May 2012
At first blush, you’d think so. To build lasting wealth in cutthroat markets, investors must possess three key traits: knowledge, temperament and discipline. To succeed at investing, we tell ourselves, we need only apply our best trading skills to our personal portfolio management right? Think again. Trading success and personal wealth management are interrelated financial activities, that’s true, but to thrive as an investor actually demands a distinctly different mindset — a separate language. Traders-turned- investors must become comfortable speaking at least bilingually with their finances.
For our income-oriented careers — We speak in transactional, competitive, entrepreneurial lingo, exhilarating and emotional. We succeed by being the fastest, smartest or luckiest players in a zero-sum contest that turns on a dime, and is measured against the ticking clock. If we don’t act fast and on the right side of the trade, somebody else will. The goal is to make the utmost of every perceived opportunity.
For building durable personal wealth — It’s like you’ve entered another country. To achieve our personal life goals, we must be patient, team-oriented investors, calm and well- reasoned. We must speak in the language of decades (or longer), measuring our growth by that which is expected to endure and thrive in our capital markets, regardless of who is winning or losing on the individual trades involved.
Marginal utility of wealth and risk management become the critical, if initially alien priorities. For investing, we measure our risk-taking against what is necessary to achieve our most important life’s goals and what is sensible for offsetting the increased risks we’re taking within our careers. As financial author and Wall Street Journal columnist Jason Zweig has observed:
“Investing is not a struggle, a battle, a game or a contest; it is a continuous process that lasts a lifetime. Whether you are winning or losing at any given moment is beside the point. The only thing that matters is whether you prevail in the end — and the factors that determine long-term victory are the exact opposite of the ones that tend to create short-term success.” 1
As trading professionals, we find this level of bilingual fluency a particular challenge — not despite but because of our distinct experiences. It’s as if every rule we’ve learned in our homeland as traders plays against us in the foreign world of investing; many of the skill sets that reward us the most in our daily careers conflict directly with the essential tenets of sound investing, depicted below in “A Strategy for Sound Investing.”
1 Jason Zweig, “The way of the calm investor,” Money, August 2, 2004.
