The Traders Journal

The Single Most Important Lesson I've Learned Trading the Markets for 25 Years

My Thesaurus lists the same two words – enhance and augment – as synonyms for both words “improve” and “more”.  The mantra of today’s global society could indeed be “improve and more” with all the corresponding complexity that it brings with it.

I merely have to look in my garage at a new BMW that is so improved with more gadgets (I use the word with tongue-in-cheek) that one must make multiple appointments with a   “BMW Genius” (their label, not mine) since the salesman clearly could not give us an adequate explanation of the car’s infinite features.  Improved and more?  Unfortunately, most investors bring those same expectations to their money management endeavors where investing is most definitely not one-size-fits-all decision making.  Investing geniuses don’t offer appointments.


Unlike our capitalistic mantra of “more”, investors should strive for the art of reduction with a mantra such as “more with less”.  Build your investment methodology with a minimalist mindset as if you’d grown up in a Soviet orphanage.  Instead of embracing the belief that adding one more indicator or one more fundamental factor will magically reveal to you the Holy Grail, try to understand that additional complexity is like pouring quickset concrete into the only water well in the desert.

Disciplined and consistent execution is the objective and is much more likely with a simpler methodology.  Less is better with respect to investment methodologies.  Think synonyms for the word less, such as refraining, foregoing, or abstaining.  

After twenty years of teaching thousands of investors, I can tell you with certainty that the primary suggestion I make to my students is to simplify their methodology.  Before I attempt to add anything new to their investing approach, I begin by subtracting from what is usually an unnecessarily overly complicated personal investment system. Simplification is therefore the first step and is usually a very high leverage move.  It seems counterintuitive to the majority of investors, but the reality is that “simplification tames complexity in the stock market.”  Proof is coming up! 

Wall Street does not want you to know this.  The big brokerage houses present a constant stream of mind-numbing information and are often the proliferators of much disinformation.  The world view they present is one purporting that only professionals can manage your investments.  It’s too complex for mere mortals.  Au contraire, mon ami!

To support my claims, I submit to you a new book written by two professors – one from MIT and the other from Stanford.  In their book, Simple Rules: How to Thrive in a Complex World, the authors Sull and Eisenhardt present many examples of corporate ecosystems that have not just been tamed but have been conquered with carefully assembled simplification rules.  One example is the company Zip Car.  In the beginning, Zip Car presented a seemingly endless mosaic of problems with its car sharing services.  But over time and with experience, the company’s management boiled it all down to six rules for users of their cars:

  1. Report damage.
  2. Keep the car clean.
  3. No smoking in the car.
  4. Fill’er up.
  5. Return the car on time
  6. Pets must be in carriers.

That is how Zip Car operates its very successful coast-to-coast business.  “Simplicity tames complexity.

The authors of Simple Rules also describe how Google streamlined their hiring practices into five simple rules:

  1. Hire only from a top-tier school.
  2. Hire only those with top grades.
  3. Eccentricity in a candidate is okay.
  4. Referrals from existing employees is preferable.
  5. Even the tiniest falsehood on a resume eliminates a candidate from consideration.

Back to my opening line.  I’ve been able to significantly increase my students’ money management skills by helping them simplify their own investing ecosystems.  If I had to explain in one sentence what I’ve done myself over the past 25 years trading the markets, it would likely come down to this.  “I’ve spent 25 years of real world investing distilling the complexity and vastness of the financial markets into a simple 10-stage roadmap.”  Now I discover that academics are studying this approach.

There are some parallels to the 1960’s when the ad agency, Doyle Dane Bernbach, dreamed up the “Think Small” campaign which transformed the VW Beetle into a counterculture classic at a time when yacht-sized Cadillacs were in vogue.  My new “Think Small” campaign aspires similarly to change your perspective about the investing landscape.

Here’s a quick personal example:  I use 10 specific indicators to invest across 20 different asset classes.  When you consider that there are thousands of technical and fundamental indicators from which to choose and nearly as many different asset classes, this is indeed simplification!

Forbes magazine did a piece on Rahul Bhatia, the cofounder of Indigo.  Bhatia brought the discount airline model to the developing world, supersized it and made it profitable.  I love his quote:  “We keep asking ourselves what other costs can we remove without losing a single customer?  This is our religion, and it serves us well.

Investors would be well-served to adopt the same perspective by asking a similar question: what other indicator or frivolous decision input can you remove without hurting your profitability?  Think of my suggestion less as a downsizing of your investment methodology and more correctly as your quest to ‘right-size’ your approach.  Your bottom line will thank you!

Trade well; trade with discipline!
- Gatis Roze, MBA, CMT

You're invited!
Join me for an upcoming FREE investment seminar and book release party!
On Sunday, July 24th from 3:30pm to 6:00pm in Seattle, we will be hosting an educational event and reception to celebrate the release of our new book.
For complete details, CLICK HERE!

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