Oct

26

 When I was a young man I had all the boldness to be a great trader, but was lacking in skill, tools and talents, yet I made some pretty serious money at this trading stuff.

Now as an older man with skills, talents and tools, I find the easy money is more difficult to come by.

Boldness usually trumps brilliance is the best answer I have to this.

Jim Sogi writes: 

Before when you had nothing to lose, it was easier, because you could only gain. When you have more to lose and less time to make it up, it feels different. Also, weren't you smarter and didn't you know more when you were younger? I know I was, or at least thought so at the time. Part of it is never having failed. It takes a couple failures to show you, oh, yeah, maybe I'm not so lucky and not as smart as I thought.

Gary Phillips writes: 

I remember Cher telling Barbabra Walters in an interview, that there was nothing positive about getting older. However when it comes to trading, the one advantage to being old(er) is that one has a long-term perspective of the markets. Now in my fifth decade of trading I have come to the conclusion that it is not boldness that trumps brilliance but creativity. Einstein himself placed much more emphasis on intuition, imagination, and a "feeling for the order lying behind the appearance" than intellect. Trading opportunity mean different things to different people, but over the years these opportunities have adapted to current market conditions and paradigms. Information technology and the internet has accelerated that process dramatically. Information is no longer arcane; it's on 0 Hedge, Twitter, ad infinitum. Ironically, the repetitive dissemination of information renders it uninformative.

Paul Marino writes: 

I've found the market mistress is at her flowering best by making enough small players a lot of money quickly to keep itself going with fresh meat through wall street bar lore (now internet) like the 25 yrd old analyst who made $60k on GOOG options on earnings day, after buying them three days prior for $3k, etc.

To really be in the mix daily at any level for a long time and survive puts one in the highest echelon like most on this list. To gain the great heights of the the likes of the Palindrome you need a survival instinct on par with the highest of humans. I have read that Soros would exit a big position if it gave him a lower backache which was his pivot point to survival.

I get a neck pinched nerve type feeling like I slept wrong and that is my body's stress sign to me that there is too much information to digest to make a rationale decision so just fold and reload.

Survive. You're of the fittest just reading this.

Gibbons Burke writes: 

In the words of the venerable John Hill of Futures Truth, with a classic North Carolina twang in the saying of it: "No speculator dies rich. A trader who dies rich has died before his time."

Larry Williams writes: 

I so disagree with John on this point. Lots of speculators went to the great mystery wealthy, and at the right time.

Speculators are not losers. Gamblers, thrill chasers and rest of that ilk pose as speculators but are no such thing.

Gibbons Burke replies: 

I agree, but could not pass on the opportunity to quote John, whom I admire. His delivery of that line is classic, and still rings in my ears.

My contribution, which is similar to your point, is this rule of thumb for distinguishing a spec from a plunger: Gamblers are willing losers who occasionally win; speculators are willing winners who occasionally lose.

That is, a gambler, consciously or not, willingly plays a game he knows is stacked against him, so at some level he is willing to lose his stake. His rewards for doing so are non-monetary. Specs are more mercenary. They do not play a game where they have no reasonable positive expectation before they place the bet. They play to win, but sometimes pay the price of risk.

Boris Simonder writes: 

Perhaps it was just "easier" to make it as trader back then, quite a different landscape from now. If you lacked the skills, how does boldness explain that you made serious money, or differently put, at what point was it not pure luck as oppose to boldness?

Rocky Humbert adds:

Methinks that there are at least two different questions here. The first is whether the markets have gotten more difficult over the past 30-odd years. The second is whether a particular individual's ability to harvest market opportunities improves/declines with age.

It is plausible that the declining abundance of "easy" market opportunities resembles the world records in sports.  Sports records show asymptotic declines. This is conjecture and cannot be easily tested.

As to an individual's abilities, there is no doubt in MY mind that is less "easy money" today than 30-odd years ago. For example, 30 years ago, trading the bond/futures basis/switch and the gold carry trade (vs libor) and the backend tender arbs were all "easy" ways to earn decent returns without taking much (if any) risk. These trades are long gone and nothing has taken their place that is accessible to someone with just a phone and a calculator.

Additionally, 30 years ago, the risk free rate was ~8 percent. Hence one had 800 basis points with which to buy optionality without risking permanent capital. The implied volatilities of assets were not much different then than today. So that 8% was "free money" to a speculator. With the risk free rate at 0 percent today, EVERY trade requires risking permanent capital. I believe that this makes speculation more difficult psychologically, if not also practically. (Academic economists will highlight several flaws in this theory. But that doesn't mean it's wrong.)
 


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2 Comments so far

  1. jim davis on October 26, 2015 3:38 pm

    Good insight here. Easier to trade/bet/gamble when the base is small and the upside is infinite.

    The incremental value of the next dollar won vs lost decreases with time, until the desire to risk anything is minimal.

    Also, greater knowledge brings more circumspection, as what might have looked like a 'great trade' to a younger you, now presents more risk than meets the eye.

  2. Alex on October 27, 2015 10:00 am

    It’s an illusion it was easier xx number of years ago. Go forward xx numbers of years and people will be saying ‘it was far easier in 2015 let me tell you young man’.

    Well, if it is, 2015 is right now…

    On Youtube there’s a video of Stu Ungar (the best cards player ever) playing in one of the Poker World Championships and the comments are all ‘man, that was easy compared to the poker of today’. It might’look’ easier but at the time those were the hardest, best and most sophisticated poker players in the world sitting around that table. I doubt anyone thought it was easy especially the one’s that didn’t win.

    Yes, we get more sophisticated as traders/poker players compared to the past but at any given time the games are as hard as they’ve ever been.

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