"The first principle is that you must not fool yourself -- and you are the easiest person to fool"
- Richard Feynman, theoretical physicist
The biggest obstacle to your market success is you. You are your biggest enemy. More specifically, it is that voice in your head that wants you to believe that you are smarter and possess more insight into the stock market than you really do. That voice prevents you from seeing the stock market as it really is and that prevents you from making the important decisions that you need to make to produce superior returns.
The stock market is sometimes referred to as 'The Great Humiliator' because no matter how well you might be doing the market will always find a way to teach us humility. No one is immune to this. All the greatest traders and investors in the world have been humbled by the market at times. Inevitably it is when we feel most confident that the market beast will remind us in a very painful way that we are at the mercy of its vagaries.
One of the great conceits that exist among most market participants is that they possess the ability to predict what will occur in the future. This belief is widely promoted by institutional Wall Street and the financial media because it is good for business. We pay for the advice of professionals in large part because they claim to know what the future holds. It isn't true that they know the future but what makes it worse, is that we want to believe it is true.
Over the years I have found that my approach to trading and investing has steadily shifted from predicting what the future holds to developing a strategy to deal with whatever might occur. It is good for the ego to believe that we can predict the future but it isn't a great way to trade. When we let go of that thinking and look for alternative ways to navigate the market then we can develop true confidence in our ability to produce great trades.
When I develop trade strategy, I plan on being wrong. I expect the market not to behave in the manner that I would like and am prepared to deal with those consequences. If a trade does work as anticipated then I've had good luck but it only happened because I was prepared for the worst.
The battle with ego when trading is complicated by the fact that we need to have confidence in order to be aggressive and make the great trades. If we are too passive and uncertain we will seldom make the uncomfortable plays that lead to big rewards. There is a balancing act between recognizing that we can't predict the future but being confident enough to initiate an aggressive strategy that requires a higher level of risk. We deal with this by being confident in the things we can control like our ability to make buys and sells as conditions change.
The key to keeping our ego in check is to cultivate the attitude that there is always something new to learn about the stock market. We can't learn if we think we already know everything. We will never be perfect as traders and that allows us to constantly strive for improvement. Embrace our humility and keep working to be better at what we do.
When we give up being confident about things we can't control and focus instead on those things we can, then our ego will align with our efforts. I know I can't predict the future but I do know that the market will always offer opportunities and that I can develop strategies to make money. That is why I don't worry about bear and bull markets. I just know that there will be ways to make good trades no matter what others predict about the future
The stock market is an industry that is driven by the egos of people that pretend that they know the future. One great advantage that we possess is that we know this isn't true. We can listen to their predictions and understand what people think and that gives us a better basis for developing strategies when they are ultimately wrong about the future.
Traders are often viewed as bold, brash and egotistical but the best ones cultivate humility and possess superior insight. You are the biggest obstacle to your stock market success and when you embrace that fact you can conquer it.