, you are not bleeding; just some small paper cuts. Whether they remain as paper cuts or you let your wound turn gangrene will depend entirely on what you do/or not do next.

      You've made a few great prescient moves during April and May by taking some money off the table!

      Just compare the prices you sold and the prices today. Whether it's pure dumb luck or some indicators you used you know yourself ;)

      Celebrate and give yourself a pat on the back. We need to cheer ourselves on the things we do right!

      As for whether your recent buys is catching a falling knife or a successful buy the dip trade, only time will tell.

      Whatever happens, the real life experiences you are acquiring now will be useful going forward in your journey ;)

      For me, I am sweating bullets trying to figure out whether this is a plain vanilla 20% bear market or the start of the more serious 40-50% meltdown. If it's a meltdown, how I wish I've sold more counters like what you have done in May!

      Delete
    2. How to figure out if it is a plain vanilla bear market?

      I rather eat my vanilla ice cream before it starts melting. ;p

      In the meantime, have our war chests on standby.

      Delete
    3. hear that? please learn from this young master. he is now my personal guru haha, only for bear market....

      Delete
    4. Hey AK!

      You've got a new fanboy :)

      Yes, agree cannot stare at ice-cream too long - least they melt away. You got deeper pockets, if ice cream drop to floor can use magic war chest to buy another ice cream, and another one, and another one.

      I limited company. LOL!

      Delete
    5. coconut,

      You are hard to figure out...

      So bull market you are trader.

      Bear market you are investor?

      Hmm... A trade turned into long term investment? Nah! Cannot be! That's newbie mistakes I used to make a lot ;)

      Delete
    6. i'm still not interested being a investor at this level, got to be a lot cheaper.

      when does my trades turn into investing? when do i ever being an investor? the longest i hold my stocks were less then 3 years, that is not investing.

      i just went short the s&p haha...

      Delete
    7. look, i always a trader bull or bear, but there will be a time were no body interested in stocks, everyone is selling at a big discount, only then i might be interested in buying some for keeps hopefully.

      i'm just getting myself ready mentally if its comes. in that kind of extreme condition, trader and investment (for stocks only) strategy comes into one.

      Delete
    8. Oh! Then you must have been sleeping during 2009 ;)

      Just joking!

      1997, 2009, the next big one is anyone's guess.

      This recent correction I don't think it's the big one. But then, that's what a lot of professionals thought in 2008 too - they believed Bernanke when the Fed says sub-prime was "under control".

      That's the beauty of experience. We either learn from them or repeat the same thing over and over again...

      Delete
    9. knowing yourself is one important thing, but without a good strategy in trading and investing will only cost you money. a strategy that does not involve in any predictions.

      Delete
    10. what AK is saying is nobody knows where the market is going and how low it will go! i seconded that opinion even as a trader.

      you don't go and listen here and there what the f*** bernake is saying cos he also has no bloody clue.

      you just need to know what you will be doing if market go here and go there!

      Delete
    11. i have a bro who is new in investing, he is all in reits bot during 08 crises.

      every week, especially these few weeks, i keep telling him, "don't sell, don't sell you hear me!"

      once you sold you will lost your position and all the dividends he will be collecting in the futures!

      this is very very fundalmental you know.

      Delete
    12. coconut,

      With 20/20 hindsight, I would have sold and bought back the REITs at lower prices.

      Having said that, 2008/09 was a great period for us to study which REITs to buy and avoid. Some nearly died; some changed management; some issued 1000 and 1 share placements that either dilute you to hell or make you cough up all your previous dividends...

      Once we take the time to study this homework ourselves, we never have to depend on others again ;)

      A sounding board and an echo chamber are two different thing.

      Delete
    13. Archoooo....

      Sniff, sniff....

      I used to think I had a crystal ball... Then, one day, I asked why crystal ball had a few holes. Oh, I had a bowling ball! My mistake. :(

      Delete
    14. Bless you!

      You too?

      My crystal ball turned out to be marbles...

      Eh? By stuffing my marbles in the holes of your bowling ball, we can pretend it's a palantir in Lord of the Rings? Cool or what?

      I really admire your patience in answering "eyes-roll" questions like - Is this stock good? Can buy at this price?

      You have already selflessly explained and shared your thought processes and investment techniques in your old previous posts. If only they bother to research your old posts...

      Freeloaders just want quickie handouts. Take no responsibility for their own decisions.

      Admirers honour you by actually reading and digesting what you say. Asking clarifying questions, where needed.

      I am cheerleader everyone should be their own shepherd.

      Apologies. I am damaged by my previous life as facilitator and coach for leadership training. LOL!

      Delete
    15. What is there to free load or admire? People are better off loading up on free flow of soft drinks at Carl's Junior or admiring the strong physiques of our national swimmers.

      If I were so amazing, "I would have sold and bought back the REITs at lower prices." ;p

      I get the chills whenever people call me sifu, guru or mentor. All those words generate visions of responsibility which I don't want any of.

      At least you know why you are and how you were damaged. I have no idea how I became what I am. :(

      Delete
    16. AK,

      You are getting good with humour! I like!

      No worries. Over here, I'll only call you:

      Eh!

      Yan eh!

      Oi!

      Bro!

      I'll never never call you uncle even if you just hit 40!

      Promise!

      You the man ;)

      Delete
    17. Eh, worry? Sigh... Cham... How?

      "Yan eh" si simi? I know "yaneh" means "elephant" in Tamil.

      Oi, I always good with humour one hor. You never notice only.

      Bro, I hitted 40 in 2011. -.-"

      Delete
    18. AK,

      Yan eh is hokkien for handsome ;)

      Sigh... 10 years ago, go Sim Lim they call me yan eh here, yan eh there, now it's uncle what you want?

      :(

      Delete
    19. Yan eh, bo tao moh is ok de. Cool (in more ways than one). Yantastic!

      On this happy note, 88. ;p

      Delete
  3. Over the years I've come to realise that the greatest challenge in life is knowing our true self. Even outside the trading that you mention, knowing one's emotions, temperament & threshold for pain is so important - you are spot on!

    ReplyDelete
    Replies
    1. plumerainbow,

      Yes, we often try to be what we think others expect of us...

      We seek approval and acceptance.

      Soon we forget what we really wanted for ourselves and who we are.

      I love travelling alone as it forces me to figure things out on my own. To hear my own thoughts without the pollution of well meaning "advice".



      Delete
    2. "if you not sure what you are doing, its better not to do it".

      is this an advise?

      or, "i'm not sure what lies ahead, looks gangerous, but anyhow, i'm a man, i will see what it is".

      self relisation?

      Delete
    3. true advanturers are not afraid of dying, true risk taker are not afraid of losing, are you one of them?

      Delete
    4. add another short, wah very long wait haha.

      Delete
    5. coconut,

      I admire the adventurers during the 19th and early 20th century. They are the Indianna Jones of their times.

      Many have fallen due to disease and accidents. Even today, people still die climbing Mt Everest.

      I've experienced capitulation and account melt-down after the Nasdaq crash. I have no desire to "lose" like that again.

      I limit myself to paper cuts nowadays. I particularly like the Trend Follower's risk management discipline.

      Something I apply to my core holdings.

      Discipline in cutting losses was not easy... It's like saying we want to lose weight or quit smoking; and then we RATIONALISE the exceptions.

      Delete
    6. apparently what you are doing is trading, not investing.

      once bitten twice shy, and forever you will not even think about it, yet alone doing it. that experience will block you from making big money which is essential for long term survival.

      no methods are right or wrong, be it contrarian or trend follow, what is wrong is the money/risk management where rarely i see traders talk about.

      all they talk about are their trades, their wins and occasionally their losses. these are not essential.

      Delete
    7. oh ya, i covered my S&P shorts with a small profit since i'm able to add some shorts this morning, market had rebounce nicely.

      Delete
    8. coconut,

      I never called myself an investor. You think why I met you at Fat's blog?

      I am a equities man whore:

      http://singaporemanofleisure.blogspot.sg/2011/07/i-am-equities-man-whore.html

      Glad you did not lose money. You are indeed quick to reverse your positions when the market turns :)

      Delete
    9. guess why i'm still here at this hour? i went short again! otherwise tomorrow got more work to do haha..

      Delete
    10. ok it breaks, hopefiully all the way down this time. i put a stop and can go and sleep.

      Delete

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