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.”
I have been to several of your well documented and evidence supported presentations on SPA3 and it is clear this mechanical trading system has a mathematical edge. However, it is also clear that most investors, many with only limited knowledge of the sharemarket and listed companies in it, do not have the mental edge needed to be successful active investors in the market. SPA3 doesn’t provide mental edge, that has to be learnt and developed by each individual user. In summary, the SPA3 system is a winner, but some investors, especially those starting out, lack the daily mental discipline required. As investors, we all need to consistently work on, and improve, our mental strength. Like the runner, we need to condition our minds. It is impossible for every entered share trade to be a winner, and we must accept that there will be losing trades.
I agree with you Gary 100%. Taking personal responsibility for your actions (investment or otherwise), for me was the single most important mindset to transition to in my life. It is liberating and empowering and improves my investment performance. The ongoing learning processes and mentoring Gary provides around SPA3 and active investing is a welcome partnership in this journey.
Before beginning using the SPA3 what can I expect to be the biggest drawdown using nasdaq From what I have gathered it is about %20 to %30, is this correct? Good trading means fully accepting the risk of the trade before taking it. I must admit I am still struggling with accepting that I could have a drawdown of %30 and if I use leverage that could mean %60 at 2 times leverage -Shane even suggests using 3 times leverage- this would mean from 60% to 90% drawdown- that would be a challenge. any comments?
Valuable content in the comments from Gary, Rohan and George.
To the person who made the original comment:
You are someone who has come to recognize a proven system/process is required to approach the financial market….well done….SPA3 can provide that approach.
You are dissatisfied with whoever is handling your savings and you are looking for a proven system/process that outperforms the ASX….well done on doing some research and looking for alternative approaches….SPA3 is a serious alternative.
You are likely leading a busy life, the good news is that once you are up and running with SPA3 you will be spending less than 20 minutes a day using it.
You don’t want to spend time reading trading books because your passions lie elsewhere….be assured reading trading books is not a requirement to use SPA3.
You can also be assured that the SPA3 team do read trading books and are always looking at ways to fine tune SPA3 for the profit of their clients.
So are your comments ‘reasonable’?
I think they are…. I see really good signs….you appreciate you need a different approach to invest your capital in the markets, you see your limitations in this field, and you have definitely found a means to approach the financial markets with confidence.
Good luck as you continue your due diligence and if you do decide to use SPA3 you will be very well supported with every step of your journey 🙂
Response to Comment by Mike:
It depends on how much capital you will actively invest with, what Risk% position size is used and what brokerage rate you use over the long term. We have researched all this in great detail.
Looking at page 46 of the SPA3 NASDAQ White Paper that details the historical simulations of 1000 simultaneously run portfolios starting with $100K and using $9.95 flat per trade (we use $4.95 in the public portfolio), THE single Max Drawdown is graphed by Risk% position size.
Using a 0.8% Risk% per trade, Max DD for all 1000 portfolio ranges from around the best of 20% to the worst of 28% MAX DD.
However, looking at the Underwater curve on page 51, you will see that over the entire research period of 12.75 years that the drawdown was < 20% nearly all the time except for the few times that it exceeded 20%. Remember that MAX DD is just that, THE MAXIMUM over the entire traded / research period and it occurs just ONCE on a single trading day, at THE maximum recorded drawdown point. On the flip side, the portfolio at the worst 5 percentile rose from $100,000 to $618,895 while the NASDAD Composite went from $100,000 to $74,000 over the 12.75 years, that's right -26%. The portfolio at the best 5 percentile exceeded $1.0M. To kick goals one has to be on the field in the first place and, in the second instance, be prepared to get tackled. No getting tackled = NO GOALS. (Sorry for using yet another metaphor.) The same with actively investing. It's about getting through the tough times to thrive in the good times and ensuring that you are actually on the field during the good times by not having been scared off during the bad times! With SPA3 NASDAQ you can use leverage of 2:1 via a standard USA broking account. You won't be able to get 3:1 leverage without using CFDs and we haven't released a SPA3 NASDAQ CFD product yet. Regards Gary
Thankyou Gary for your reply
that helps me a lot.