The Best Investors Get Humbled by the Market First
Detaching yourself from your ego and realizing you can't be confident in things you can't control are among the keys to better trading.
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The market is the master; you can excel once you recognize and embrace that fact.
The biggest obstacle to your market success is you. You are your biggest enemy. A voice in your head wants you to believe you possess unique market insight when you don’t. That voice prevents you from seeing the stock market as it is and from making the critical decisions you need to make to produce superior returns.
Old-time investors sometimes refer to the market as "The Great Humiliator," because no matter how well they perform, the market will always find a way to remind them who the boss is. No one is immune. The market has humbled all the greatest traders and investors in the world at times. Inevitably, it is when we feel the most confident that the market beast will remind us, in a very painful way, that we are at the mercy of its whims and moods.
One of the great conceits among most market participants is that they possess the ability to predict the future. This belief is widely promoted by institutional Wall Street and the financial media because it is good for business. We pay for the advice of professionals because they claim to know what the future holds. It isn’t true, but what makes it dangerous and costly is that we want to believe it is true.
My approach to trading and investing has steadily shifted over the years from predicting the future to developing strategies to deal with whatever surprises might occur. It is good for the ego to believe that we can predict the future, but it isn’t a great way to trade. When we let go of that thinking and look for alternative ways to navigate the market, we can develop confidence in our ability to produce great trades.
When I develop my trade strategy, I plan on being wrong. I expect the market not to behave as I would like and am prepared to deal with those consequences. I respect that the market is going to try to make me look like a fool. If a trade does work as anticipated, it is a product of good luck and not my genius. Good results come only when you are prepared for the worst.
The battle with ego is complicated because traders need to have confidence to be aggressive and make great trades. If we are too passive and uncertain, we seldom make the uncomfortable and stressful plays that lead to big rewards. There is a balancing act between recognizing that we can’t predict the future and being confident enough to initiate an aggressive strategy requiring a higher risk level. The best way to deal with this is by being confident in what we can control, such as our ability to quickly make buys and sells as conditions change.
The key to keeping our ego in check is cultivating the attitude that there is always something new to learn about the stock market. There will always be surprises and new information. We can’t learn if we think we already know everything. We will never be perfect as traders, and that allows us to strive constantly for improvement. Embrace your humility and keep working to be better at what you do.
When we give up being confident about things we can’t control and focus instead on those things we can, then our ego will align with our efforts. I know I can’t predict the future, but I know that the market will always offer opportunities, and that I can develop strategies to make money. That is why I don’t worry about bear and bull markets. If I work at it, I know there will be ways to make good trades no matter what others predict about the future.
The stock market is an industry driven by the egos of people pretending to know the future. One great advantage is that we know this isn’t true. We can listen to their predictions and understand what people think, and that gives us a better basis for developing strategies when they are ultimately wrong about the future.
Traders are often considered bold, brash, and egotistical, but the best ones cultivate humility and possess superior insight into their emotions. You are the biggest obstacle to your stock market success; you can conquer it when you embrace that fact.
At the time of publication, DePorre had no position in any security mentioned.
