Ego and Trading Do Not Mix

I do not believe ego has any place in trading or in trading-related discussion.

It occurred to me that I may sound overly confident and opinionated at times when talking about financial topics. I could talk passionately when discussing many topics covered in this blog, for example. These would include option fundamentals, tenets of trading system development, financial chicanery and fraud, etc. Conviction, in general, can probably be mistaken for ego even though it may only be the manifestation of passion.

I hope I never sound too proud of my track record because past performance is no guarantee of future returns. Bill Miller epitomizes this lesson. While at the helm of Legg Mason (LM) Value Trust, Miller is credited with beating the S&P 500 every year from 1991 through 2005. For this longevity, Miller was a legend—and then the wheels came off. Miller led the smaller LM Opportunity Trust to big losses from 2007 through 2011 with a $10,000 initial investment shrinking to $4,815 (vs. $8,565 for an identical S&P 500 investment). Miller went on to trounce the benchmark in 2012 and 2013 before underperforming in 2014, 2015, and the first half of 2016 [after which he was no longer retained by LM].

Remembering that it can happen to Bill Miller should be motivation for me to maintain a large dose of humility at all times. Miller teaches us that a brilliant record yesterday does not justify inflated ego today. I feel strongly that historical trading volume and historical performance don’t make a damn bit of difference because tomorrow can be altogether different. And yes: I would pound the table passionately in support of this argument.

A corollary to this is that historical performance should not be a criterion for someone looking to hire an investment adviser.

I disagree with said corollary and that puts me in a catch-22 situation. Some have told me that promoting a strong track record is the most critical requirement for raising assets. This brings me full-circle to posts such as this, this, this, and this.

I guess it all comes down to modesty and gratitude: two things I think traders should never be without. I truly believe that how good I am as a trader will only be revealed after I click the “place order” button for the final time. Representing as if I know the answer to this any sooner through ego symptoms like arrogance or condescension would be deception at its finest.