A couple of blogs ago I posted a video on Mastering the Skill of Active Investment and used a conceptual metaphor to assist in getting my points across.
I had no expectations that all readers would benefit from the use of a metaphor, let alone specifically one on running, as I fully understand that achieving a 100% acceptance of any idea across a population is almost impossible to achieve; just as a probability of 1 is. The following comment can be used to discuss a number of underlying issues with one’s understanding and expectations.
“Gary, I thought I was buying into a system/process where I could trust the science/research and only spend “20 minutes per day” on a process to outperform the ASX (as indicated in my SPA3 demonstration by Shane). I don’t want to be a runner; I want Spa3 to run for me. I don’t want to be reading trading books, I want you to read them and fine tune spa3. Is this reasonable?”
Again, I’ll get straight to the point. And I’ll continue to use other metaphors in an attempt to get the point across.
“I want Spa3 to run for me.” No runner can get somebody else to run for them. No worker can get somebody/thing else to execute their work role. No parent can get somebody else to parent for them. No leader can get somebody else to lead for them. No salesperson can get somebody else to sell for them. No trader can get some system or somebody else to take risk and trade for them.
Well that is if they themselves want to grow, improve and learn. And they want to achieve long term irreversible change which will include total and complete acceptance and responsibility of all outcomes with all the ups and the downs that come with the experience.
No role that requires training and growth of the mind can outsource the experience to somebody/thing else.
“I can buy an auto-traded system and just push the button to set it off trading,” I hear some say. Well somebody still has to decide when to push the start and stop buttons for the auto-traded system and take full responsibility for the decision making process and the outcomes. Or would you press the start button and just let it trade for years without ever checking it again, just taking cash out from the never-ending flow of profits every month?
Here’s the kicker: NO system just continues to rise without the equity curve retracing into drawdown, and sometimes serious drawdown. Even the most successful systems that have been publicised with brilliant long term results over decades, auto-traded or not, that execute in futures, equities, indices, options and currency markets have had greater than 40% and 50% drawdowns, some for as long as 3 -4 years. (BTW, take this as research on your behalf.)
It’s in times of drawdown that the mental challenges start. It’s very similar to when the marathon runner gets to the 32km mark and is in physical drawdown, or when the Comrades marathon runner gets to Polly Shorts, a 2½ km hill 80km into a 90km ultra-marathon.
Whilst the pain in the case of a marathoner is physical, the solution is mental. The trust and belief to continue executing comes from the preparation done before the event, the experience of having been there before and the big picture perspective gained from coaching and research. The will, confidence and commitment to continue comes from desire and purpose to achieve your running (investment) goals and objectives.
The pain in the case of the investor is emotional. And the solution is mental, it always is.
I now know, after many years of mentoring and discussing this with other coaches and personal mentors (more research on your behalf), that the majority of DIY active investors battle, really, really battle, to handle drawdowns of as little as 10% or even less.
Anything greater than this and they start making errors, self-sabotage themselves, fail to accept the risk of sideways or falling market periods or they give up altogether, often on a small sample of emotional pain saying that “I tried that once and it didn’t work!”
What they are actually saying is “I can’t handle the red ink of drawdown that comes from how the markets move and rather than take responsibility for that I’ll pass blame elsewhere like the system, the market, the broker, my busyness, my travel…… but not me! That way I don’t have to work on me because somebody/thing else needs to be worked on… but not me!”
And the reason they battle is because they haven’t acquired the necessary mental skills required to be a consistently successful active investor, one of the main skills being the total acceptance of risk and overcoming the emotional pain attached thereto.
“I don’t want to be reading trading books, I want you to read them and fine tune spa3.” No amount of additional analysis and fine tuning will be able to analyze away drawdown and emotional pain. SPA3 has been fine tuned. It has an edge. The edge that never experiences any drawdown to remove emotional pain doesn’t exist.
What is reasonable for the SPA3 user (or any mechanical system with an edge) is to run WITH SPA3 and use it as an essential part of transitioning one’s mindset to that of a consistently successful active investor. The mindset that liberates the imperfect edge to generate a steadily rising equity curve that has drawdowns of even over 20% from time to time and drawdowns for many months from time to time.
As Mark Douglas, trading coach and author of “Trading in the Zone”, has stated in two Share Wealth Systems Retreats in Hamilton Island 2004 & Hawaii 2011, in many other seminars and presentations and to me personally in one-on-one discussions, is that he believes that using a mechanical system with an edge is the ONLY way that nearly all active investors can gain the mindset necessary to become a consistently successful active investor. (You can take this as research on your behalf too.)
Of course this is only if you want to become a consistently successful active investor and hence continue to grow capital over time and protect your portfolio from large bear markets for many years to come.
SPA3 will do that WITH you provided you step into a learning process hand in hand with it, run alongside it and learn to accept risk without giving up when risk shows up.
So to the final question: “Is this reasonable?” the answer is “No, it is not reasonable for SPA3 to run FOR you but it is reasonable for it to run alongside you.”