Trading Style Matters More Than Stocks
By Quint Tatro Oct 01, 2007 2:33 pm
Tiger Woods did not learn to swing Nike Blade Golf Clubs nor did Michael Jordan possess a leather-bound Spalding when perfecting his jumper.
I always find it fascinating when you learn that a world-class athlete learned their respective sport or honed their skills with very little resources. We often hear of fantastic basketball players learning to play in some of the worst settings or golfers who perfected their swing with the one and only club they could afford. It isn't until later in life when they have actually mastered their sport that they have the ability or the means to indulge in the finest equipment. Tiger Woods did not learn to swing Nike (NKE) Blade Golf Clubs nor did Michael Jordan possess a leather-bound Spalding when perfecting his jumper. Rather these athletes used whatever they could to learn and perfect their sport. Ironically, however, when most people take an interest in something be it golf, tennis or whatever, most will believe they need to first possess the best equipment in order to perfect their skills. Those on the selling end, have no problem with this but they know for a fact that just because Joe Public picks up the new Ping Irons he will not strike the ball like a PGA pro, nor will Suzy Q. possess a Maria Sharapova backhand if she buys the latest Prince racket.
Trading stocks is very similar and one of the biggest misconceptions I see on a regular basis from traders, is the belief that it takes the right stock to make the trader, rather than the trader using whatever he can to perfect his craft, then eventually matching these skills with the perfect stock.
I have the great fortune of moderating a trading community on my site and when we welcome a new member it is typically only a matter of time before they start asking about stock selection rather than trading skills. I don't ever fault the question, as it is extremely common to believe that the right stock makes the right trade, however nothing could be further from the truth. A good analogy would be to ask your golf instructor what ball you should use to eliminate your slice rather than having him dig into your swing. Typically one would work out their slice, then start asking about equipment.
It frustrates me quite a bit when I see or hear the media discuss individual stocks as if a simple buy or sell will be the appropriate call. This would be fine if stocks simply went up or down however we know that this does not happen. A person may have found the next Microsoft (MSFT) trading at $2.00 per share however I can tell you that there is absolutely no way the stock will go straight up from $2.00 to $200.00, rather it will be faced with many obstacles along the way. It may very well be that the $2.00 stock retraces back to $1.50 before climbing to $4.00 and therefore shakes out the holder on the 25% draw before the person can recognize a 100% return. Does this mean that one simply buys, holds and hides? Absolutely not, but it is effective in relaying the importance of learning the art of trading rather than just trying to find the best stocks.
When someone starts asking me how I find stocks, but yet they do not possess a clear understanding of trading, I try hard to instruct them that at this stage it is much more important to focus on the craft than the stock. The fact is that websites or stock services today must possess excellent stocks to even compete. Stellar stock selection has become a commodity and one can pull up just about any investing site and see what is hot and what stocks are the best in the land. Rather than try and compete in this arena, finding your own hidden gem, borrow their ideas and perfect your skill. Rather than seeking out the best stocks, seek out the best way for you to learn and ultimately you will far exceed your expectations.
At some point a trader gets to a level where a light bulb goes off and they all of a sudden realize that they possess the skills to trade just about anything. They could care less whether the stock is the next Apple (APPL) or Baidu (BIDU). Rather they see all stocks as vehicles to move them further toward their financial goals. I have seen some of the best traders successfully trade some of the worst stocks, and on the other side I have seen novice traders lose money on some of the best stocks. One has to ask, why the disparity? I believe it is because the former has chosen to perfect their skill set, and the latter would rather find the perfect stock.
As we head into the final stretch of the year, resolve to perfect your skill. If you are just starting out, set a goal to find a place or a person to learn from. If you have learned a good amount and are on your way, set a goal to iron out your weaknesses and hone in on your strengths. Finally, should you be a seasoned trader who has this game down but realizes there is always something to learn?
Well, I challenge you to do two things. Set a goal to learn something new this quarter but also make it a point to start teaching someone else.
No positions in stocks mentioned.
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