It’s Never the Market’s Fault: How Winners Own Their Mistakes and Constantly Improve Their Results

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There are a lot of people confounded by the market’s epic rally in the face of what appears to be a dire economic situation. The US economy faces double digit unemployment, with entire sectors such as travel and hospitality potentially less viable as going concerns. The price of oil recently traded below zero and interest rates may be headed there soon, too. Did we mention there is no credible coronavirus vaccine or major treatment available yet?

In the face of such news it is certainly surprising that investors have been in a bullish mood on the whole. Despite all of the negative signals listed above, it seems just one signal mattered: the Fed’s willingness to do whatever it takes to support the financial system. Whether or not this signal remains the dominant one that drives markets going forward or not, investors who recognized the almighty power of the Fed and repositioned their portfolios accordingly have been the ones that have reaped the benefits of being long a monster 40% rally of the S&P 500 since the low on March 23rd, completing the greatest 50 day period ever in the market’s history.

While some investors picked up on this key signal from the Fed, many—just like in 2009 when stocks bottomed and the produced one of the greatest long-term rallies in stock market history—missed out and decided to play the blame game. Now, just like during the last bull market, the market’s rally has been referred to as “hated,” “confusing” and “ridiculous.” This type of talk is not limited to Robinhood investors with expiring puts; world-class investors from Carson Block to “Market Wizards” subject Stanley Druckenmiller have strongly questioned the risk/reward ratio of being long stocks at this juncture.

We all have times when a market, asset class or particular stock does the opposite of what we think it should. Stocks regularly break the most well-established technical analysis rules, while even the most sound fundamental analysis of a company sometimes can’t overcome animal spirits (ask Steve Eisman and many other former Tesla bears).

This article is not about forecasting the current market’s direction but rather how you can react in a positive way when the market turns against you and acts against your perceptions of what is rational.

A key part of building a long-term successful career as an active investor or trader is to learn from your setbacks. Every famous investor interviewed by Jack D. Schwager in Market Wizards and its follow-up, The New Market Wizards highlighted the fact they suffered losses early many of which were so large it would have crippled the average person. One now famous trader talked about lying on a park bench in the middle of the day and crying after what felt like a fatal loss in the markets.

How to Bounce Back from Losses

Despite these early losses every one of them bounced back; and that’s why they are now considered “Market Wizards” and each one has at least a seven figure bank balance.

In addition to having the right set of beliefs about how to be successful in the markets and the ability to improve their mental states during a losing streak, these top traders exhibited another key aspect to their psychology that enabled them to win: they took ownership of their results. In other words: when they lost money it was always their fault and not the fault of the market or the trader on the other side of the trade.

As Dr. Van K. Tharp shared in the original Market Wizards book:

“If you ask people to list their trading or investment problems, they are of two types—problems they don’t own and mental state control problems. Problems they don’t own consist of blaming the markets, blaming floor traders or locals, blaming insider trading, blaming their broker or blaming their system for what goes wrong. We have a natural tendency to blame something other than ourselves for what happens. Society promotes it…Yet when you blame something other than yourself, you can continue to repeat the mistake because it was the result of something beyond your control.”

Interview with Dr. Van K. Tharp, Market Wizards

Dr. Tharp was speaking before the advent of extraordinary measures from the Fed and the infamous Bernanke put, but you can also see how easily “blaming the Fed” would fit into his quote above. Those that resisted seeing the signal from the Fed in 2009 and blamed the institution for their poor positioning or inability to get fully invested in the rally may have been just as likely to miss out on the current market rally for similar reasons.

So how do you avoid blaming other things, people and institutions for your mistakes? By taking ownership of your results.

More from Dr. Tharp:

The best thing an investor can do when things go wrong is to determine how he or she produced those results. Now, I don’t mean that you should blame yourself for your mistakes either. I mean that at some point in time, for any situation, you made a choice that produced those results. Determine what that choice point was and give yourself other options to take when you encounter a similar choice in the future. Change the decision at similar choice points in the future and you will change the results you get. And by imagining doing so now, you can make it easy to select those alternatives in the future.

Dr. Tharp goes on to list some realizations that self-reflective traders who own their mistakes come to, such as:

  • I’m too impatient with the markets.
  • I get angry at the markets.
  • I’m afraid at the wrong time.
  • I’m too optimistic about what will happen.

While this process applies specifically to analyzing your trading and investing behavior, I hope you can see how this type of analysis could improve almost any aspect of your life.

Not where you want to be in your career? Feeling unsatisfied with your relationships? Look to see where you are blaming external factors and failing to own your mistakes. Taking this step will set you on the course for greater success in any area of your life.

Quick Start Guide for Taking Ownership

In order to take ownership of your trading and investing results you have to know what the results are. Too many people float by with a hazy view of their actual performance. Get clear on how profitable your current trading strategy is. Only then can you see what, if anything needs to be improved.

Here is a quick start process for better owning your results in the markets, which can easily be applied to other areas of your life, too:

  1. Quantify and analyze your results. If you are actively trading, you should be keeping a trading journal. This can be a text file, spreadsheet or an automated platform like Tradiboost. For each trade you should have a hypothesis for why you entered the trade and what the actual result was. What happened differently than you expected? Why? What did you do wrong?
  2. Look for trends. After analyzing dozens or hundreds of trades, some patterns will likely emerge. Maybe you are selling too soon or too late. Maybe you are picking the right stocks but at the wrong times. Look for trends that may illuminate issues with your strategy.
  3. After you identify the issues, look for the opportunity to own them. Are you being too impatient and overtrading when there are no good setups? Are you getting greedy and trading with larger position sizes than is advisable for a small account.
  4. Once you have owned your problems you can identify approaches for correcting them. In some cases awareness may be enough. You could set a reminder on your phone or change your computer’s wallpaper to a positive message that reframes the negative issue into a positive behavior. Some issues may warrant additional reading on personal development or psychology. If after acknowledging your issue and still feeling like you are struggling to correct it, a qualified counselor or therapist could be exactly the right person to help you. Keep in mind that all of the above insights were generated by Dr. Van K Tharp, a respected psychologist from the University of Oklahoma who took his academic knowledge and applied it to the markets.

Remember the idea of ownership the next time you feel like blaming someone else for a suboptimal result. Own your mistakes, correct them and you will be on the path to success.


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