Less that 50 years ago, a dancer, self-taught investor become famous thanks to a book titled How I Made $2,000,000 in the Stock Market. His name was Nicolas Darvas. I recently read and enjoyed his book – one that I would have read when I first started to trade the markets.
On How I Made $2,000,000 in the Stock Market Mr. Darvas narrates very well the vicissitudes he went through from being a naive investor in search of tips to having an astonishing success.
Whenever I bought a stock, I wrote down my reason for doing so. I did the same when I sold it. Whenever a trade ended with a loss, I wrote down the reason I thought caused it. Then I tried not to repeat the same mistake.
These cause-of-error tables helped me immeasurably. As I drew them up one after the other I was learning something from each trading.
The experience I gained through my cause-of-error tables became one of the most important of all my qualifications. I now realized I could never have learned it from books.
The importance that Nicholas Darvas believed mistakes had in order to achieve his success is just phenomenal. I felt this was the strongest point of the book – but this is a subjective fact, probably others would pick some other nuggets.
Both we and financial markets continually change. We go through different stages of our lives. Our risk tolerance changes and so do our expectations, our skills, etc. As for the markets, as they say – markets are always the same, but always different. Each single day the market if different from the day before and from the one that has still to come.
When we act in the expectation that the world operates in one way and it violates our expectations, we often fail, but by accommodating this new experience and reframing our model of the way the world works, we learn from the experience of failure, or others’ failure.
The process of learning involves errors. The difficult thing with dealing with mistakes has, I believe, to do with western culture. We judge ourself based on the final results of our actions (or unaction) an not on in the process that we followed to get there. If we achieve our goal, we have been educated to think that we are fine and that we did well.
This kind of mentality is not one that helps to become top performers. Only by looking deeply into the processes and our thoughts with an honest mind, we can identify little nuances that can be corrected and improved.
As we start to think of ourselves as successful, we simply stop growing. There is plenty of public stories that can serve as a good example of how success kills performances.
Actually, it doesn’t kill performance, it kills awareness. As the same Darvas narrates:
The truth was that as my pocket had strengthened, my head had weakened. I became over-confident, and that is the most dangerous state of mind anyone can develop in the stock market. It was not long before I received the bitter lesson the market always hands out to those who think they can carelessly master it.
Awareness of our own weakness and failures is the quality that allows mistakes to be developed into strength. Awareness is often unpleasant because it can easily make us deluded.
Deconstructing a profitable trade or a profitable trading period just to discover and bring to light all the mistakes and things that can be improved creates a certain discomfort. It may be depressing or at least frustrating to treat a victory as we may be used to treat defeats. But that is the price to pay if we want not to be good but become excellent in our skills or endeavor.
Resiliance is needed to overcome the sensations that awareness brings to our mind. It might be a momentary drop in self-esteem or the unconformable feelings that the regular person has when he or she is asked to not indulge and go through the boring and unpleasant process of dissecting his performance. However this is how to find out what contribuited to the success and what created an obstacle.
As Harry Lorayne, magician, author, and trainer, wrote in Memory Makes Money:
Most problems precisely defined are already partially solved.
Good habits and routines are the weapons that we do have to win the battle against temporary frustration and low self-esteem. Having an efficient process flow to follow means having a more or less clear path to follow to reach success.