Throw Yourself Into the Game

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  • on February 11th, 2011

I caught up with some reading this week, and loved this Inc. magazine article discussing the techniques used by successful entrepreneurs.  Not only did I take comfort in how weird we as business owners think, I thought the ideas translated right into how we think as traders.  Consider the following assessment:

“Master entrepreneurs rely on what she calls effectual reasoning. Brilliant improvisers, the entrepreneurs don’t start out with concrete goals. Instead, they constantly assess how to use their personal strengths and whatever resources they have at hand to develop goals on the fly, while creatively reacting to contingencies. By contrast, corporate executives—those in the study group were also enormously successful in their chosen field—use causal reasoning. They set a goal and diligently seek the best ways to achieve it.”

Precisely what is required to improve as a trader. Set all the money goals you want, but the early years of trading are about revealing weaknesses and finding strengths we can maximize.  Eventually, a point is reached where dollar results can be assessed, but the distribution of results is so wide as we hone our process that rigid money goals make little sense.

Then there’s this gem of a visual that easily describes the chaos we face in tackling markets:

“Sarasvathy likes to compare expert entrepreneurs to Iron Chefs: at their best when presented with an assortment of motley ingredients and challenged to whip up whatever dish expediency and imagination suggest. Corporate leaders, by contrast, decide they are going to make Swedish meatballs. They then proceed to shop, measure, mix, and cook Swedish meatballs in the most efficient, cost-effective manner possible.”

This brilliantly conveys the “trade the market you see, not the one you want” maxim we often hear.  We may have the greatest strategy known to man, but imposing it onto an unwilling market is a recipe for disaster…this is where the difference between theory and practice is magnified.

Finally, just get after it.  To me, a month of live trading means way more than years of backtesting.  It obviously depends on the timeframe of your ideas, but like Charles Kirk told Tadas Viskanta here “if you don’t know your system’s flaws, you just haven’t found them yet.”  Use small positions and stop losses, and go figure out the flaws that need tweaking.

“Ultimately, the best test of any product is to go to your target market and pretend like it’s a real business. You’ll find out soon enough if it is or not. You have to take some risks. You can sit and analyze these different markets forever and ever and ever, and you’d get all these wonderful answers, and they still may be wrong.”

In my 15 years of trading and investing, I traveled the entire path from gunslinger to deep evaluator to robotic executor…then took a few steps back toward gunslinger.  Having a good mentor would probably have cut this path from 15 years to 5, so I’m a little envious of new entrants and the access to help that now exists.  But there’s no substitute for leaving the comfort of theory and stepping into the real world to find out whether we’re crazy enough to make our ideas work.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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