The Traders Journal

Secret Sauce: The Other 50% of Investing - Part II

I wrote about this subject nearly two years ago from my own personal perspective, but now I want to expand on the original blog and share with you the perspective of a well-known international portfolio manager on the same topic.  Here’s what I wrote two years ago:

http://stockcharts.com/articles/journal/2013/05/secret-sauce-the-other-50-of-investing.html?

I was asked not to name names, but let me set up the story.  

I was out of town, dining alone in one of those intimate restaurants in the high rent district where they cram tables so tightly together that the pretentious maître d’ shows you to the table but offers no helpful advice whatsoever about how to crawl into your seat.  You may consider crawling under the table as the preferred path since squeezing your derriere into the six-inch gap between the tables and into the faces of the neighboring patrons hardly looks like a viable option.

Nevertheless, once wedged into my seat, I ordered a drink and began to flip through a few stock charts on my phone.  The couple seated next to me couldn’t help but notice since I was virtually sitting in their laps, and despite my rudeness with my phone, they soon invited me to join them.  

As it turned out,  the husband is a well-known mutual fund manager and was intrigued by my chart reading.  A robust evening ensued and we covered a lot of ground thanks to his very patient wife, but we finally settled on discussing in detail why he believes that happier traders and investors generally make more money.

These are our observations (more his and hers than mine) about how happiness facilitates profitable investing, listed in no particular order.  I will add one caveat – our happy discussion was well lubricated by two sensational Napa Valley reds.  For the sake of the story, I’ll just refer to this couple as Ted and Alice.


1.    A relative stranger, Ted made the observation that I seemed like a pretty happy guy, which I like to think I am on the whole.  Ted claimed that happy people see the markets through a very particular lens, and, on the whole, history has proven that bullish investors make far more money than bearish investors.  

2.    Ted noted that, in his experience, single focus or one-dimensional traders seldom succeed for any length of time.  Ted and Alice both agreed that maintaining equilibrium with those you love has been Alice’s contribution to Ted’s success as a portfolio manager.  

3.    In their estimation, happiness is much like a child’s Lego creation.  Each singular Lego brick may seem insignificant, but enough bricks pushed together can create something truly wonderful.  Similarly, for us adults and investors, appreciation of each small delight will result in rejoicing as it all comes together in a bigger creation.  Every investor knows that finding each individual brick is an ongoing challenge, but being able to identify the brick when it presents itself and see it for what it is can only result if one remains open and predisposed to its positive contribution in the creation of their own “something wonderful.”

4.    Ted and Alice were clearly a team with a philanthropic orientation.  Unlike Ted, I don’t manage other people’s money.  But he clearly saw himself as a happiness facilitator – a portfolio manager helping other people’s dreams come true.  He’s been highly successful in that department, and it obviously brings them both happiness.  Although my own motivation is less grand in scale, I, too, believe this drives my personal family goals. 
 
5.    Reading between the lines, I suspect that Ted and Alice were attracted to each other because they were both unmistakably happy people.  Contrary to the old cliché “opposites attract”, the inverse applies in the happiness department.  Along the same lines, an investment partner who is an optimist being paired with one who is a pessimist, does not seem to me like a pairing with a high probability of success.  

6.    Ted said that visualizing successful trades and visualizing a happy personal future are closely related.  Athletes are taught to visualize positive outcomes, so why not investors?

7.    Ted’s final observation was that his goals are tethered to successfully managing his portfolios.  The purpose of being a positive person with a positive perspective is to use these particular attributes to help you achieve your goals.  The goal is not simply to be a positive and perky person.  

Ted and Alice had other insights, but after a couple glasses of wine and an exquisite dinner, I was too happy to recall the others.  The key walk-away, however, was clear: happier investors make more money.   I was certainly feeling fine that evening, although thank goodness the markets were closed.  Tomorrow is a happy new day!

Trade well; trade with discipline!
-- Gatis Roze 

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Both chapters. Wonderful!!! For trading, and for life.
Good stuff...so true. Thanks
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