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“Work hard and you’ll be rewarded.”
“Do a lot of research, pick the right stocks, and you’ll become rich.”
Both of those axioms sound simple and a lot of people want you to believe them. Such phrases, however, have nothing to do with real success — in the markets or in life.
My wife is currently taking a course. She studies for hours and hours to do well on each test. I remember being in that same situation some years back but my approach was different. I would have studied probably for about an hour the evening before the test and I would have gotten an A. Is that because some people don’t have to study hard to make good grades? Perhaps. My wife thinks so when she says, “I’m not you. I have to do things differently.” I also suspect that our unique approaches and results have to do with more than just the amount of time we spend on something.
Much of the difference comes from how effectively we use our time. I have always been incredibly good at grasping the structure of things so whenever I studied anything, I made sure that I mastered the structure of what I was learning. Understanding that structure meant that I could then answer almost any question relating to the subject.
If you don’t master the structure and instead just try to learn everything, I think that strategy (working long and hard) is quite ineffective. These comments actually have nothing to do with my wife’s study habits. Rather, they have everything to do with how you use your time for your pursuits and what kind of results you generate. For example, traders/ investors who use their time effectively are more likely to spend less time “working” and they are more likely to be profitable. What does that look like? Based on my work with many similar kinds of people over many years, here are two fictional but realistic examples.
Geoff Carter was a typical investor who spent 22 hours each week on average working at his investing role. What did he do during those 22 hours? First, he read carefully about 15 weekly newsletters and compiled lists of all the stocks that were recommended. Then he studied each stock’s price chart and each company’s fundamentals. From that research, he picked the stocks he liked the best and invested in them. Somehow though, if Geoff bought them, they seemed to go down.
On the other hand, Megan Smith was an atypical investor. She averaged only 6-7 hours each week on her trading/investing but Megan almost always made money.
Each week Megan ran a computer scan for the most efficient stocks. When the market was doing well, she scanned for the stocks that were going up the most. When the market was doing poorly, she scanned for both the stocks that were going down the most and for those that had the most value. Manually scanning stocks with her criteria might have taken many hours each week but her process didn’t take more than fifteen minutes because her computer did the work for her.
Based on her weekly scan, Megan bought the stocks that were most efficient. (One way to do that would be to use the Market SQN® score to compare stocks.) Once she bought a stock, she kept a trailing stop exit order on it. At the end of every trading day, Megan ran a spreadsheet on her positions and compared the closing price for that day to the high for the stock from the time she’d entered the position. She was quickly able to determine if any of the stops needed adjustments. This process didn’t take much more than ten minutes per day because her computer did most of the work for her.
Sure, Megan occasionally had a stock that went down and hit her initial stop but the most she ever lost on any one position was 1% of her equity. She fully understood that her position sizing strategy was the most important systematic factor in her trading to meet her objectives.
Thus, Megan spent about fifteen minutes each weekend running her stock screens and around fifteen minutes each evening updating her account — all which totaled maybe ninety minutes per week. So how did Megan spend the rest of her “investing/trading” time of 6-7 hours per week?
She spent those other hours working on herself by doing the following —
- She made sure she spent about a half hour each day on the top tasks of trading doing her self-analysis, mental rehearsal, daily debriefing, gratitude, and the other tasks.
- She spent an hour each weekend thoroughly reviewing her results for the week asking herself, “How could I have done better? Where can I improve?”
- She was constantly scanning books and magazines looking for more effective trading ideas that she could easily implement.
- Every quarter, she reviewed and updated her business plan.
- Every quarter, she also reread one or two of the volumes in the Peak Performance Home Study Course and redid the exercises in them.
So it’s not the amount of time that you spend on your trading/investing that makes you money. It’s how you spend your time that’s all important.