Trader 101

I am a professional trader. I seek exceptional risk-adjusted returns. I try to grow my money faster than the risk-free interest rate, whilst avoiding the large draw-downs associated with the traditional investment styles e.g. “buy-and-hold”, “60/40”. Specifically, in my personal accounts I aim for returns of 30% or more a year, while limiting draw-downs to less than 10%. I look to compound these returns over long periods of time.

I trade to make money. I do not trade for excitement, ego-validation or self-justification. For those things, I drive my car really fast, I jump out of airplanes and I have a loving family to tell me that I am awesome. Knowing why you do something, and being honest with yourself about it, is important. In Market Wizards Ed Seykota says, “Win or Lose, everyone gets what they want out of the market”. The market will give you what you want, so you have to know what you are really after.

You need to know who you are, and your place in the market ecosystem. Markets are made of a wide range of participants: market-makers, hedgers, institutional investors, investment funds and speculators. I am a speculator. Speculators have one chief advantage over other market participants: they can choose how and when to engage the market. Other participants, to varying degrees, have to be in the market all the time whereas speculators can refuse to participate until they see the right opportunity.

Since you have the freedom to choose when to participate, it is important to take advantage of it. This means being agnostic regarding market direction. I have no inherent bias towards any market: I can be long or I can be short. I can be long one day and then short the next. I have been known to flip my market position and opinion on a dime as the market conditions demand.

I am both incredibly fickle and incredibly loyal. If a market is kind to me and my position is making money, I can be loyal until the end of days: I will wine her, and dine her, and perhaps even sixty-nine her. If a market turns on me and treats me bad, I become incredibly impatient and move on to the next good thing.

Large, liquid, transparent public markets provide a wide range of opportunities to achieve my goals. These markets are very efficient mechanisms for transferring wealth from the many to the few. Most market participants lose money: in order to make money you have to do what other people do not do. Since most people do what they find psychologically easy, to make money you have to do things that are psychologically difficult.

Like most traders, I struggle to do what is difficult, to trade the plan, to control my emotions. Along the way, I have learned some tricks, some strategies and some road signs in the mist. The next few posts will explore some of the difficulties of being a trader, and some of the solutions I have picked up.

What Is The Zikomo Letter?

Like all of us, I play many roles. I am a father, a husband, a son, a friend, a lover, a neighbor, an employee and a citizen. For this blog, however, I am a trader. I trade professionally for a large commodities trader, and personally for my own accounts.

The focus of The Zikomo Letter (ZSL) is on trading. Once or twice a week I post on trading, investing and personal finance. These are my thoughts and convictions, argued with passion and hopefully intelligence and humor.

In real life, I am actually reasonably humble, appreciative of nuance and incredibly grateful of my good fortune. That is unlikely to come across on this blog. I encourage you to disagree and debate with my assertions: I am often wrong. I read widely and borrow liberally, and I try to acknowledge sources where appropriate.

I am not a financial adviser or a fiduciary of any sort. Nothing I write should be taken as advice regarding the suitability of any particular security or investment strategy for you. At times I may hold positions in trading instruments mentioned on the blog. I may also have positions inconsistent with the views expressed here. Anything posted here by me constitutes my own opinion, and is for informational purposes only.

Relaunch

After a few months of experimentation and trial, The Zikomo Letter (TZL) is re-launching. The focus will be shifting towards longer posts, once or twice a week, discussing various features of trading, investing and personal finance. You will see more of my own thoughts and convictions, argued with more passion and hopefully more humor.