People have a highly romanticized image of what it means to be a successful trader. Part of it is hopeful ignorance. It’s soothing to believe that there is “a way” somewhere out there that allows a person to make money easily and on demand, just by intuitively knowing what the market is going to do. The other part, of course, is Hollywood’s depictions of traders. No matter how hard they try to cleave to reality, they can’t. There’s only so much you can cram into a one and a half to two hour movie.
Even somewhat “factual” depictions of great (or often just lucky) traders will skip past the many downturns and drawdowns an ultimately successful trader will have before their boat comes in. Take one of the most realistic movies, The Big Short, and it still compresses time horribly, and appears to show a much quicker successful result than what really happened, which is more accurately depicted in the book, The Greatest Trade Ever. Same story, two very different depictions. The movie also omits a few traders who were as gloriously right as the protagonists, but whose timing wasn’t as good. They ran out of money before the trade played out.
Markets can remain irrational for far longer than your money will last.
And the movies and the books will focus on the guys who made billions in one fantastic month or two, because if they show a trader who made hundreds of millions over 20 years, well, no one would buy that book or watch that movie. But people who make hundreds of millions over 20 years outnumber the ones who made billions in a month by at least 10,000 to 1. Because making millions, or even hundreds of millions, in a couple of decades is a lot easier than making billions in a month.
Also, and I say this in the most serious way possible, who really needs billions? I mean that. What are YOU going to do with billions? My definition of rich or wealthy is guy who never runs out of money living life the way he wants to. I am rich and wealthy, by my definition, though you wouldn’t know it by my bank account or any holdings under my name.
For one, I am incorporated. I own very little under my name. But I live the way I want to, and I don’t run out of money before the end of each month, nor do I have any significant debt. I pay no rent, I have no mortgage, and I drive a car that I don’t own. One of my companies owns my car, but as I like to tell people, my company doesn’t drive, so I get to use the car. Since it isn’t my car, it’s the company who pays the insurance on it, and fills up the tank regularly.
More to the point, I wouldn’t know what to do with billions. My most extravagant purchases are the odd bottle of Laphroaig, good seats at my local NASCAR racetrack every year, and trips to wherever I feel like going. I don’t eat out much. I prefer to buy good produce and make my own meals. I’m a better cook than many a professional chef.
I don’t work. I routinely get up around noon, but I’m also up till around 3am. When I eat out, it’s usually sushi. And that’s only because I can’t be bothered to buy all the different fresh fish to make my own selection, because I actually do know how to make sushi. Where did I learn? On one of my trips to Japan. In Kyoto, if you must know.
But let’s not digress. My point is that it’s easier and far more likely for you to make “enough” through trading that you never have to work again than it is for you to make a billion, or whatever magic number you have as a target. I am living proof. And that’s where most aspiring traders fail.
Paulson, the main character of The Greatest Trade Ever, didn’t start out to make billions. What happened was that he saw a massive flaw and vulnerability in the subprime mortgage market. Yeah. That thing that caused the 2008 Global Economic Collapse. Upon noticing this flaw, and checking it 10 times over to make sure he wasn’t missing anything, he went all in betting against subprime mortgages.
But instead of that market quickly collapsing, it went on fine for a few years past when he detected that it had to collapse. Several times along the way, he was almost wiped out or forced to exit that trade. Keeping a trade open for a long time costs money. And in Paulson’s case, he was actually paying hundreds of millions of dollars a year in premiums just to keep the trade open. He wasn’t the only one. Several other traders were doing likewise, which is what The Big Short is about. And just as many if not more were right but were wiped out. They got in too early and/or didn’t have the capital to keep the trade open.
How much money do you spend a year? Double that amount. I doubt you’ll even get to half a million as your result. So why are you trying to make millions, hundreds of millions, or billions in a year? Target twice your current yearly expenses. You are ten thousand times more likely to achieve that, than to luck into the one trade that will make a hundred million in a year. Hundred million dollar trades don’t happen all the time. The opportunities just aren’t there. And when they do happen, they aren’t there for the guy with $20,000 in his trading account, believe you me.
But trades that will, added up, double or triple your money in a year? Yeah, those are there all the time. You won’t see them if you’re only looking for the home runs, though. It’s tediously simple to make a few thousand a month on average, even with a modestly sized account. But you can’t force the market to produce a huge win on demand, just because Paulson did it. Even Paulson doesn’t do it all the time, and indeed, hasn’t done it since.
Huge wins are bonuses that happen infrequently while you are following a process. The process should produce money regularly without relying on huge wins. Well, the right process will do that. Everything I write is about that kind of process. When I teach, I teach that process. More importantly, when I trade, I follow that process.
When you get tired of looking for the one big win, reach out. I’ll teach you how to make the many reasonable wins that cumulatively make you wealthy. Wealthy, of course, according to my definition. If you are ready, you can also just sign up. The earlier you do it, the more money you’ll make. If only because of compounding. Think about it too long, and you’ll remember it when you’re ready to retire, while hoping your money lasts longer than you do, Social Security doesn’t go bust, or Walmart still hires greeters. No offense. I appreciate those greeters. But I’m guessing that wasn’t their lifelong post-retirement dream.
But whatever you do, stop chasing that once-in-a-lifetime win. You don’t need it. If it happens, great, but you shouldn’t put all your eggs into THAT basket.
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Andy Pedraza
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