Monday, 6 January 2020

HOW A DECADE OF TRADING CHANGED MY LIFE : A PERSONAL REFLECTION


From the Editor-In-Chief of the Pelham Blue Fund


Every now and then, I’d remind myself to check my privileges. It’s easy to complain about the state of life, petty Malaysian politics, and the world, but these days I tend to be more reflective and contemplative.

In my professional life and career, I have been in the capital markets, one way or another. The whole trading thing was a bug that I caught early, and have never really let go. The reward was worth the pain.

The percentages tend to change, but I view the whole trading endeavour via the following ratio : 20% monetary rewards, 80% pursuit of learning. The second part obviously leads to to the first part, if you’re a good enough trader.

If the ratio was reversed, it would have likely wiped me out a long time ago. Heed this important lesson : you must not trade with the desire to get rich, ever. If you do, you’ve set yourself up for failure, because what you’re really in love with is the outcome, not the process.

Desire to learn is not an innate skill for me, as it is in direct contradiction of how lazy I wish to be. But I forced myself to work hard, as it's the only way I can compete with everyone else in the stock market.

For the longest time, I’ve been trying to change how I trade for the better. Yet I didn’t realise that trading also changed me, mostly for the better, I think. I’ll touch on three aspects in which it had a profound effect on me.

It will also be a review of my journey over the past decade, of sorts.
HOW I SEE MONEY NOW

Perhaps you’re wondering how I managed to come up with all this capital for the trading business.

No, I did not win the lottery and I did not get much from the family aside from moral support (well, there was that one time when I was given a stake and subsequently squandered it. As a wise investor once said : if you're going to fail, do it when you're still young!).

Here's what it takes to come up with enough capital to start a trading business. 

1) I allocate at least a third (33%+) of my monthly income just on savings. They sometimes go to the trading account, or unit trust, or simple cash accumulation. Sometimes I'd save 50%. I earn enough income for this to make sense; I’m acutely aware of my privilege.

2) I do not have property or any fixed asset obligations that require large debt payments. There’s just the one car and the usual credit card expenses. I sacrificed a place I can call my own (and the debt commitment that would hang around my neck for 20 years) for cash, and liquidity.

3) Having grown a bit more mature, I now derive the greatest pleasure from paying off my credit card, not from using it to spend frivolously.

4) If there’s any balance left from the remaining 67%, after family obligations, bills, and lifestyle expenses, they go to savings. All of them. Things like clothes and shoes are utilitarian for me, not fashion items; I usually buy them when the ones I currently have are completely worn out.

All four of these are direct by-products of the pursuit of my passions : capital markets, and trading. 

While I like to think of myself as a world-class penny pincher, I have two major sins when it comes to personal spending : electronic gadgets (Apple products in particular), and wanderlust. On both counts, I’m just like most of the Gen Y out there. 

And like most people, sometimes I end up buying things I don’t need and spend to travel to places I really don’t need to. At this point I can say I’ve experienced enough of both. 

Having got those things out of my system somewhat, lately I’ve been more enamoured with the concept of minimalism, and diminishing consumerism. I’ve sold off some treasured possessions and realised that I never really needed them in my life anyway. I like to have more space in my life, hence I create some by eliminating items.

I’ve donated away most of my books (I use a Kindle now) and my rarely worn clothes; my wardrobe now is pretty basic. It’s less Marie Kondo and more on getting rid of shit I don’t need.

I don’t desire for a big house, or a fancy car. I’d see a friend or colleague driving a Benz and my first thought is “damn, the upkeep on that must be a bitch! Probably can use the yearly maintenance cost to buy a few thousand lots of GCB warrants. Hmm...

I don’t mean to pass judgment on others. I just wish for different things. On the disagreeableness scale, I'm at the extreme end of it. My self-validation is almost 100% internal; I no longer profess a desire to keep up with the Joneses/Jamals.

My main desire now is to make enough of a living to take care of my family and to enable me to continue my passion. I’m very, very fortunate that my particular passion is correlated with financial rewards, if I’m good at it. And to attain those rewards, I have been working my ass off, every day, and every night, for many years.

Unlike most people, I’m also able to answer the following questions without hesitation, “What do you really want to do with your life, and what are you most passionate about?”. I’ve already found my calling - it's easier this way, since I can just do it; I don't need to think about it anymore.

I no longer care much for status, and for climbing up the social/corporate ladder. The rat race is not for  me; my fierce sense of self-independence is what truly drives me,  and also to make the best use of the limited time that I have in this world.
THE VALUE OF HARD WORK

Speaking of ladders, I started somewhere near the bottom. I did not graduate from a world renowned university or gained an accent to pair it with. My aptitude in anything finance-related was zero.

I did take up the right undergraduate course, and it helped me open some doors later in my career. But in the beginning, money was a constant, painful problem, like a festering ulcer.

After many fruitless attempts, I failed to get a job for the first five months after graduating. It was not an easy job market, but I was also somewhat lacking in focus and talent. Binge-watching illegally torrented movies and playing videogames were my primary skills at the time.

For about one year, I lived with three friends in a single room, at the kind of flat complex where some dumbass would throw feces in a plastic bag into a stairwell that already permanently smells like piss. It was that bad. Really, I'm not kidding.

Then, somehow I managed to get a job as a stockbroker at a fresh graduate salary - RM1,700. This was almost 10 years ago: I’m distraught that the figure has barely budged today.

Anyway, I was a terrible stockbroker, although I did witness the very peak of Malaysia’s penny stock mania. I saw HARVEST jump from 10 sen to RM2 within weeks. METRONIC, AGLOBAL, NICORP SCOMNET, all had pretty crazy moves. Those were the days, and the sheer craziness left a huge impression on me. Obviously, my first thought is; how can I get rich from the stock market? Little did I know that almost nobody does.

As a licensed dealer, I used to give recommendations to clients and encourage my accounts to do active trades. On balance, my advice was not very good, purely due to my inexperience and naivety. My biggest accounts made money in spite of me, not because.

After realising that I’m the absolute worst salesperson this side of Greater Klang Valley, I knew that stockbroking was not for me. But it was fun, and I appreciated that it was a fully meritocratic profession. The highest rewards go to those who are best at it.

To this day, I respect all brokers in the capital markets, even though it's been called a dying profession.

I got my second job after writing an unsolicited email to the prospective employer, who boldly took a chance on me. Not wanting to fail a second time, I just worked hard, damn the long hours or mental pressure. Again, I had a lot of fun from the learning process.

And in the years since, I’ve managed to elevate my career prospects ever so slightly, with work that pays ever so slightly higher than average rates.

For the most part, I’m fortunate to still be friends with at least three of my ex bosses, in different workplaces. They still respect me as much as I respect them, largely owing to the fact that despite my many lapses in skill and occasional incompetence, they appreciate two things : 1) I’m truly passionate about the capital markets and 2) I just work hard.

Nowadays, I treat the trading thing as seriously as I do my day job. That means I have to find the time to do the research: it can be during lunchtime breaks, or at 1AM on a weeknight, or up to 7 hours on weekends. Not many people I know go to such an extent, which is all the better for me.

If I keep doing things not many others do, my competitive advantage is already taken care of. You can see the results in the trades that we do. Notice that the trading profits are slowly getting higher on a per trade basis, almost imperceptibly. This is the kind of incremental improvement that I like to achieve.

But the sheer demand of the work meant that I had to give up some normal-type things. No luxurious lunches with friends and colleagues, no nighttime drinks or clubbing sessions, and weekends that tend to go by in a flash.

I have a partner and sometimes I drive her nuts. But she has been fully supportive of the pursuit of my passion, because she believes in me. I can’t really ask for more. Again, privilege.

If you really want to follow my example - you must be nuts - and work on the trading business, my advice is to treat it as a vocation, not as a hobby. This means countless hours and of work and research daily, where maybe only 5% of the insights can lead to a good trading opportunity. You must be persistent, for there is no other way.

Most of the time you’ll be chasing down rabbit holes where there’s nothing. You'd find that your insight sucks, or you'd end up reaffirming your incompetence about certain things or subjects. It can get very frustrating.

You may end up losing your appetite, or mental state, or fall into a pit of depression. I've been there; all you can do is get back up, and move on.

But then again, by doing all this, you’d know that you already have a leg up on most people out there, simply because you work harder. You’d know not to fall for easy promises, or hysterical pronouncements by self-professed stock market gurus.

You can be confident enough to be distrustful of bold forecasts by CEOs, investment forums, superstar analysts, or business newspapers. Their incentives may be different than yours. In time, you will fine tune your internal bullshit detector. Do this and your trading will improve beyond measure.

With hard work, you’d know to completely trust your own judgment. You won’t become a genius, but you’ll be incrementally smarter each day. That’s the way I see it.

Again, as we have stated elsewhere : when we started out, our average profit can be as much as RM100 per trade (!). We’d be ecstatic, though we’d sort of ignore the fact that more than half of the profits would go to pay for brokerage fees! 

Nearly a decade later, through sheer hard work, application, and trial and error, we can get profits that are a hundred times that from a single trade. Proving that this is possible is why this blog exists. Nobody will believe us unless we show the proof.

I'd like to think that the team is a living example of how you can actually make good money from the markets. It is my personal mission to help educate and guide those who are willing to be educated and guided.

We can undertake some very quirky, sizeable trades that many people won’t even consider. We trust in our actions, as it comes from an accumulated body of knowledge. 

All that comes from sheer hard work. You don’t become a brain surgeon overnight, yes? So why is trading any different? 

Bottom line : I don’t treat trading as a ‘hobby’. It is not a ‘side income project’ for me. It's not for 'fun'. I am especially averse to any mention of 'hope'. These are not words that are appropriate for the business; I have spent half my life convincing people of this. Sometimes people don't listen.

This business requires full immersion, all the time. If that doesn’t sound very appealing, that’s probably because it’s not meant for you.



THE VALUE OF PERSPECTIVE


Remember the part about being in love more with the outcome than the process? It’s the equivalent of wanting to be rich, but without wanting to work hard for it.

People are more keen on spending imaginary money that they haven’t earned, with little regard on how to accumulate wealth in the first place. We all have done this at some point, I’m sure. Some of us can't stop daydreaming.

Many of us have dreams of attaining unimaginable wealth. We consider ourselves to be a world-beater-in-waiting. I do it too.

But consider this thought : what’s the bloody point? How much is enough? Have you checked your own privileges?

There are three main components for a ‘good’ life : health, wealth, and time.

The more time sacrificed for work may lead to greater wealth, but the bigger the toll it takes on your health. You know how it is. Maybe balance is what you seek, or maybe it's wealth at all costs. It's up to you.

But whatever is is you want to do or are passionate about - it may not be trading - have a sense of perspective. Know why you do the things you do. Don't stay stagnant; learn, and learn to fail if there's no other way. Do what you do for the right reasons.

I'm committed to do the things I do in trading, but at the end of the day, there are far more important things in life to focus on.

Just be in love with the process, and the money will come.

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