This past week my eight year old son, Michael, entered his first junior golf tournament. With his proud caddie father by his side, Michael’s two day, 18 hole score of 86 bested his nearest competitor by 28 strokes. It had to be the caddie!?! Always looking for good stock trading analogies to share with others I found the following lessons worth consideration:
1. Preparation is Key
Michael loves to play golf, he just does not like to practice. If he has the choice to go to the driving range or to take a private lesson vs a round of golf he chooses the latter. When we do practice there is little in the way of structure. It is here that I realize he is only eight! When Michael was made aware of the upcoming tournament he jumped at the chance to enter but his father had certain conditions that had to be met: Michael had to go through a four day golf camp the week before and take a few private lessons in preparation for the event. One, he needed the practice and two, I wanted him to understand how important preparation is. Whether he won the event or not he would learn a lesson or two about preparing for the game. Interestingly, few traders ever enter the Wall Street game adequately prepared for battle. A trader invests in some equipment (computer, trading platform, trading system software, etc) and thinks he is ready to battle, much like the golfer who buys the best set of clubs and gold balls and thinks he can score an 80. Trading takes time and preparation which includes gaining the adequate knowledge to properly use the equipment.
2. Manage Expectations
On the next to the last hole of the first round, Michael came within three feet of a hole in one but he ended up with a par. After his tee shot rolled within three feet of the hole all he could think about was scoring his birdie. He knew the birdie was his. A three foot putt is “easy” he said. Turns out that a three foot putt is not so easy when you set your expectations up for it to be so. Expectations cause more new traders to lose money than anything else. Michael sees his golfing heroes Michelson, Woods, Els, rarely miss these easy putts and thinks it should be easy for him as well. He expects to make every one of those short putts. New traders see other traders making money and bragging about all the “easy” trades; he reads about the indicators that work 90% of the time; he hears all the CNBC hot shots discuss the big winning trades. This is the trap that has been set. The new trader is not aware that with the winners come many losers. He is not expecting the losers, only winners. If the trader enters the battlefield knowing there will be losses, then his expectations will be happily married with reality. Otherwise, reality will walk all over expectations. The three foot putts are no ‘gimmes’…just ask Michael.
3. Get Over the Mistakes
Michael’s missed three foot putt turned into a 30 foot loss. Missing that three foot putt angered Michael so much so that he did not want to finish the round. So, on the next hole he drove the ball only 30 feet off the tee box whereas on every preceding hole he could do no wrong off the box. 125-150 yards had been the norm. Then, on his second shot he chose the wrong club (his caddie told him so) and hit the ball well over the green. He ended up with a bogey. But worse, he exhibited a very bad attitude. He allowed a missed putt to affect not only the next hole but the entire round. A missed putt cost him more than a stroke…it cost him his ability to focus on the next shot. All traders will lose battles. That is a given. Losses will happen. Period. However, in order to win the war losses must be forgotten if for no other reason than they can adversely affect every other battle, particularly the next one. Accept the mistakes and move on before a crises management course is needed.
Golf is a great sport and I am glad my son has decided to take it up. Maybe one of these days he will take up trading as well and carry with him the lessons he (and his caddie) are now learning on the course.
Nice picture
Good article too