When I started this blog, I did not want to restrict my emphasis to trading, since the Mental Edge Newsletter and Blog at Marketwise.com focused on trading, but many readers have appreciated my column about the movie "Wall Street." Regardless of your profession, it's useful to make sure you are true to your own values as Bud Fox learned.
Lessons from Bud Fox
I recently re-watched "Wall Street." It’s a great movie, Michael Douglas as Gordon Geckko, Charlie Sheen as Bud Fox. The glamour, the wealth, and drama of the markets makes you want to watch this movie over and over again. In the movie, Geckko argued, "Greed is good." In the past, I’ve seen that saying in its negative sense. Sure, greed can motivate you to strive for perfection and keep you persisting in the face of adversity, but greed has its downside. It is often said that the markets are driven by fear and greed. Greed for money can be destructive, but Geckko actually did not merely restrict his argument to the unbridled pursuit of money. He argued that greed for whatever you truly desire is good, which may be a quest to make the world a better place or to find true love and raise a family. But clearly, it appears on the surface that Geckko is interested in the mere acquisition of money and power at all costs. He warns Darien Taylor that people like he and she aren’t the kind of people who take personal relationships seriously, and as we see in the movie, Geckko has no problem sacrificing his relationship with Bud Fox for a quick profit. Greed is not always good.
Greed may not always be good, but passion is. And in the end, Bud Fox learns this important lesson. Passion must be directed toward a goal that is consistent with one’s character. When Bud is about to be arrested for insider trading, Lou, a senior member of the brokerage where he works advises, “Man looks into the abyss, there’s nothing staring back at him. At that moment man finds his character. And that’s what keeps him out of the abyss.” We’ve all been there. I’ve seen traders lose their life savings and hold on to a pipedream of winning it all back with only enough capital to buy a few shares of the QQQQ. Trading is not for everyone, and certainly, risky trading with money you can’t afford to lose is not for everyone. In his Market Wizards interview, Dr. Van Tharp suggests that traders find a style that is right for them. Too many would-be traders are motivated by greed and trade in a style that is not right for them. Long term investing is right for some traders, and that’s fact.
Many would-be traders don’t want to accept their limitations. They can’t control their emotions yet believe they can magically learn how to do so. I’m not saying it can’t be done, but some people are never going to be comfortable with skydiving, and that’s what they are essentially trying to do when trading huge positions in volatile markets where it’s difficult to manage risk. If you have trouble controlling your impulses or emotions, you must face the facts: You are not going to be able to change a lifetime of emotional and behavioral patterns quickly and easily. Look at how hard it is to lose weight. Some people can do it easily, while others will experience health problems and still not be able to control their impulses. It’s vital to find out what you can do, but you must settle for a trading style that is consistent with your personality and life history.
My favorite scene in “Wall Street” is when Bud confronts Geckko in the park. Geckko is perplexed why Bud betrayed him, since Geckko gave him what most people want: wealth, love, and status. He asks, “You could’ve been one of the great ones Buddy. I looked at you and saw myself. Why?” Bud replies, “I don’t know. I guess I realized I’m just Bud Fox. As much as I wanted to be Gordon Geckko, I’ll always be Bud Fox.” The moral of the story is to look into the abyss and see your true nature. Discover what’s important to you and let that drive you. Passion is good, but you must know what drives you and accept it. And also, you must accept your limitations. Few will win the Nobel Prize, and I’m sure you don’t expect to, so why set unrealistic standards that you can’t achieve? Indeed, few actors even get to star in a movie like “Wall Street,” and as much as I enjoy Charlie Sheen on “Two and a Half Men,” he has never again achieved the movie stardom of his youth. And similarly, few traders become Market Wizards who can turn a small stake into a fortune. And few traders achieve enduring success that lasts from market to market.
An important prerequisite to trading with a proper mental edge is to know your limitations and work with what you have. That doesn’t mean that you can’t work up to trading at a higher level, but you have to have a realistic approach that builds on your strengths and works around your weaknesses. That’s all you can do. You can build up your trading skills through practice and experience and feel good knowing that you have mastered a skill that few have developed. Don't focus all your passion on money and the accumulation of it. Instead, focus on developing your skills and enjoying the process of trading. In the long run, you'll find that you will enjoy the game, and ironically, when you don't worry about making huge profits, you will actually trade more profitably in the long run.
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