The Secret to Investing Success

In investing, slips can come from (among many possibilities): having a speculative streak, having too large a position size, falling in love with a stock after it’s been bought, trading without any plan or not adhering to stop-losses. Failure could stem from questions not asked before a trade is placed.

The Secret to Investing Success
We've navigated through some incredible, breathtaking, historical moves in the market in terms of percentage, volatility, government action, and of course, emotional upheaval. I've met a lot of you and heard from a lot more. And though it's been a one-way communication with the majority, I certainly hope my comments have added some color to your investment ideas.
And yes - it does feel like I’ve been a Minyan forever. I think I’ll always feel like a student of the market -- starting my fifteenth year in full-time trading -- and certainly not a professor!
Today, I want to share what I believe is an essential trait that successful investors and traders share; the one single component that makes them victorious in their pursuit of profitability. I don’t think we can bestow that honor to stock-picking skills or account size, or
even the numbers of years spent behind trading platforms. Just like in any other endeavor, it isn't the enthusiastic start or the expensive gadgets that determine the outcome. The secret of success in investing, I believe, lies in learning from your trading mistakes and failures.
To most, this might seem an incongruous thought. Some think that always being right is the key determinant of success. And yet others are led to believe that their failures stem from not having the cutting-edge stock-picking technology. But think about it: Avoiding failure is an option investors and traders don't have. After all, they're dealing with constantly moving targets and too many unknowns, and they'll encounter failure very early on. But more often than not, they'll blame the markets or a vague entity referred to as "them."
"The real difference between people who pull themselves out somehow versus the people who do not, says Susan Nolen-Hoeksema, a psychologist at Yale, is that some slip into 'rumination' - a spiral of morbid self-involvement that's extremely difficult to shake. But what
separates the ruminators from the resilients? Why is it that the same set of circumstances that drives one person deeper into the mud makes another stronger….? How can we learn, as Samuel Beckett put it, to 'fail better'?
" 'Failing better' boils down to 3 things. It's a matter of controlling our emotions, adjusting our thinking, and recalibrating our beliefs about ourselves and what we can do in the world."
I highly recommend this article on failure in Psychology Today.   So, how can we apply "failing better" to trading? I've shared my thoughts a few times over the course of the past year. My  article in December specially addressed how to deal with a losing streak.
The starting point of turning your trading mistakes around can be found in a Chinese proverb: Do not look where you fell, but where you slipped.
In investing, slips can come from (among many possibilities): having a speculative streak, having too large a position size, falling in love with a stock after it’s been bought (which culminates in what I call a buy-and-forget strategy), trading without any plan, or not adhering to stop-losses. Failure could stem from questions not asked before a trade is placed, as I discussed in Five Questions to Ask Yourself Before Any Trade .
Once the cause for failure has been determined, steps can be taken to minimize or eliminate those causes. In my many years of meeting with individual investors, I've learned that different people have different patterns in their investing, and that they continue to make the same mistakes over and over again. Here’s an excerpt from my Buzz note of March 3:
"So, while my intent is not to turn this note into a therapist’s couch, I do want to emphasize how important is it to go over personal trading patterns that recur and repeat the profitable patterns and address the unprofitable ones. It’s not about mistakes; we all make them regardless of our time-horizon, risk level and account size, it’s about the mistakes made over and over again; after all, no one knows them better than you, that’s why no one can fix them better than you!"
I realize that such notes are a deviation from the norm; it seems out of place to talk about a softer side of trading in the crisp world of finance that thrives on a jargon of numbers, intricate formulas, and back-testing strategies. But until we can learn to take the emotion out of the equation (is that possible?), trading success remains highly dependent on how we handle our trading mistakes and learn from our failures.
Richard Bach said: "That's what learning is, after all; not whether we lose the game, but how we lose and how we've changed because of it and what we take away from it that we never had before, to apply to other games. Losing, in a curious way, is winning."
And as we are reminded by Walter Elliot: "Perseverance is not a long race; it is many short races one after the other."
Author: Smita Sadana
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