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)

 

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here: https://www.ritholtzwealth.com/advertising-disclaimers

Please see disclosures here.

What's been said:

Discussions found on the web
  1. univmentouriconstantine commented on Apr 05

    univmentouriconstantine

    […]please visit the websites we stick to, such as this 1, because it represents our picks through the web[…]

  2. pocket pussy commented on Apr 05

    pocket pussy

    […]just beneath, are a lot of completely not associated internet sites to ours, having said that, they may be certainly worth going over[…]

  3. abcde commented on Apr 06

    abcde

    […]below you’ll find the link to some sites that we assume you need to visit[…]

  4. where can i buy a vibrator commented on Apr 06

    where can i buy a vibrator

    […]just beneath, are quite a few entirely not connected web-sites to ours, nonetheless, they’re certainly worth going over[…]

  5. Atorvastatin commented on Apr 07

    Atorvastatin

    […]although internet sites we backlink to below are considerably not associated to ours, we feel they are in fact worth a go as a result of, so possess a look[…]

  6. biblical movies commented on Apr 07

    biblical movies

    […]we came across a cool internet site that you may well get pleasure from. Take a appear should you want[…]

  7. sportotobet commented on Apr 07

    Trackback

    […]I am now not sure where you are getting your info, however good topic.[…]

  8. Hydroquinone commented on Apr 07

    Hydroquinone

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

  9. Hydroquinone commented on Apr 07

    Hydroquinone

    […]we came across a cool web page that you just may possibly love. Take a appear if you want[…]

  10. Uber promo code commented on Apr 08

    Uber promo code

    […]Every as soon as in a while we pick out blogs that we study. Listed below are the newest web-sites that we select […]

  11. خرید vpn commented on Apr 08

    vpn ایفون

    Hi there! Do you know if they make any plugins to help with Search engine marketing? I’m attempting to get my blog to rank for some specific search phrases but I’m not looking at really very good gains. If you know of any make sure you share. Several t…

  12. terminal block commented on Apr 08

    terminal block

    […]that could be the finish of this article. Right here you will discover some internet sites that we assume you’ll enjoy, just click the links over[…]

  13. Brick Pavers Company Spring Lake NJ commented on Apr 08

    Brick Pavers Company Spring Lake NJ

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

  14. Escorts, Escort Companions, Escort ads commented on Apr 09

    Escorts, Escort Companions, Escort ads

    […]here are some hyperlinks to web-sites that we link to for the reason that we assume they are really worth visiting[…]