I’ve been playing golf ever since I could walk, and I’ve been in situations so intense -- say, on the ultimate hole of a junior or amateur golf tournament -- that I literally could not take the club back. I was so nervous, my hands were shaking.
I've also grown up around trading and markets. From the time I could begin to understand systems and math, my dad began teaching me about investor psychology, bonds, stocks, and leverage. I didn't begin trading my own money until college -- buying IBM
(IBM) when I was 12 doesn't count -- and by that time, analyzing many of the things that move markets almost felt like second nature to me.
As a trader, I’ve had times when I've been as scared to move as I was on the golf course. I've had that same sinking feeling watching a trade go in the completely wrong direction as I have watching a ball make its way to a lake. I've felt that gut-wrenching feeling in my chest as I watched the value of a trade or investment tick away by the minute. We’ve all been there; nobody is perfect and bad trades happen, the key is to not be frozen in fear and let instincts and discipline take over.
What is great is that golf and trading have a lot in common, and you can learn the mentality of one by playing the other. In golf, you make bad swings all the time. One thing I’ve learned is that you need to limit your mistakes. When you make an error, it's best to limit that error and avoid amplifying it with a double bogey or worse. So you take your medicine, make the bogey, and move on to the next hole. When you’re standing behind a tree analyzing all the ways you can extract yourself from a mess -- say by bending your next shot around a tree and over the lake -- more often than not the end result is going to leave you in an even bigger mess than where you started.
This is a lot like trading and markets. Sometimes we aren’t right and a trade will go the wrong way. If a trader never made bad trades, the line at his or her door would stretch around the block. But the key is taking the loss and moving on to the next idea. Don’t rationalize your mistake and think of all the ways you can double down by throwing money at it. Take the loss and move on to the next opportunity. In golf the saying is “one hole at a time” or “one shot at a time,” and I think these ideas work perfectly for trading. You can’t change the past and take back that bad trade or change the process you took to make that trade no matter how many times you double down.
Golf and trading are both individual sports. In the end, you can only blame one person for the mistake, yourself. In that sense, whether you're in the markets or on the golf course, everyone is playing under the same conditions. If you are a professional in either case, you can’t withdraw from a tournament because it’s raining too hard or the wind is blowing. In the trading sense, you wouldn’t walk away from your desk if you didn’t like the way the market was acting that day. If you think that someone has a leg up on you -- whether it be with illegal clubs or inside information -- don't worry; all cheaters get caught in the end.
There are a lot of unknowns you can’t control. You can’t control if the other players in the tournament are going to make a lot of mistakes or a lot of birdies in the same sense that you can’t control what the other people in the market are doing. You can’t control whether or not the officials set a the hole in an impossible location, the same way you can’t control whether or not a central bank dramatically eases rates or begins directly intervening into the markets.
Both sports are filled with countless amounts of emotion. Ever had the sudden urge to take your computer monitor and throw it out the window when a stock or security is doing a completely absurd thing? I know I have. I know I’ve missed a par putt and wanted to take my putter over my leg and snap it in two. But you can’t. Just like in trading, if you let emotion get the better of you on the golf course, you’ve already lost.
Remember, if you lose 50% of your money in a trade, you have to double your investment to get back to even. If you make a double bogey after trying to get aggressive (ever try hitting at a flag near water?), you have to make two birdies to get back to where you were. That's the difference between good golfers/traders and great golfers/traders, they make their mistakes small and capitalize on their success or luck. The key to both is following a discipline and confidence in yourself.
When I was practicing for tournaments and trying to get better at golf, I endlessly practiced and hit shot after shot until it was an automatic response for me to look at a certain shot and know what kind of swing I needed to make. If you can stand up on any hole or tee and know that you can make the next shot, that's the difference between the pros and amateurs. The reason Tiger Woods is so good is because he has the mental toughness and fortitude to be better than anyone else. He knows that when the pressure is on, he will be able to pull off the shots that are necessary to win. The great traders think the same way; when the pressure is on, they can trust their instincts and make the trades without letting emotion get in the way.
I often tell people about the day I saw Tiger on the practice range in Orlando, FL. In rain coming down sideways and wind blowing nearly 40 mph, he shed his soaked-through shirt so he could continue practicing in the abysmal conditions. That's why he's better than anyone else. It’s not a physical thing -- his confidence and will to win is just greater than everyone else’s.
Great traders are no different. Not all of them have higher IQs, they're just willing to work harder and go the extra mile to limit their mistakes and capitalize on their winning trades. They have repeated the same trades over and over again to the point that they can execute trades almost in their sleep.
No positions in stocks mentioned.
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