Why Most Traders Fail

You can use the terms trader and investor interchangeably on this one…

What I like best about the Larry Benedict chapter in Jack Schwager’s Hedge Fund Market Wizards  book is that it opens with a story about repeated failure. Before becoming the uber-successful founder of Banyan Capital Management, Benedict failed and failed repeatedly but kept at it, using the proper discipline to assure that failed trades wouldn’t knock him out of the game and never looking for a shortcut to make up for them.

Here he discusses why this is so important:

Why do you think you have been successful whereas so many traders fail?

Since I started in the business, I have seen a number of traders who ended up committing suicide or being homeless. The one trait they all shared was that they had a gambler’s mentality. When they were losing, they were always looking for that one trade that would make it all back. I learned early on that you can’t do that. This is a business where you have to work. That’s what I do. Every day I make hundreds of transactions. I grind out the returns. If you look at my daily returns, you will see there are very few big up days.

A lot of traders (or investors) approach this business with the idea that one or two “big” moves are going to change their lives. Or that after a string of small loses, one coup de grace is going to get them “back to even” or make up for the slump. And while this is certainly possible, it is not likely. Moreover, for every success story you can find in which a huge gamble paid off, you will find countless tales of woe.

Larry Benedict’s above comment got me thinking about my friend Greg Harmon at Dragonfly Capital, whom I often link to.

Greg has been crushing the S&P 500 since he’s launched the blog and newsletter service in 2011. But he’s not done so because of a big call, he doesn’t point his bat at the centerfield stands and talk about 10-baggers or grand slams. No, Greg grinds it out, exactly like Benedict discusses.

In his recently posted examination of the Dragonfly track record, Greg notes that he’s done 765 trades over two years, with 484 wins and the rest losses or break-evens. He’s using very specific entries and exits, working with equities and options, playing both sides of the market. This isn’t a 9-to-5 gig or a pastime, he’s a professional.

Trading is a business in which you have to work. Larry Benedict will tell you that, Greg Harmon will tell you that, and anyone who’s made it will probably say the same. Bernard Baruch, one of history’s greatest market participants, made his first rule of investing “Don’t speculate unless you can make it a full-time job,” and this is still pretty elemental advice decades later – in fact, in today’s markets it’s probably even harder for the hobbyist trader.

Hitting it big can happen randomly, and to anyone, but then what? Can you do that twice? Thrice? Probably not. So the question is whether or not “grinding it out” is really what you want to do – is really something that you are capable of doing. The statistics say that you are probably not, emotionally or physically, but no one will fault you for trying.

Just make sure it’s what you really want, because if it works out, it will only be because you’ve earned it.

Read Also:

Hedge Fund Market Wizards (Amazon) 

Dragonfly Capital Views Performance Through September 2013 Expiry (DragonflyCapital)

Bernard Baruch’s 10 Rules of Investing (TRB)

 

Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see my Terms & Conditions page for a full disclaimer.

What's been said:

Discussions found on the web
  1. strap on harness commented on Apr 18

    strap on harness

    […]usually posts some very exciting stuff like this. If you’re new to this site[…]

  2. doc johnson sasha commented on Apr 18

    doc johnson sasha

    […]one of our guests recently recommended the following website[…]

  3. anal plug training commented on Apr 18

    anal plug training

    […]usually posts some really fascinating stuff like this. If you are new to this site[…]

  4. make money online commented on Apr 18

    make money online

    […]please stop by the internet sites we comply with, which includes this one particular, as it represents our picks through the web[…]

  5. install america nashville commented on Apr 19

    install america nashville

    […]always a big fan of linking to bloggers that I enjoy but don’t get a good deal of link really like from[…]

  6. ejaculating dong commented on Apr 19

    ejaculating dong

    […]please stop by the internet sites we adhere to, like this one particular, because it represents our picks in the web[…]

  7. massive dong commented on Apr 19

    massive dong

    […]Every when in a while we pick out blogs that we read. Listed below would be the newest web sites that we opt for […]

  8. Fight With Deny commented on Apr 19

    Fight With Deny

    […]we like to honor a lot of other internet sites around the internet, even if they aren’t linked to us, by linking to them. Underneath are some webpages really worth checking out[…]

  9. Ashley Elizabeth commented on Apr 19

    Ashley Elizabeth

    […]Every after inside a whilst we decide on blogs that we study. Listed below are the newest web-sites that we select […]

  10. superpump commented on Apr 20

    superpump

    […]always a huge fan of linking to bloggers that I appreciate but really don’t get lots of link enjoy from[…]

Read this next.