Quora.com: What-do-the-fund-managers-that-consistently-beat-the-market-do-differently-when-picking-stocks-than-those-who-cant-beat-the-market

Great fund managers are not smarter, they have smarter portfolio management habits. Making money is not about trying to be right, it is about accepting to be wrong and move on. That is much easier for married men…

Portfolio Manager serenity prayer

No manager consistently beats the markets. Every style has its peaks and valleys. The difference is how managers weather those periods. Profits look big only to the extent losses are kept small. If You know when your style is out of favour, then fold, take less risk. Making money is about accepting to be wrong and move on.

Risk and trading edges are not stories, they are numbers

Finance is the only industry where science fiction is smack in the middle of the marketing pitch and nobody calls the bluff. Ask any manager what their trading edge is and they will weave some positive science fiction story that would put LafayetteRon Hubbard to shame.
Read Jack Schwager’s and Mike Covel’s books and the common thing between all market wizards is their understanding of risk. Risk management is not part of the business. It is the business.
You just cannot meditate enough on this formula
Stop Loss is the 2nd most important variable
Look at the above formula. Stop has a direct impact on the following variables in your system :
  1. Win%: the tighter the stop loss, the lower the win rate
  2. Loss% (1 -Win%): and vice versa from above
  3. Avg Loss %: stop losses cap your losses. BTW
  4.  You can’t buy if You are fully invested
  5. Position sizing: anchor your stop loss and limit prices for position size
Many books were written about cutting losses short and running winners. Very few were written about riding losers and cutting winners.

90% of trading is mental, the other 50% is good math

Making money in the markets is like diet: simple but not easy: eat less, exercise more. Simple, yet the number of obese people continues to go up, not easy. Making money in the market is simple: buy stuff that goes up and short stuff that goes down.
The difficult part is the inner chatter, the beliefs we hold. Great managers have exceptional inner alignment from deep subconscious beliefs to daily routines and habits. Setting a stop loss and honoring it is not a debate: it is a habit.
Some people have subconscious beliefs that they are not worthy of the money they make. So, they sabotage. Some people have fairness as a core value, so stocks should revert because they are too expensive or too cheap. Well, life is unfair and so are markets. Fairness is hardwired in us, It is also a destructive belief.
I have an exercise about eliciting deep habits, but it is a daily struggle.

Complexity is a form of laziness

Long term performing managers have worked hard to simplify their process. Complexity is fragile.
Stress is designed to de-activate the thinking brain. It is an evolutionary built-in feature. If You start thinking that the lion chasing You is in fact a confused cat with some unresolved oedipian complex, then You are lunch.
Markets are stressful. So, it is impossible to execute complex sequences under heavy stress. This is why people make stupid (referred to as sub-optimal) decisions under stress.
Fear makes anyone piss their pants. Fortitude is the ability to work with wet pants.

Grandmother’s advice on advises

Only take advises from people You want to look like. That just took care of 95% of glorified journalists otherwise referred to as experts and market gurus.
You are 100% responsible for your own decisions.
The attitude towards mistakes is fundamentally different. I worked with one fund manager who one day called me to his office to talk about a stock he had some loss. This stock was literally the best performer that year (pure veteran’s luck). After being told that I should have insisted, I finally answered: “R…, if we are here having this conversation, it is because 1) i told You to buy 2) You did not and thought it was a stupid idea 3) You watched it go up 4) You felt frustrated 5) You bought at the peak 6) Now You nurse a loss, feel frustrated and want to blame somebody.”
There is an interesting book called mindset about fixed versus growth mindsets. Finger pointing is a classic fixed mindset attribute, quite destructive in trading
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