- “I think successful trading, or poker playing for that matter, involves speculating rather than gambling. Successful speculation implies taking risks when the odds are in your favor. Just like in poker, where you have to know which hands to bet on, in trading you have to know when the odds are in your favor.” – Sperandeo
It is interesting that Sperandeo makes a point to define the difference between speculating and gambling. He discusses how he never viewed playing poker to be gambling in the same respect that slot machines are gambling. In poker, he had the knowledge of which hands had the highest probability of winning and the option to only play the highest probability hands. This draws a direct correlation to trading. We know from our study of historical winners what qualities make up stocks that go on big runs and we have the option to only play those key stocks.
Looking at trading in this respect breaks it down into two important goals. We have to know which kinds of stocks have the best odds of going on huge runs. We also have to have the timing skills and the guts to play those stocks when we encounter them and the patience to sit on the sidelines when when there aren’t good options.
- “Trading the market without knowing what stage it is in is like selling life insurance to twenty-year-olds and eighty-year-olds at the same premium.” – Sperandeo
Again here, we see Sperandeo drawing a real world comparison to stock trading. He discusses that you just as the odds would be better if you sell life insurance to a twenty-year-old compared to an eighty-year-old, the same can be said when trading a young trend compared to trading an extended trend. He doesn’t necessarily say you should trade a new trend or shouldn’t trade an extended trend, but that you should strongly factor that in to your timing decisions.
- “To be a successful trader, you have to be able to admit mistakes. People who are very bright don’t make very many mistakes. In a sense, they generally are correct. In trading, however, the person who can easily admit to being wrong is the one who walks away a winner.” – Sperandeo
It is fairly obvious at this point that the most common advice from all of the Market Wizards interviews is that you absolutely must cut your losses quickly. The reason that many traders are unable to do this is that they are not good at admitting that they are wrong. Sperandeo suggests that many extremely intelligent traders suffer from this inability to admit that they are wrong because for most of their lives they have always been right. It goes against human nature to admit a mistake.
This is an area where I think that a lack of self-esteem can be a tremendous asset to a trader. Being unsure of yourself may be difficult to deal with in real life, but in trading, it can make you a winner just by keeping you from being a loser.
- “Ty Cobb once was asked why he never had slumps. He said that whenever he felt himself getting into a slump, he wouldn’t try to get a hit, but he would simply try to make contact with the ball. To relate that concept to trading, when you’re in a slump, try to be patient and wait for a trade that you feel very confident about and keep the bet size small. Your goal should not be to make lots of money but rather to get your confidence back by making correct decisions.” – Sperandeo
I love baseball references, and this one has a strong relation to trading. More than a few of the Market Wizards have advocated cutting back the size of your trades while suffering through a losing period to take the pressure off. This sums up the reasoning behind that advice really well.
- “Being involved in this business requires tremendous dedication and desire. However, you shouldn’t make trading your whole life. You have to take time off. You need to spend time with loved ones. You need to balance your life.” – Sperandeo
I felt like I had to include this in the top five quotes simply because it struck me as the exact opposite of how I perceive most of the Market Wizards. It caught me off guard to see someone point out that you shouldn’t let trading consume your entire life. There have actually been interviews that led me to believe that letting trading consume my life would be the only way I would ever be successful. It was refreshing to hear someone as successful as Sperandeo point out the need for a balanced life.