‘One lesson is that early failure doesn’t necessarily mean long-term failure and the other lesson is that to be a Market Wizard you have to have perseverance.’ - Jack Schwager - The AlphaMind Podcast.
As I read through the latest version of the iconic Market Wizards books, where Jack Schwager interviews traders who have achieved outstanding success, against the odds, it occurred to me that if there was a red thread which seems to run through each of these books. The red thread is that in almost all cases, the traders suffered serious, sometimes devastating early career failures and setbacks. In my recent interview with Jack for the AlphaMind podcast, I asked him about this. He reminded me of a trader from his first book, Michael Marcus, who over a 10-year period managed to turn $30,000 into a stunning $80,000,000. However, Michael blew-up his account on several occasions, before he started to turn the corner and start on the path which lead to such great success.
In the quote which started this article, Jack was referring directly to Marcus, however he could have been talking about almost any of the traders featured in any of the Market Wizards books. Ray Dalio, who built the world’s largest Hedge Fund, Bridgewater Associates, told Jack that he was nearly wiped out early in his career as a young commodities trader. As for Bridgewater, it almost went broke even before it became established, “I’d lost so much money I couldn’t afford to pay the people who worked with me. One by one, I had to let them go,” Dalio wrote. “To make ends meet, I even had to borrow $4,000 from my dad until we could sell our second car.”
The biggest obstacle to trading success, is not failure itself, but ‘Fear of Failure’.
Failure is something we all must experience in order to grow; avoidance of failure holds you back from growing. When I was a trader, I kept this quote by Baseball legend Babe Ruth glued to my trading desk; ‘Never let fear of striking out keep you from playing the game’. I like many people was prone to ‘safety behaviours’, the aim of the quote was to trigger me out of that mindset.
We are not helped by many of the messages we are taught early in our lives. Our education system rewards success and punishes failure, thus propagating this ‘fear of failure’ notion at an early age and setting it deep in our unconscious. Cultural memes, such as ‘failure is not an option’, only seek to reinforce this.
In addition, we tend to naturally avoid risk, who wouldn’t prefer safety and security over danger and uncertainty. This brain’s defence mechanism aims to keep us alive and away from dangerous situations. It is not just physical threats, but psychological threats it seeks to avoid. The brain and our nervous system try to shield us from things like shame, embarrassment, and failure. Our tolerance for emotional discomfort is extremely low causing us to seek the elimination of risk and a preference for choosing less risky options, over risker choices that may produce better outcomes.
Failure is an Option
Playing it safe entails many risks, particularly in a game like trading, which requires taking risk in order to succeed. One of the points I feel Jack is trying to make clear is that ‘failure is an option’, and perhaps a necessary one for success in the world of trading. These don’t have to be catastrophic failure, just ones that involves sufficient amounts of emotional pain, and a response which receives this as a feedback and new learning, as opposed to flight and avoidance.
Failure is something that so many of the most successful people in all fields were willing to embrace on the journey to greatness.
“I've lost almost 300 games. 26 times, I've been trusted to take the game winning shot and missed. I've failed over and over and over again in my life. And that is why I succeed.” – Michael Jordan.
“Failure is an option here. If things are not failing, you are not innovating enough.” - Elon Musk.
“Failure is simply the opportunity to begin again, this time more intelligently.” - Henry Ford.
The Power of a ‘Growth Mindset’.
One of the most influential books on Human Potential in recent years is Carol Dweck’s book ‘Growth Mindset, Changing the Way You Think to Fulfil Your Potential’.
The essence of Carol’s Growth Mindset philosophy is that we are governed by two main mindsets, A Growth Mindset and Fixed Mindset. As we navigate our way through the world, we tend to switch between these two polar opposite mindsets. However, the more we adopt a Growth Mindset the better our chances of achieving success, whereas when we adopt a Fixed Mindset, we are more likely to become stuck in a pattern of unhelpful and sometimes self-sabotaging behaviours.
People with a ‘Growth Mindset’ embrace failure, they do not see failure as a series of setbacks, but as part of the process which will take them to success. The following table highlight some of the attitude differences between people who are predominately Growth mindset, versus Fixed Mindset.
How to cultivate a ‘Growth Mindset’
Everyone had the ability to develop a Growth Mindset, however often our prevailing mindset is Fixed, or we are easily be triggered into a Fixed Mindset. However, resilience, growth and success usually stem from a Growth Mindset. Here a few things you can do to move towards a Growth Mindset.
1. Own Your Successes and Your Failures.
I developed a mantra in my latter trading years which took the line of ‘Embrace Failure, embrace success, learn to love your losses, own everything which happens to you’. This mantra and mindset coincided with my best years. Trading is a lonely world and we are easily forced into a fixed or negative mindset which can see us avoid responsibility, hide and seek to blame others. You must own everything you do in trading and try to foster a mindset which will helps not hinders you. Try developing your own mantra’s and affirmations or use quotes which can inspire and remind you. Make them visible and view them regularly.
2. Develop Your Relationship with Losing.
No pain no gain: You cannot win and not take risks, if you seek to avoid them, you’ll merely suffer a slow demise. The mantra above, where I said ‘learn to love your losses’, made them easier to bare, easier to manage, and I then viewed them as a necessary evil on the journey to success.
3. Make Everything You Do A Learning Opportunity.
Many of the best traders devote an inordinate amount of time studying their behaviours and actions. They look at their loses and their wins and seek to learn from them all. Your wins hold the behavioural DNA to your success, likewise your losses illuminate parts of your behavioural DNA that you need to address. Every action holds a clue. Journals are one of the best tools for enabling this process.
4. Seek Feedback and External Observations.
The above learning will be far more effective if it is accompanied by feedback. The more feedback you can get it, the better it is for you. The market is always giving you feedback, if you keep a journal at the same time, you can match your feedback to what prompted your decisions. If you have others who can provide feedback, even better.
5. Develop the Process, Don’t Be Fooled by The Outcomes.
Trading is a process of skill, but it relies to a high degree on randomness. A poor trader can have winning periods, whilst a strong trader can suffer a long period of losing. However, over time the skilled trader wins out, and the lucky trader eventually disappears. It is the process which matters, focus on the process, assess how well you are progressing, outcomes do matter, but try and balance them.
6. Work on Your Development, and Keep Working on It.
Mastery comes from always developing, always growing, always getting stronger. Growth Mindset traders always look to grow, they never feel they are the finished article. I coached 3 of the traders featured in Jack Schwager’s new book, ‘Unknown Market Wizards’. Someone asked me, “If they were such great traders, why did they need coaching”. That is a Fixed Mindset question. I responded, “It wasn’t because they were great traders that they needed coaching, it was because they were great traders that they sought coaching.”
Great sportspeople, great leaders, great artists all seek coaching to improve themselves. If trading is a skill, then your ability can be improved, but if you believe you are good because you have a gift, then that is probably as far as you can go.
The AlphaMind Podcast
The AlphaMind podcast is co-hosted by Steven Goldstein and Mark Randall, market veterans with over seven decades between them in the financial markets. The podcast delves into the lives and stories of extraordinary guests whose experiences provide a fresh and powerful lens through which to understand the mental, emotional, psychological and behavioural challenges people face when encountering risk and uncertainty in financial markets. To find out more visit the AlphaMind podcast website.
The AlphaMind Trader Performance Coaching Programme
Our powerful Trader Performance Coaching Programme focuses on helping people develop and improve the key risk skills, abilities and mindsets which contribute to trading performance mastery.
This programme makes use of our unique and powerful ‘Human Alpha Performance Model’ which helps illuminate the human aspects of the risk process as people navigate their way through the Financial Markets. The model helps people make sense of their behaviours when taking and managing risk in the financial markets, whilst the coaching helps people to make key changes and adjustments which drives growth in risk capability and personal performance.
This programme has been delivered over the past 10 years to people at many of the world’s leading trading and investment firms.
Click here to find our more about the programme, or email info@alpharcubed.com or steven.goldstein@alpharcubed.com.
.png)
.png)