First Comes Belief

It was our first lesson and, holy moly, her strokes were terrible.

On the plus side, she was young and fast, and she'd had some success up to this point. But everything she did was wrong. Every single stroke needed major fixing.

When I called her to the net after we warmed up, I asked her what I always ask students the first day: What's your goal?

Her answer came back like lightning: "I want to play the pro tour."

Another time I was having a first lesson with another student. He was fast, smart, and strong, and was already showing excellent skill for being so inexperienced. His game was a force of nature. I was thinking I'd hit the jackpot with this one.

When I asked him what his goal was, his answer came back a little slower. "First, academics are most important to me. But as long as I do well in school, I'd just like to get better with my game. I'm starting a little late to reach the top, but I'll try until it looks like it's pointless."

One of those two students went on to reach top 10 in the nation, be featured in Sports Illustrated, and earn a world ranking.

The other student made rapid progress but quit playing after a couple of years because "if I haven't made it to #1 in the Midwest by now, I never will."

[By the way, both were phenomenal students.]

In my experience, 80% of what people achieve comes from their belief system. In fact, it may be closer to 90%

What specifically is a "belief system"?

I define it as two things:

  1. How big are our goals?
  2. Do we think it's possible?

The thing is, most of us are pretty good at making goals. There is a skill to it, no doubt about it, but goal-making probably won't be the number one thing to hold us back.

It's the believing part that kills us.

It's one thing to say I want millions of dollars. People who play the lottery say that all the time.

It's another thing entirely to believe it can be done.

We say we want to be a millionaire, but we know that things like that don't happen to people like us.

We say we want to win the club championship, but we know that Susie will beat us like she always does.

We say we want to be fit, but, at our age--with our busy schedule--we'll just have to settle for what we are.

And, so, nothing happens.

Trading is no different. We can say we want to trade-for-a-living, but we don't think we can do it. Trading is for Wall Streeters or Wharton Business Schoolers or genius programmers. Those are the people who make it.

So what happens to our trading?

We run at the first sign of trouble. Why? Because that's what we're supposed to do.

If we lose 5% in a month, what does that tell us? It tells us we're losers. We don't know what we're doing and we never will. Real traders don't lose 5% in a month. Real traders kill the market.

But here's the thing: do they?

What do real traders do? What are their results? Do they have 5% losing months? Do they ever struggle?

Lose, not especially great, yes, and yes.

We're told over and over that the best thing we can do as traders is not trade. The best thing we can do is to buy an Index Fund like Vanguard's VFINX. That's the best style of investing for the regular person.

Tony Robbins wrote two books outlining how the compounded interest from "boring" investing can make us rich. The usual suspects, Warren Buffet and Jack Bogle, say the same. And I keep telling you that Mr. Money Mustache has been living off of Index Fund profits alone for about decade.

If we want to trade-for-a-living, and do as well as multi-millionaire fund managers, we just have to meet the results of the S&P 500.

That's it.

We don't need degrees or complexity or super fast algorithmic computers. All we need to do is hit the Index Fund benchmark.

And here's that benchmark (% gain per year):

  • 2017: 14.12
  • 2016: 11.82
  • 2015: 1.25
  • 2014: 13.51
  • 2013: 32.18
  • 2012: 15.82
  • 2011: 1.97
  • 2010: 14.91
  • 2009: 26.49
  • 2008: -37.02

That's an average percent gain of 9.51 percent per year. There are years where the best trading investment vehicle in the world made less than 2%. That's a whole year of trading and not even producing a 2% gain. That's what the best in the world does.

And, of course, there's the year when the best benchmark lost 37%. That's a whole year of trading and whole bunch of panicked losing.

Knowing this to be a fact, do we believe it can be done now? Are these numbers reachable? Would anyone stop trading after a 5% losing month if these were the goals?

That's the power of belief. If we think it can be done, we try harder and we don't give up. And we end up achieving our goals, and then some.

Of course, that's an Index Fund. What about actual traders? Surely they do better than that.

Do they?

I'll share the research in upcoming posts.


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