Can’t
remember where I read reviews on this book, and apparently it was one of the
must read books on trading options. Going
through the contents, what appealed to me most was there was a section on Kelly
Criterion (which I used a variation of when I was card counting). I still think card counters are the best bankroll management people
compared to average traders, poker players, and investors. This is because to be a successful card
counter, each one of us probably played hundreds of thousands of hands to get
to “the
long term.” During this long and
lonely road, most of us probably experienced “3 standard deviations” to the
left. Basically this is a grueling time
where we question the meaning of life and our existence and if it’s
statistically possible to lose so much for so long.
Money
managers, traders, poker players “go bust” a lot easier than card counters. They take it lighter too. They either leave the game (fired,
bankruptcy, quit), or start a new bankroll. Going bust a few times isn’t that big a deal
for these non-card counters. This is even
more so if the money isn’t theirs. Card
counters grind a lot harder, so we guard our money a lot closer. I don’t see myself making 100k trades a year,
or even my whole life. But I can easily
play 200k hands of blackjack in a few months. This is probably also why it’s hard to tell if
someone is a good trader, because even after 10 years, they probably haven’t
made 200k trades. The sample is too small,
luck plays a huge favor.
Now
asides from bankroll management, the main thought the book gave me was how trading
is portrayed as the polar opposite of entrepreneurship.
One home run. In entrepreneurship, you only need to hit it
once and you’re set. One homerun, it
doesn’t matter how many failures you’ve had prior. However, people generally seem risk averse in
trading/investing. There seems to be a
huge preference of taking small steady profits (and potential large downfalls) selling
net short options instead of evaluating the game mathematically. Instead of one homerun to make it, money
people trade one strike out to lose it all (again – shitty bankroll management
even if they played a positive expected value game).
Ignorance could be bliss in
entrepreneurship.
Many successful entrepreneurs admitted
to saying they wouldn’t have started their business if they really knew how
hard it was (check Guy Kawasaki). Overconfidence
was mentioned in the book as one of the top major thinking errors. In entrepreneurship, a lot of successful people
defied all odds to become successful. Overconfidence
helps. On the long and suffering journey
of entrepreneurship, being constantly optimistic and confident helps to
stubbornly move forward towards success.
The society is a better place because of them. The rest of us also gain value from their
creation. However, in trading,
overconfidence leads to you blowing up your bankroll. Then you’re broke or fired. In trading, there is no collateral benefit for
you being cocky. The society does not
gain.
If
my opinion mattered, I believe the minimum
quality all traders should have is be a net-positive blackjack player after 500
hours (100 hands / hour) without replenishing bankroll. Playing that much with real personal money, a
little something dies inside and a little something else is born. But then again, wtf do I know about
trading?
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