Systems underlie everything we do, they are everywhere we look and we are in contact with or use them all day, every day. Yet there are many investors who have no system for their share market activities – believing instead that insider knowledge or tips from their broker or reading a newsletter will provide them with the tools for their success.
Why, if everywhere around us we use and interact with systems, are people so certain they can engage the share market without a system? Sure beats me. And I’m here to tell you that using a system is the only way to be consistently profitable and outperform the market benchmark over the long term. Plain and simple.
Here are some examples of systems that we use every day:-
- Your morning routine – after the alarm goes off you have a system that you follow that gets you out the door and off to work, the kids fed and ready for school.
- Your household runs as a system – each member has roles and responsibilities and tasks to do to make it run efficiently.
- The car you drive is full of system.
- The roads you drive on are a system.
- The traffic lights that control the flow of traffic are a system.
- The clothes you wear were manufactured in a factory that has a production system, as well as a system for sourcing and receiving the inputs, and a system for delivering the outputs.
- Your sporting club has a system for organising and running events and competitions.
- Your physical body is a system.
- The business you work at has processes and systems.
The list could go on and on, but by now you get my drift. We live in a world dominated by systems, and a world that works because of these systems. Systems are everywhere, and the vast majority of the time they work exactly as they are designed to do.
From your alarm clock that wakes you in the morning, your car that gets you around, your computer that sends and receives your emails, …. On and on. Systems work! And they serve to make our life, simple, consistent, objective and repeatable. Having a system allows us to leverage our resources to achieve the greatest return we can for the amount of effort we expend.
Just take a minute to think about what your life would be like without all the systems that are working and happening around you all the time.
The market as a system
The market itself is a system of buyers and sellers interlinked through the central trading exchange to facilitate the flow of buy and sell orders between all the market participants. It is a complex and intricate mix of traders and investors of all standards and from all walks of life – from the individual trader to the massive hedge funds operating computer programs and neural network programming to fire off thousands of orders each day into the market – all hoping to achieve an edge over the market in order to generate a profit.
Success in the markets requires a system
The successful, sustainable and profitable businesses in the world are highly systemised. The successful and profitable participants in the market have a system, or systems. Get a dose of Ray Kroc and McDonaldise your trading.
If so many successful professional money managers base their trading and investing on systems, then why is it that many investors still believe that arbitrary and random decisions based on tips, ideas, gut feel, or some other esoteric idea will allow them to achieve long term success as traders and investors?
Using a researched system that has a positive mathematical expectation will eliminate subjective decision making and replace it with objective and repeatable processes. Using such a system for engaging the market provides a strict set of rules and guidelines for buying and selling shares consistently with a structured approach without rationalizing the decisions that are made. The system provides an ‘edge’ over the market that will ensure long term profitability. The system will remove the need to be right and replace it with a detached response to the outcome of each attempt made to enter a profitable trade. The importance of the outcome of each individual trade or investment will lose significance and be replaced by the importance of the overall performance of the system over time, net of losing trades and drawdown periods.
Thinking from a systems perspective is a MASSIVE paradigm shift for most of us. It’s a giant leap forward on how we approach the market.
Thinking from a systems perspective is BIG PICTURE thinking. It removes the constraints associated with the myopic view of individual outcomes and blasts us forward into the realm of possibilities that are presented by the market which, after all, is an endless flow of opportunities from which to profit.