5 minute read
The greatest skill set we as humans have, whether you are a trader or an entrepreneur, or you’re a manager running a business for somebody else, is your ability to adapt to change and uncertainty.
Look at the restaurant industry. Certain businesses adapted very quickly and benefited. Some restaurants were brilliant and set up takeout or curbside pick-up services. Or they changed their menu offerings to include “cook at home” options. Some even offered food pantry and grocery delivery, and other innovative things that had never been done in the industry before.
What you repeatedly saw in the early days of the pandemic is that businesses either adapted quickly, adopted new strategies, or created new systems and stayed open. Or they did nothing and struggled or closed because they clung to their old ways of doing things.
The same thing is true for Professionals. The first rule of investing is: anything can happen. The second rule of investing is that you don’t have to know what will happen or what direction the markets will go to make money.
But you do have to have the ability to adapt and to act on that adaptation.
Let’s repeat that:
You have to have the ability to adapt to change and to act quickly on that adaptation.
Two years in, it’s challenging to realize that the pandemic is a great teacher from which Professionals can learn many lessons.
We are in a daily pattern of adapting to the changes in our environments and our communities. Every day, we adapt to working remotely, balancing work life with remote learning for our children, communicating through masks (or Zoom), or mastering the technologies to find and book a PCR test or vaccine appointment. These tasks require you to develop new skills or enhance dormant ones and challenge you to look at problems differently.
The ability to adapt to ever changing environments can be applied to your professional practice. You can use the same steps to adapt to the changes you will face throughout your career and your active time in the markets. After all, the markets always force you to adapt because anything can happen.
Staying open to the unpredictable nature of the markets can be challenging. By nature, humans are pattern recognizing animals. We naturally seek patterns. If there is no pattern, our brain starts making up patterns.
You would think this innate ability to identify patterns is a great skill.
It isn’t.
There is a direct correlation between the brain’s predisposition to seek out patterns and cognitive bias. If you have a certain tendency in one direction, your brain is more than happy to help you find that which you’re seeking.
Consider this: The advisor who is a staunch believer in bear markets always sees bearish opportunities and patterns. And the pure bull can always see bullish options, even when they’re not there. In both cases, they will buy in or sell at the wrong time simply because their brain allows them to see patterns that aren’t there.
The Professional’s Greatest Asset
Professionals avoid biasing their observations. They stay in a cognitive dissonance position.
A Professional can look at every bar in a chart and make a robust bullish argument for that bar and a solid bearish argument to avoid having a bias to either one because, in the next bar, anything can happen.
This ability to remain in a cognitive dissonance position is the Professionals’ greatest asset because it allows them to stay adaptive and respond to anything in their business.
The best way to avoid bias in your observation is to keep the rules that govern your investment process as simple as possible. The more complex the system, the more opportunity your brain has to identify false signals.
Professionals simplify their trade management processes to the essential components. Think of a mousetrap: five parts; you cannot remove any piece and have it work.
Applying the same thought process to your investment philosophy: if you can remove one of your newsletters and it doesn’t affect your performance, remove it. If you can remove one of the steps in your analytical process, and it doesn’t affect your performance, remove it.
By reducing your investment process to the least number of decisions and the least number of tools, you’ll get better signals upon which to base your trade entrances and exits. More importantly, you’ll be able to react and respond and adapt quickly.
Complex systems slow down your ability to adapt to the change and act on that adaptation.
The start of a New Year is a great time to revisit your systems, examine your way of thinking, and adopt a Professional Practice model.
You want to make your Professional Practice as simple and effective as possible so that you can have the least number of decisions to make to adapt and change quickly. The practice that will survive in the 2020s will be the practice that can adapt to future uncertainties.
We have not yet seen the end of the pandemic. Not only with the variants and mutations of COVID, but we also haven’t seen the effects of stimulus packages and other measures taken to ramp up global economies.
Fundamentalists are already proclaiming that unrestrained growth will result in more significant disasters down the road. A Professional, therefore, needs to not just adapt to what’s happening right now but to adapt to what’s going to happen in the future.
We urge you to start reducing and simplifying your trade management process because you’re going to need to move quickly again and again over the next several years as we continue to navigate a Post-COVID world. If your systems are too complex and inflexible, you couldn’t move quickly in these last two years. It is more than likely that your accounts lost money in March 2020.
If you thought adapting was difficult in the last 18 to 24 months, it’s only going to get worse. For Professionals, however, it’s only going to get better because those who know how to adapt will be the ones that succeed in the coming months and years.
Looking back to the restaurant industry, those who boarded up their doors in March 2020 to wait out the pandemic now face the same decision: adapt and thrive or close your doors and hope to survive. Those who quickly adapted in March 2020 are doing so again during this Omicron wave with greater ease and less negative impact on their revenues.
The financial services industry is not immune to the need to adapt and change. As discussed in Trade Like A Pro, the introduction of computer trading changed everything. Computers can execute millions of trades in fractions of a second. And they do so without hesitation or second-guessing the trade.
And while we will never be able to match the speed of computers, we can learn to overcome our biases as long as our investment systems are simple, with a few set of rules that you can adapt and act on instantaneously.
The reason why the members of our Mastermind Group succeeded in the 2020 correction was that they had a straightforward set of rules. They followed them, and they acted quickly, and it worked.
Adapt and thrive or stay the same and watch your practice die.
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