Sunday, March 29, 2009

Promises Promises

A few weeks ago, I said that I would review trades I had made. So far, I have presented one. Not what I had in mind, but since December I have been involved in a demanding project on a state of the art boiler plant at a major university that is taking all of my time. In fact, I have been working 7 days a week on it. The plant was designed by another firm, and I have been hired to do what is known as coordination drawings, which is an industry euphemism for "take the engineer's poorly thought out plan and figure out how to make it work". I would not have taken the job except I did not anticipate that it was going to be as bad as it has been. Even so, I am glad to know that my contribution to the success of the project is significant.

It has also brought fully to my attention why governments and institutions are so poorly equipped to manage major projects. For starters, it is extremely difficult to get a large number of people to agree on anything. Secondly, those who are given responsibility for implementing whatever is agreed to want to delegate all of the details to subordinates so that they can avoid responsiblity for making difficult decisions. Then, finally, once the details are presented for approval, the whole process starts over again. It's like groundhog day times 10.

What is most evident is that the majority of people involved in projects and programs are ill equipped to deal with the difficult task of implementation. Realizing how difficult it is to actually manage all of the details, there is a great tendency to jump over them, which only results in double the work later.

Looking at our current economic situation and the bailout legislation, it is clear that our legislators delegated the details to subordinates, passed the bills without reading them, and are now reaping the results of all the mistakes.

First and foremost, as a society, we must learn to slow down and simplify. People are in such a hurry to get whereever is it they think they're going, that they don't realize it is taking them twice as long than if they took more time to prepare. Abraham Lincoln said that if someone gave him six hours to chop down a tree, he would spend the first four hours sharpening his axe. (Haste makes waste.) So much of what we do is needless busy work that is the result of poor preparation because of impatience. We also tend to make things overly complex. Can anyone really defend the complexity of the tax code? Has it really resulted in fair taxation and greater revenues? I don't think so. Most of what government does is unneccesarily complex.

The same things can be said for trading. Slowdown and simplify. Prepare. Don't jump over the details. Take responsibility.

I just did a quick paper trade backtest on a simple trendfollowing system picking a Nasdaq 100 stock at random. It took 4 years before the system took off ultimately returning 1000% on this one stock. If you had gotten in a hurry and moved on you would have missed the best part.

Keeping it simple enables us to keep our focus and stay the course instead of getting lost in needless complexity that leaves us running around in circles never seeming to actually get anywhere. So pick a simple system, work out the details and stick to it. You'll eventually reap the rewards, which is the great thing about trading - you don't have to depend on a bunch of yahoos to make it work, it's all up to you.

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