Be the worst trader you can be

John A. List, the Kenneth C. Griffin Distinguished Service Professor in Economics at the University of Chicago just wrote a groundbreaking book called The Voltage Effect which is upending much of conventional economic and social policy thinking. The central premise of professor’s List’s argument is that almost every social program and business plan is designed for optimal variables rather than the worst. 

One simple example that List gives is an attempt to create a new educational curriculum in the city of Chicago.  Without accounting for the fact that most of the teachers actually teaching the new approach would not be newly minted Ivy League graduates well versed in the latest nuances of pedagogical   science but perhaps sub par middle age teachers just waiting to collect their pension the project is guaranteed to fail. 

And if you think that such thinking only occurs in government let me share with you our nightmare scenario of our latest Disney vacation where the one thousand a night stay was routinely ruined by 6am lawn maintenance workers using broken lawn blowers making more noise than a Marine One landing on a White House lawn as they sweeping non existent leaves off the immaculate sidewalk for upwards to an hour each day, making the stay at Disney as pleasant as a root canal appointment.

There is no doubt that Disney paid McKinsey millions of dollars in fees for “optimizing” the sterile look of the place  without accounting for minimum wage workers who couldn’t give a flying f-k about the proper maintenance of their tools or the disturbance that it would cause the pampered and bougie guests staying at the resort.

List’s book is full of such examples and shows why so many human projects fail to replicate at scale as they inevitably run into the you-are-only-as-good-as-the-weakest-link problem. Or as List puts it, "Companies assume that we are all Mr. Spock when in fact most of us are Homer Simpson."

I myself only recently accepted the fact that when it comes to trading I am forever Homer Simpson, that I will never be Mr. Spock and that my success in the markets depends very much on addressing my worst impulses rather than trying to create the best behavior. After all, isn't the modern day trading advice simply a rehash of the McKinsey bullshit? Be the best you can be. Get eight hours of sleep. Drink lots of water. Meditate. Work out and be fully mentally alert and disciplined so that you can react properly to  every squiggle on the chart.

I can confidently tell you that since the pandemic started I haven't done one push up, averaged only four hours of continuous sleep each night and consumed about 12 double espressos per day. The only meditation I practice is imagining Putin getting the one reward that he truly deserves. And yet my trading has never been better. That’s because I optimize for the worst, not the best.

My whole trading technique rests on the assumption that I will be wrong not once, not twice, not three times but multiple times and the difference between my approach and others is that I do not walk away from the trade until it resolves positively. That of course means making very small gains consistently - a tradeoff I’ve written about before, but it also brings up another interesting point of failure. 

For the longest time I assumed that if I could show traders how to make money every day they would flock to my daily zoom sessions. But only about 10% of our BK  sub base trade with me regularly and make money every day. I’ve done tens of thousands of trades, banked thousands of pips, video recorded every session and still most traders aren’t interested in making small profits. On the one hand that’s probably good. If everyone imitated our style, the edge would be whittled away. On the other hand it just proves professor List’s point that no you can’t teach every man to fish, because most men want to just  float on the water drinking beers trying hopelessly to nab a lunker while letting millions of easy catch get away.