Trader’s Corner — Stoicism and the Art of Trading

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In today’s Money Weekend…expect the worst…not the markets…the right attitude…and much, much more…

I start my days walking my Border Collie Max in a park that’s more like a forest, with a large creek that runs through it. It’s a great way to clear the head before a day spent battling the markets.

Not the markets

Fat Tail Investment Research

Source: Murray Dawes


I am currently listening to a podcast called ‘Philosophize This’ while I chuck the ball for him. You should check it out if you are interested in such things because it is a great way to learn about the history of philosophy.

The podcast today was about one of my favourite branches of philosophy, Stoicism.

If there is any philosophical framework that’s going to help you in the trading environment, it’s Stoicism. If you haven’t read Marcus Aurelius’ ‘Meditations’ I would highly recommend it, and Seneca’s ‘Letters from a Stoic’ is brilliant too.

The thing being discussed this morning was the core idea of Stoicism that you must work out what you can and can’t control. If you can do that then you need to let go of any emotional reactions to the things that are outside of your control.

It is easier said than done.

I think most of us pay lip service to the idea but fail abysmally in practice. I’ll bet you $50 the next time someone cuts you off in traffic you don’t say to yourself: ‘There’s nothing I can do about that and he’s obviously made a mistake, which we all do.’

I think Marcus Aurelius said it best when he said:

Begin each day by telling yourself: Today I shall be meeting with interference, ingratitude, insolence, disloyalty, ill-will, and selfishness — all of them due to the offenders’ ignorance of what is good or evil.

But for my part I have long perceived the nature of good and its nobility, the nature of evil and its meanness, and also the nature of the culprit himself, who is my brother (not in the physical sense, but as a fellow creature similarly endowed with reason and a share of the divine); therefore, none of those things can injure me, for nobody can implicate me in what is degrading.

Neither can I be angry with my brother or fall foul of him; for he and I were born to work together, like a man’s two hands, feet or eyelids, or the upper and lower rows of his teeth. To obstruct each other is against Nature’s law — and what is irritation or aversion but a form of obstruction.

If you were to start each trading day expecting the worst, then what is there that can happen which will surprise you?

A stock you own comes out with a bad announcement and drops 30%. Do you scream at the computer and kick your dog, or take it in your stride?

There is so much wealth that can be built trading small-caps, but I think many people shy away from them because of a few bad experiences. The large volatility causes stress for people who can’t let go of reacting emotionally to things that are outside of their control.

Our tendency to think we know more than we do and to attach our ego to the outcomes we produce leads to a wild ride emotionally. Most people jump off long before they’ve had the chance to see what can happen if you follow a methodical approach to trading the markets.

Even the best traders will be happy with a 50% strike rate as long as they are making more on the winners than they lose on the losers.

Discover our top three ASX-listed pot stocks in 2021. Click here to learn more.

The right attitude

But when we enter an investment, do we say to ourselves: ‘I only have a 50% chance of getting this right’?

Or do we think: ‘This is going to be huge, I’m going to get a 10-bagger here’?

It may be the very same stock, but the difference between the attitudes shown above can lead to very different outcomes.

The person aiming for the 10-bagger will have a tendency to hold onto the full position long past the point where the market has told him it’s not happening.

The person who considers the trade 50/50 will be alert to opportunities to lower risk and ensure their original capital is safe. She will listen to the market and react to its signals rather than only listening to whatever story is going on inside her head.

I see my job as more than just providing investing and trading ideas to people. I could give people the best trading ideas on the planet, but if they aren’t considering what’s going on inside their head as they place their trades, the chance they will end up succeeding is minimal.

Trading and investing in the markets should be seen as similar to professional sport. It is a highly competitive environment where you have to remain in the zone at all times. You have to bounce back after defeat and remain focused on your long-term goal of winning at all costs.

Therefore, I see my job as more akin to a coach of a football team than just an investment advisor.

There are so many immense themes playing out over the next decade that could seriously kick your wealth into high gear if you are prepared to wade into the small-cap sector and invest in the right way.

I want to outline what I reckon are some of the key themes you need to keep your eye on and how you should play them over the next few weeks, so keep your eyes peeled. Now go and do 50 push-ups!

Oh, and check out my ‘Closing Bell’ video below where I discuss the widening divergence between oil and gas prices and oil and gas stocks.


Murray Dawes Signature

Murray Dawes,
For Money Weekend

PS: Watch the latest episode of my series ‘The Closing Bell’ on YouTube. Click here or the thumbnail below to view it.

Fat Tail Investment Research

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