As the years go by, I learn more and more what is highly relevant and powerful information, and what is irrelevant, low value, delusional, and potential dangerous information.
All of life is a series of information, your interpretation of that information, and what you do with it. If you happen to interpret irrelevant information, or interpret the right information in the wrong way, or interpret delusional information, then, if you continue to do that predominantly for week after week, month after month, year after year, you wind up in a pit of frustration and despair. You could wind up with a lost year or decade in your life of little progress and spinning your wheels.
If you have ever seen a 50 year old or 60 year old, or 70 year old, in trouble in life and nothing to show for it, one of the potential reasons is because they believed in delusional ideas and thoughts. These thoughts, ideas and beliefs were far, far, from what was needed to achieve some form of health, wealth and happiness. I am not here to say that there is only one set of ideas to attain those. There is flexibility as we each have our own personal desires and passions. However, some ideas are just plain bad, going to get you in trouble in life, give you grief, no matter how much you try to study them.
This goes along with the saying that 95% aren’t going to make it big in life. Only 5% will. One of the reasons the 95% don’t make it big, is because they are suffering under mass delusion through all the information they consume. Therefore, one of my purposes here is to enlighten you as to the right trading ideas that can fatten your trading account and bring clarity to your trading and life.
One of the biggest advantage I have developed for myself, is what I call my “Interpretation Advantage.” I have gotten very good over the years at sniffing out B.S. in other trading articles and commentary. The longer I live, the more I am convinced to the truth of what I call the Universal Principles of Speculation.
Now, lets get to the core of today’s lesson. I will interpret and pick apart, for you, a trading article entitled: “Why There Will Never Be Another Soros or Buffett Ever Again.” Valuable perspective will be provided.
The first quote to be analyzed is:
“Yet, in a decade that has been lousy for all investors, even the ‘Granddaddy of Hedge Fund Managers’ has had it tough.”
My Analysis: Who said this decade has been lousy for ALL Investors? Where did this person get this information from? There have been both traders and investors that have done phenomenally well over the past decade. Plenty of hedge funds have done well, even in the year 2011. Yes, Soros did lose double digits in 2011, but not every hedge fund did so. Ray Dalio’s Pure Alpha hedge fund made $13.8 billion in 2011, according to Bloomberg. If you have the right trades on during the right moments during the year, you can make money. The philosphy is that simple, although applying it consistently can be more complex.
Next quote is:
“In his 1996 book, ‘Full House: The Spread of Excellence from Plato to Darwin,’ the late Harvard paleontologist Stephen Jay Gould examined the question of why baseball had not produced a .400 hitter since Ted Williams in 1941.
Gould’s argument is straightforward. The overall quality of performance in baseball has improved over time. That makes achieving ‘outlier’ performances like a .400 batting average less likely…. I believe that you can apply Gould’s reasoning to the similarly fading returns of the world’s top investors.”
My Analysis: This author seems to believe that the rise in hedge funds, more retail traders entering the market, has somehow made the markets more efficient, and thus less opportunities to outperform. That’s not true. (See above Ray Dalio according) Here is the insight: How much money a trader makes, a hedge fund makes, has absolutely nothing to do with how much “competition” there is out there. As Earl Nightingale said in The Strangest Secret: “Today there isn’t really any competition, unless we make it for ourselves. Instead of competing, all we have to do is create.”
If you let the belief and thought infect your mind that the reason you are only making 5% or 10% a year is because of the rise in hedge funds, quants, etc, you can be in for a life of mediocrity. Your have a lot more control over your life and trading than you may initially think. The reason being your trading fortune, your trading account triple digit returns, have absolutely nothing whatsoever to do with anyone else. They have everything to do with you, your mind, your trading philosophy, your interpretation of the market, your work ethic, etc. Sure, there are some market conditions that are more conducive to making more and faster money, than others. That is true. But, what the author of the article neglected to say is that such market conditions are a function of the GLOBAL MACRO FORCES. Global macro forces, cannot be controlled by any single or group of hedge funds. It is impossible. And, as such, the rise of “quants” or anything else, does not matter. As George Soros wrote in his book Soros on Soros: “Everyone says that I have a lot of power. But what does that power consist of? Can I move markets? Perhaps, but only if I guess correctly the direction in which markets want to move. If I guess wrong, I’ll have my head handed to me.”
The reason why these large hedge funds in the billions and tens of billions may struggle to post triple digit returns, has nothing to do with “rise in competition.” To the extent that their returns are less, it is due to two primary reasons:
- Finding trading opportunities to allocate billions of dollars to, is a bit harder than finding opportunities to allocate $100 million to. What I call the “Maximum Opportunity Set” is less. (this is a concept I teach in the Order Flow Mastery Course). Liquidity to find such opportunities is less. It IS easier, making triple digits returns with $100 million, than it is $10 billion.
- The other reason is that they use less leverage. If they use less leverage, they reduce both their draw downs and their returns. They choose to use less leverage partly because they already have a fortune, and are typically older, so they are more risk averse. As Paul Tudor Jones said in this interview: “When I was younger, I had much greater draw downs, much greater draw down frequency, much greater leverage. So again, I’m probably the exact same trader as I was 15 years ago, it’s just less risk, less return.” They know they can make a few hundred million a year on their fortune, if they play it more safe, so why bother trying to go for the jugular? The other reason they choose to use less leverage is the reason above of liquidity constraints.
Next and final quote:
“Then there is the information revolution. Today, you have more information on your iPhone than Soros or Buffett ever had when they were trouncing the market back in the 1960s, 70s and 80s. Formerly secretive ‘Turtle Trading’ trend-following systems are now available for free on the Internet.”
My Analysis: We are all blessed with the information age. Being able to gain information, chat, video, etc on your smartphone, this is all wonderful. It is always nice to see technology advancing. However, this in no way, shape, or form, effects the trading environment, which is dependent on the global macro forces. Also, even if so many millions more people have access to this information, most people do not have the ambition, knowledge, skills, to know what to do with it. To figure out what is true and not true. What is relevant and not relevant. To use it to help them structure trades.
There is a VERY BIG difference between someone who gets some news about the ECB QE program on a smartphone app, and another who knows what is going on and can profit from it. Things seem that simple, but they are not that simple. Trading requires a bit more than just shoving information at you from every angle in your life. Information is not yet knowledge. And not all knowledge is relevant to you and your life vision and desires. Remember that.
Whether it was back in 1900, or 1905, or today in 2016, or in 2050, what is still required, no matter how much technology advances is: Your own individual ambition, electrifying vision, life and trading philosophy, and massive action. If you see any successful trader from back in the 1980’s and still trading today, you will see such key characteristics in play in their life.
They don’t just hire a Chief Investment Officer of a hedge fund, because they just get bombarded with information. Anyone can be bombarded with information. The question is do you know how to make music and profit from all that you read and see and feel, and actually DO IT?
As Walter Russell said:
“Your ability to put your information together in valuable combinations is what counts.”
“What can you do with it? That is what counts.”
There’s a lot of people out there, waking up EVERY day, consuming information that is either not truthful (delusional), irrelevant, or low value, that is getting them NOWHERE in life. The truly cringe worthy aspect is that they are not aware of it! This is typically easy to see in younger people and children. However even adults age 30 and 40 and above, can be under the influence of MASSIVE DELUSIONS. I was speaking with an adult, parent of two children. The first time I met him he was telling me about how the Muslims are going to take over Europe, because they are having eight children, not assimilating, etc. He wanted me to watch some videos on YouTube about it. I did some quick scenario analysis in my mind and asked him: “Well, what if the new generation is not going to want to have eight children and only have one or two. That would render your fear nonexistent.”
A week later, when I met this man again, he asked me: “Did you research it more? It’s important.” Politely, I told him that I did not research it, and that was the end of that story.
What this person hasn’t figured out, is that, he can watch those kind of videos and read those articles ALL DAY LONG, and guess what is going to happen? A WHOLE LOT OF NOTHING in his life, and that of his spouse and children. Got that? A WHOLE LOT OF NOTHING. He can research it all day long, there won’t be any increase in his health, wealth or happiness for himself or others. This is what you call delusional thinking from a deluded mind. There are a lot better things you can focus on in life, if you would just take out a sheet of paper and start writing down better ideas. Have the desire for more powerful actions and you will begin to discover them. Your life is dependent on what ideas, principles, beliefs, etc, you choose to be exposed to, understand and implement.
About 95-99% of people running around life are in delusional thinking. Hence, I believe one of the reasons that Napoleon Hill in his book Keys to Success: The 17 Principles of Personal Achievement, talks about the need for ACCURATE THINKING.
When you figure out the accurate thinking, you start being able to realize more and more what is meant by the quote: “It takes less work to succeed than to fail.” – W. Clement Stone
The reason being, if you are exerting so much massive effort and not getting anywhere, that can be an indication, that, in your mind, there are delusional thoughts, false beliefs, etc. Your mind is consuming itself with non essentials, etc. So you are having to put out so much massive effort, in order to eventually get to some of the powerful actions that get you some of the results. Less effort, directed in a smarter way, can get you better results.
The bottom line is that if you want to succeed in trading and in life there are two things you MUST do:
Develop your own life and trading philosophy.
Get rid of the delusions that are preventing you from succeeding in trading and life.
P.S. If you desire to rid yourself of all the market delusions and conspiracies, and get to the truth of what really moves the market and anticipate the next big market move, then the Order Flow Mastery Course is for you.