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Thursday, May 14th, 2009

Accepting your learning style and yourself

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Dr Brett Steenbarger has a nice – and as he pointed out important – post on how traders learn and process information.

While many people assume trading is about getting rich/making money, which it no doubt can be, if approached correctly, it’s one of the best tools for self development.

I’ve been a reporter, columnist, jackaroo, cleaner, dish washer, student, publisher, editor, etc. But nothing (apart from having a child perhaps) has forced me to face up to who I am – my strengths and weaknesses – like engaging with markets have.

I like trading to be a lonely activity; just me against the market. I make all the decisions and take full responsibility for mistakes etc. In that way I also get direct feedback on me. There’s no one else to blame!

Trading does two things: firstly, gives you feedback on yourself, both positive and negative. If negative, you obviously then have the option of changing yourself.

The tricky thing I’ve found is that most of the negative feedback doesn’t mean you should change yourself, but that you should accept who you really are.

Learning style is part of getting to know yourself better; and perhaps accepting that you actually may not be who you think you are, or who you think you want to be, because of parental expectations, or teaching by a guru, etc.

As Dr Brett says, traders get into trouble when there is a mismatch between how they approach the market and how they optimally process information.

I grew up in a very aggressive, action-oriented, entrepreneurial family. My father would yell “don’t just stand there, get into it.” The problem is I wanted to stand there and analyse the situation; see the bigger picture, change things etc.

I noticed this conflict in trading. A part of me was saying “don’t just stand there, get into it” and TRADE. It associated action with success.

But the real me was detached and analytical. As I said in my last post, whenever I tried to be ‘action man’ I’d lose money and clarity. I chose to accept I wasn’t Mr Action and as a result have become profitable.

When it comes to process information and learning, I’m mostly analytical. But I also have a very strong visual element to my learning. I’ll read stuff then draw up diagrams, flow charts and models.

It probably explains why I’ve gravitated to the style I trade: aggressive-growth, trend following with market-timing overlay. It combines fundamentals (analysis) and technicals (visual).

I actually started out learning value investing, which is pure analysis. But I couldn’t get a picture of what was happening visually. I couldn’t stand buying a stock and not knowing if it was going down, up, or sideways. I needed charts.

It also helps explain my timeframe. Too short a time frame and I lose analytical clarity. Too long (buy and hold) and the visual element becomes annoyingly irrelevant.

As an aside, among professionals there seems to be a bias against visual trading. In part it’s to do with governance: how do you explain to someone allocating assets that you “just sort of know” when to buy stocks, or to aggressively buy one particular stock, because of a pretty pattern?

But I’m convinced that among conventional fund managers particularly, it is actually what separates many of the good guys from the pack – the years of looking at charts. As Richard Driehaus says, “I look at the total image. It’s more the visual impression than whether the stock breaks a particular point.” He’s one of the few to admit he makes decisions partly on “visual impression”.

Accepting how you process information — rather than how someone else says is the best way — should pay off.

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