In the Monday, March 1 edition of Investor’s Business Daily (IBD), David Hogberg interviewed economist Thomas Sowell regarding his latest book INTELLECTUALS AND SOCIETY. After reading the interview it struck me that there are some very close parallels between Sowell’s understanding of intellectuals and my understanding of successful stock traders.
Sowell defines intellectuals as “persons whose occupations begin and end with ideas.” He goes on to explain that the distinguishing difference between intellectuals and others is the former’s ideas are judged and understood by their peers and it does not matter if their ideas work in the real world whereas, with the latter, the success of their ideas do matter and are judged by third parties.
Sowell also points out that intellectuals are at home when they stay within their specialty. Other specialists in the same area of expertise understand what they are talking about or are even aware of them. But when an intellectual goes beyond his level of expertise it is like “stepping beyond your level of competence” and, therefore, is “like stepping off a cliff-you may be a genius within that area, but an idiot outside it.”
Successful stock traders have much in common with Sowell’s thesis. First, much like intellectuals, successful traders speak a language and work from a mind set understood by a very few, namely, other traders. This language includes words and characteristics such as patience, focus, discipline, high probability, stop loss, responsibility, acceptance, etc. etc. The successful traders’ ideas are appreciated and understood by other successful traders because these ideas are not put into appropriate practice in the market but by a very few. Market logic is not the same as economic or even business logic; therefore, intellectual traders function within a framework that is foreign to most others. It is much like the thesis put forth by Mark Douglas in his book TRADING IN THE ZONE wherein he says that the number one reason why the best traders outperform their peers is because”the best traders think differently than the rest”(7). Intellectual traders think and trade within a universe occupied by a very few. Is it any wonder then why so few are successful?
Second, successful stock traders have a focused specialty that allows them to be an intellectual expert within a given area. The most successful traders and investors on Wall Street and Main Street focus on a particular strategy or a particular sector that works for them and, in return, amass huge sums of money. When these same traders try to master another area, they can become, as Sowell says of intellectuals who try the same, “idiots.” The desire to step outside an area of expertise comes from an ego that craves the need to know. The bottom line; however, is that no individual will ever be able to master every possible edge in the markets. Those who try where dunce caps.
Are you an intellectual stock trader? Order that humble pie in a foreign language and you just might surprise yourself.
