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The Secrets to Successful Trading: An Interview with Smita Sadana


One of the greatest individual traders on Wall Street reveals how she got there.

Editor's Note: This is Part 1 of a 2-part interview. See Part 2 here.

In the movie Crouching Tiger, Hidden Dragon, actress Michelle Yeoh plays a master warrior of ancient martial arts. At the end of the film, she confronts her protege and instructs her with the ultimate secret to success: Remain true to yourself. Professional trader Smita Sadana offers us the same sage wisdom for investing and trading.

Smita has delivered a 43% compounded annual gain over the last 11 years. During the same period, the S&P 500 Index is virtually unchanged. Her accomplishments make her one of the greatest individual traders -- and possibly the best female trader -- on Wall Street. My interview with Smita was like living through a passage from Jack Schwager's classic trading book Market Wizards. Smita enlightened me on dealing with emotions, risk management, and the art of discipline.

Smita is another Wall Street professional who's praised for both her skills and her character. In 2004, she lost her father to a tragic murder over a petty sum of money. As a testament to her admirable nature, she used this event to reevaluate her life and dedicate new energies to helping others through financial education. Her firm TraderVantage perpetuates her mission.

I wish I could say successful women on Wall Street are equal in number to successful men. However, if Smita has anything to do with this issue, there will be an unprecedented amount of women following in her footsteps soon enough.

Damien Hoffman:
Smita, when did you fall in love with the markets and decide to dive in?

Smita Sadana:
My interest in the markets started as a hobby in 1995. I'd just finished my double masters in economics. The stock market was a new American passion. I remember thinking, "How tough can buying low and selling high be? I have the education. I can do it really well." Well, the first year I managed to finish about 20% down -- which is bad [laughing], but worse compared to the fact the S&P 500 went up 30% that year!

My active investing netted me a very bad blow. But I wanted to do it right or not at all. So, I started reading and researching. I came across what turned out to be one of my favorite quotations by Paul Tudor Jones, "Why not make your life a pursuit of happiness rather than pain?" I thought about that quite a bit and said, "I'm going to give myself one year. If I can turn this around, I'm going to do it. Otherwise, I'm going to quit." I would've quit had I not started making progress. But the early success at that time was the beginning of my attachment to the market.

Damien: Can you share some of those early successes when the lightbulb went on and you knew you could be a profitable trader?

Smita: It was the mid '90s. Everything was going up. The financial media was just getting started. There was a lot to learn. I was simply fascinated with the way markets moved. I was enamored by them.

The path to where I am today has been absolutely incredible. We've been through 2 of the historically worst bear markets in a single decade. As a result, I've learned an unbelievable amount about the market in a very short time. Under normal market conditions, that amount of learning would have probably taken several decades. But the market action from the mid-'90s to 2009 has been unprecedented.

Actually, I'm very fortunate and grateful because in the mid-'90s, the markets were quite forgiving of trading mistakes -- as most bull markets are. However, if for example, I were to start trading today, I'd want to be much more knowledgeable and empowered by trading education.
No positions in stocks mentioned.
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