Thursday, July 31, 2008

Keys to Successful Trading and Investing: The Company You Keep

I've been reading Katherine Burton's book Hedge Hunters, which is an interesting collection of interviews with leading hedge fund money managers. One of the goals of the interviews is to dissect what makes these very successful traders and investors tick. The book's findings very much fit with my own experience in working with professional traders: there is no universal personality pattern or trading style associated with success, but there are common features exhibited by those who sustain profitability year after year after year.

One of those qualities is networking with other, successful traders. A hedge fund manager interviewed by Burton put it far better than I could, "Find out who the three or four most important people are in someone's life, and you'll know what kind of person he is...The great managers have great mentors and great friends and great sources."

Every close relationship is a confession: we gravitate toward those that confirm our most deeply held views of ourselves. Integrity is attracted to integrity; achievement is drawn to achievement. Those with damaged self-esteem find themselves in abusive relationships; mediocrities are threatened by ambition and accomplishment and wind up in mediocre company. We are known by the company we keep, the saying goes, and it's true psychologically. Each relationship is a mirror that reflects our experience of ourselves. If you want to know someone, look no further than his or her spouse, closest friend, or closest colleagues.

When successful traders seek out other successful traders, the result is synergy: a sharing of ideas and an explosion of creativity. There are too many markets out there, too many stocks to follow, too much news, too many global trends and relationships. Without quality sources and many eyes and ears, you're going to miss a big part of the picture. The great traders of financial markets are also great traders of knowledge and information, but they are not promiscuous in their sharing. Like any good trader, they trade: they share value when they receive value in turn.

I'm putting the finishing touches on my own new book, and this is one of the themes: success is a team effort. Your success depends upon the team you assemble. Who are you talking with? What value do you bring to conversations with seasoned pros, and what value do you seek from them? Who and what are your key sources of information, and what is the quality of insight that they bring?

You will never achieve great things surrounded by mediocrity. If you want to see what to change in yourself, look at what's missing around you.


Four Qualities of Successful Traders

Ten Lessons I've Learned From Traders