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In its most elemental form, selling is an inner struggle that deals with an investor’s ability to tame two wild horses: one’s own inner fear and greed. In his book Trading in the Zone, Mark Douglas wrote that an investor must address four types of fear:

• losing money
• missing an opportunity
• leaving money on the table
• being wrong

Although I agree with Mark, there is much more to understand before an investor earns his “selling badge”.

I’m sitting on the lanai of a condo here at the Mauna Kea on the Big Island of Hawaii watching the sun peek above the ocean horizon, and I’m digging into the question of why a disproportionate number of my winning trades have occurred on these vacations. My journals have notes written in Hawaii over a couple of decades and several dozen trips. The results are indisputable, but why? Some observations:

In the sports world, parties debate whether a premiere defense defeats a premier offense or whether great hitters beat great pitchers. Successful long-term investors have no such debate. They know that after making sacrifices to accumulate their assets, they build a premier defense first and then they focus on offense or asset growth. Most of the reasons are apparent. Others are less obvious but perhaps even more important. 

One of the keys to maintaining and growing wealth is avoiding anxiety. Since I manage only my own family money, I am often asked by extremely accomplished business school classmates for my impartial advice about managing their assets. They’ve succeeded in their careers and mastered asset accumulation, which is Stage 1, so now they are anxious to plunge into the stock market, not realizing that, in fact, that’s Stage 3.  At this point, we sit down over a beer and I pull out my Stage 2 “sermon”. I try to explain that before they can jump into the “exciting stuff”, they have to address the mundane basics of asset protection.

I spent a couple of hours this past Saturday at the van Gogh exhibit in Philadelphia, and I walked away with a number of confirming insights about successful trading. Vincent van Gogh produced over 2,100 artworks in his brief life of 37 years. From what I saw, his highly recognizable style varied significantly depending upon his mental equilibrium. My observation is that during well-documented bouts of mental illness, he produced more complex paintings. Without exception, my favorite canvases were those painted by van Gogh when he was at peace with himself and completely in control. The results from those periods of his life were simple, bold and beautiful paintings. To me, this confirmed my own experiences as a trader. When I am in equilibrium, I manage to ‘keep it simple’ and invariably, I then produce beautiful results.

Years ago, there was a research project done involving professional horse race handicappers. The researchers surveyed the top handicappers, tracked their results and found that the actual amount of historical and relative data each used varied widely. They then reduced the number of data inputs each was allowed to employ and tracked those results. The findings showed that the handicappers’ accuracy increased despite the fact that they reduced their number of data inputs.