Trading Philosophy - Eating Glass and Staring into the Abyss
Trading is not that fun... It is kind of like eating glass and staring into the abyss
In an interview with Elon Musk, interviewed by Khan Academy, Elon discusses his personal insights while diving into the details of PayPal, Tesla, and SpaceX. In the later part of the interview, during the Q&A section, Elon talks about creating a company…
“I think that a lot of the times people think like creating company is going to be fun. I would say it's really not that fun.
I mean there are periods of fun. And there are periods where it's just awful.
And, particularly, if you're the CEO of the company, you actually have a distillation of all the worst problems in the company. There's no point in spending your time on things that are going right. So you're only spending your time on things that are going wrong. And there are things that are going wrong that other people can't take care of. So you have like the worst; you have a filter for the crappest problems in the company. The most pernicious and painful problem. So I think you have to feel quite compelled to do it. And have a fairly high pain threshold.
There's a friend of mine who says, starting a company is like staring into the abyss and eating glass. And there's some truth to that.
The staring into the abyss part is that you're going to be constantly facing the extermination of the company. Because most start ups fail. It's like 90% percent; it could be 99% of start ups fail. So that's the staring into the abyss part. You're constantly saying, OK, if I don't get this right, the company will die, which can be quite stressful.
And then the eating glass part is you've got to work on the problems that the company needs you to work on and not the problems you want to work on. And so you end up working on problems that you really wish you weren't working on. And so that's the eating glass part. And that goes on for a long time.
And I thought hey this is incredibly similar to what trading is like. He mentions that starting a company is like staring into the abyss and eating glass. If you want to trade for a living, you are essentially starting a business. That is, the business you are running is your capital account.
And I think both aspects map on perfectly!
Staring Into The Abyss
“You're going to be constantly facing the extermination of the company. Because most start ups fail. It's like 90% percent; it could be 99% of start-ups fail.
You're constantly saying, OK, if I don't get this right, the company will die, which can be quite stressful.”
What’s it like, ~90% of traders blow up and fail? Even if that was a myth and say that most “traders” are hobbyists and don’t take it seriously, you can argue that the same goes for entrepreneurship/ starting a business.
You always face the constant fear of either blowing up or death by 1000 cuts. Either way, it is not pleasant. But that fear of extermination needs to be concurred in order to grow and at least for me this is probably what I struggle with the most.
Eating Glass (mmm Yummy!)
“The eating glass part is you've got to work on the problems that the company needs you to work on and not the problems you want to work on. And so you end up working on problems that you really wish you weren't working on. And that goes on for a long time.”
It’s a grind… Day in and day out. You must be on your game! If you get a bad night's sleep or something is off mentally, that could result in a missed trade which could have propelled your account. Or revenge traded after a loss resulting in your account plummeting to its death!
Another aspect is sometimes, I will only want to try to trade tickers that have a chance to explode when there are other tickers that have a higher probability of success but with a lower risk to reward. Obviously, you don’t want to split your time, but taking both of these types of trades is important and must be done. Every trade can’t be a home run and taking the higher probability lower RR trades are needed to grow or at least improve your mental when in drawdowns.
Additionally, trading is about doing the things that you don’t want to do. It is about deliberate practice. But that is not the sexy part, that’s not what most people want to do, they want to execute, and put on trades. Looking at past charts and creating a database is not fun or sexy. Journaling your thoughts on the trading day isn’t sexy! This is the eating glass equivalent.
Even Qullamagiee talks about this in his own special way (these always make me chuckle):
“If you can’t handle being f*cked, sometimes twice or three times, your not going to make it. Pretty much you're going to get f*cked and you have to act like it didn’t happen”
“How do you deal with drawdowns of 30%? Put your hand in your pants and squeeze your b*lls. That’s how you deal with it”
Conclusion
To sum things up….Embrace the abyss and add glass to your diet because to be successful it’s going to be a long and bumpy ride!
*The inspiration for this post came from a LessWrong article I read a while back which referenced the interview of Elon. It’s a great read for personal development thinking about your own life and dealing with tough decisions!
Index:
Technicalities of a Skill: The Dunning Kruger Effect of Trading
Eating Glass and Staring into the Abyss
