One of the blogs I read regularly is Seth Godin’s Blog, Seth often talks about what is changing in business and the world (another good blog in the same vein is Umair Haque’s blog).
In a post today, Seth talks about how business has become like a race. The race is speeding up, so that means that less and less of the information on which you base your decisions will be reliable. In short, the uncertainty of the decisions in business is rising.
Seth correctly notes that:
If you’re racing, you better figure out what to do about the times that you don’t know for sure…because more and more of your inputs are going to be tenuous, speculative and possibly wrong. Day traders have always understood this–all they do is trade on uncertainty. But you, too, if you’re racing, are going to have to make decisions on less than perfect information.
This paragraph notes a core issue from my second book, “Inside the Mind of the Turtles: Inside the Mind of the Turtles: How the World’s Best Traders Master Risk“. I hate the title and fought with McGraw-Hill for months to get it changed to no avail, but the message of the book is a good one. This second book was NOT a trading book, it was a book targeting a wider audience that shows how the lessons of trading can be applied to circumstances beyond trading. It is a book about about managing risk and uncertainty; and making decisions with, as Seth puts it, “less than perfect information.” I wanted to call it: “Risk Rules: How to make decisions when you don’t know what the future will bring.”
Seth notes in his post that in order to make good decisions, it sometimes pays to give up being first in order to make sure you are right:
Rule of thumb: being first helps in the short run. Being a little more right than the masses ultimately pays off in the long run. Being last is the worst of all three.
One of the harder lessons to teach new traders is patience. To trade well, you need to have enough information to know that you have an edge. Sometimes this means that waiting is your best option. Unless a trading opportunity with an edge presents itself, you don’t want to be in the market.
That’s the core take-away from Seth’s blog post today. Being quick is good, all else being equal, but being quick and wrong is not good. Better to be slightly more patient and right more often.
Trading From Your Gut
Way of the Turtle
Inside the Mind of the Turtles
{ 4 comments… read them below or add one }
“Risk Rules: …” Would have been superior from every point of view… grrrrr editors… I enjoyed the book and your perspective – lessons. The title set up false expectations.
I know. Setting false expectations is just plain dumb. I hated that title but unfortunately, the president of McGraw-Hill Publishing himself came up with the title and loved it.
No imagination at all. It seems everyone wants to do what worked last time only a little more. Doesn’t work.
Some excellent lessons in here that I believe all new traders should read. The only problem is how can anyone trade the markets they are the way today? Bad news and the markets go up, good news and they go up again. HFT and computer algos have driven most private investors out of the markets and now it is the bots doing all the trading. How long can this go on for?
Trading IS a Business, and a successful business takes time…and patience to grow…just like becoming a successful Stock Trader.