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


Bryan said...

Hi Brett, I completely agree with the idea expressed in this post. I would interested to know, though, how important you think it is for a trader or investor to have "face to face" contact with the best?

I have spent a lot of time reading books by, and articles about, the people I believe to be the best in a variety of investment/ trading disciplines. Do you think that this arm chair approach is adequate?

IDkit aka Ana said...


As the adage goes: birds of a feather flock together.

It is only natural we become or are more or less the company we keep.

As traders, the networking will result in synergy: a sharing of ideas and an explosion of creativity.

It has to be a two-way process: giving and receiving value in return.

SSK said...

Hello Brett, Absolutly agree. Many people wonder why I tell my strategys to the public through my website, my rejoinder is I would have never got to where I am if others hadnt done the same. Interestingly, those that dont desire to share, are the ones that are in the box, as it were. Thank you for your mentorship. Best, SSK

D TradeIdeas said...

Great review and article. I commend you for not throwing out the easy but now tired metaphor that it takes a village!

Looking forward to the new book too!


Marc said...

Hi Brett,

Nice article. It reminds me of back in the day when my father sternly told me I was going to college not because of the academic education but because I would be surrounded by smart students who wanted to improve themselves.

He was so right...Thanks Dad.


Brett Steenbarger, Ph.D. said...

Hi Bryan,

Great question. I find the arm chair approach helpful, but I do think that personal mentorship can be especially powerful. In this electronic world, I'm not sure it has to be "face to face" all the time, but a mentoring relationship with the right person is something I consistently find among successful professional traders.


Brett Steenbarger, Ph.D. said...

Thanks for the many supportive comments. I completely agree: in sharing, it's amazing how much you can get in return. And the value of going to the right school is incalculable. I would be a completely different person had I not gone through the socialization at Duke.