Investors Mindset; Trader Or Portfolio Manager? Don’t Be So Quick To Answer.

How do you see yourself? Do you consider yourself a trader? What about a portfolio manager?

We receive countless emails and phone calls every day from program participants telling us how well they are doing, how unique our programs are, how much enjoyment they get, and how thankful they are at finding us. Still, once in a while, a frustrated program participant reaches out to us for help. A while ago I set out to understand the difference. After all, it is the same material, teachers, and tools. Why different experiences?

I folded in my other research. For years now, when I find peers in the education world, that are successful at actually investing (making money on their money) the way they teach (you would be surprised at how few there are), I interview them to understand what the common traits of success are. One day, I will pull all my interviews together and publish a book on the topic. Wouldn’t that be interesting?

Finally, I looked at what has worked for me. Since having my last job (an acronym for Just Over Broke) in 2005, I have successfully had a much better than above average lifestyle funded entirely by my investment returns.

My findings? First, if you were to look at what a successful investor focuses on, you would find that 10% is the nuts and bolts of the tools and investing strategies they employ, 40% is risk management and position sizing, and 50% is their mindset and discipline. Ironic, right? Last Trader’s Expo I went to, I visited the exhibition hall and sat in on the presentations, and they were all about the nuts and bolts of tools and investing strategies. Periodically you might hear a mention of risk management. You will be hard pressed to hear about investor mindset and discipline.

I’ve only had one peer in the education world who centered his courses solely on mindset and discipline. Norman Hallett, of The Disciplined Trader, and I would joke that people with such courses would find themselves placed behind the hot dog stand in an exhibition hall. Why? Most likely because it is not sexy, exciting, and it does not generate course sales. Many prospective clients suffer from shiny object syndrome. For investors, shiny objects are tools, investing strategies, and tactics. It is tools, investing strategies and tactics that get premier placement in exhibit halls. They are exciting, hot, and they sell courses.

Second, when we delve into the often overlooked mindset and discipline, we find something shared by those who find success versus those who have been trading for years if not decades, and still have not done much better than breaking even on their portfolio. That commonality is that successful investors view themselves as portfolio managers versus traders.

Investors who have a trader’s mindset tend to find themselves looking at individual trades one at a time as if in silos, their trades tend to have set entries and exits. They tend to want to place a trade for immediate gratification. They look at discrete wins and losses. It turns out when you analyze a history of trades by someone with a trader’s mindset; you see similar results to someone making crapshoots.

I saw recently a short clip of an interview with Robert Kiyosaki, author of the “Rich Dad Poor Dad” series, where he states that the reason brokers are named this, is because they are always broke and that it is insane to be handing your money over to them to trade. I could not agree more. I go one step further. If you have a broker or trader mentality should you be trusting yourself to invest? Something to ponder.

On the contrary, investors who have portfolio manager mindsets, find themselves focusing on how to vest their whole portfolio for consistent gains. They understand that if their entire account is not working for them, it is not working. They tend to have a sandbox of paper trades going simultaneously to their fully vested account of open positions. I call this forward testing. They are testing in real time, how a particular candidate combined with investing strategy plays out. When there is a cash opening in their live account, they can pick the best of the best from their sandbox and substitute it in. As well, should the timing for a candidate in their sandbox be ripe for entry, they can adjust the holding in their live portfolio to make room.

It turns out that investors that have spent time designing, planning out, and implementing a portfolio managers mindset see ongoing and consistent success. They tend to end well ahead of the game months, years, and decades down the line. They play the long game. They not only invest their accounts wisely, but they also use their time and efforts wisely. Portfolio managers don’t find themselves months or years down the line, having put in a good chunk of their lives into the endeavor with little to show for it.

Investors who spend little time on mindset and by default fall into the mentality of being a trader, or who have thought about their mindset and have consciously defined themselves as a traders, tend to have ups and downs in their journey, wins, but just as many losses, and over an extended period of time, end up merely breaking even.