A quick story that illustrates a principle:

The past few weeks have seen epic ski and snowboard conditions in the Sierra Nevadas — maybe the best ever.

After a stretch of t-shirt weather, multiple storm fronts dumped something like ten feet of snow in two weekends, followed by glorious sunshine.

In our Mercenary outing at Northstar, yours truly was reminded of just how great the slopes can be. But I was also reminded of the one unpleasant thing — wearing the boots.

Clomp, Clomp

If you ski or snowboard, you know how uncomfortable those damn boots can be after a long day. Clomping through the parking lot beforehand… feet and legs tired and worn out after. Worse still if you parked a good distance away. Clomp, clomp, clomp.

At Northstar, though, I noticed something. A few boarders had started wearing small backpacks with hydration units attached to them — a little tube you can drink gatorade out of. That got me thinking.

Hmm. A backpack…

So the following weekend, at a different resort (Mt. Rose), I tested out my plan:

• Wear moccasins to the lodge.
• Carry boots in a bag with handles.
• Boots on at the lodge.
• Moccasins and bag in backpack.

Then, when the day is done, the reverse procedure:

• Boots off at the lodge
• Moccasins and bag out of the pack.
• Boots back in bag.

This may sound like a small thing. But if you’ve done that “clomp, clomp” enough times you know it isn’t. Man were my feet grateful!

And you know what the really cool part is? The compound benefits over time.

Considering some guys are still skiing in their 80s, I could conceivably be snowboarding for another 50 years. And in all those decades, I may never clomp through a parking lot again!

The Little Things Add Up

Now take the general concept illustrated here:

• Small incremental improvements add up.
• Sometimes you find them in unexpected places.
• Observation and creativity are best practices.
• Little gains compound into big gains over time.

Think how powerfully this applies to trading. When you think of the benefit of small incremental improvements, compounded over years or even decades, the results can be mind-boggling.

Just the other day we were chatting with a legendary trader — who you’ll hear more from soon — who was inspired by a recent Mercenary piece.

After thinking about the concept of “leakage,” this trader became convinced he could find at least another 1% a month in peformance gains for his existing strategy. And that’s on top of an already proven method with already excellent returns.

Just think: What would an extra 12 to 15% a year do for you over five years? Ten years? Twenty? And if he can find it, why can’t you?

ABC

In the classic play-adapted movie Glengarry Glenn Ross, the successful big shot from Mitch & Murray is called in to pep talk a group of sad-sack real estate salesmen. His immortal manta for sales success is “ABC.: Always Be Closing.”

The trader’s version of this mantra is slightly different. For us it’s not Always Be Closing, but Always Be Climbing.

What does it mean to “ABC,” or Always Be Climbing?

It means you always want to be in shooting distance of new equity highs. Not just from a cumulative profits standpoint, but from a knowledge standpoint as well.

Half the reason risk management is so important is to keep you in the mix, with new equity highs either currently being exceeded or not a far distance away. And when market conditions are challenging or sluggish, there’s no better time to book new highs on the knowledge and research side. (Many traders say their best research — and their biggest breakthroughs — were achieved in adverse conditions.)

The Climbing Mindset

The other thing you’ll discover, if you don’t intuitively know it already, is that “ABC” is a mindset — a way of life even.

Just as great salesmen can’t help but naturally go for the close, great traders can’t help but constantly be on the lookout for ways to improve: Their edge, their methodology, psychology, information flow, everything.

It gets to be a part of you, to the point where you are constantly turning things over playfully and creatively in your mind (even in the waiting line at ski resorts). It becomes an addictive game (but a good addiction in this case).

So what are some ways to cultivate this ABC mindset, and thus accelerate your path upward as a trader? A few quick suggestions:

• Be willing to experiment. To a significant degree, you have to “try stuff and see what works.” Take a deliberate attitude of exploration and experimentation at the margins. Set up your experiments so they are small and low cost, providing useful insight or food for thought even if they fail. In trading specifically, a special “beta” account or “R&D” account is ideal for this — a small amount of capital set aside for trying new strategies and techniques on a low risk basis.

• Journalize your process. There is nothing in the world quite like writing things down — or talking into a digital recorder, which has much the same effect. The important thing is that journalizing your process — using words to describe what you do, why you do it, how and where you need to improve — has a powerful effect on your brain. It helps you become more objective and detached in analyzing strengths and weaknesses. It helps kick in your problem-solving circuits and gets your wheels turning, creating those “a-ha!” flashes that come at odd moments like buying milk at the grocery store. And if you really get into the puzzle solving aspect, it makes the process fun.

• Interact with colleagues. Over the years we have become convinced of something: Traders need other traders. Not in the day to day necessarily, but at the end of the day. As a source of sharing and camaraderie and support. Traders can benefit hugely from relating their experiences and bouncing ideas off each other — even if the methodologies in question are completely different and not a single “signal” is shared. This is probably so because the human mind is not designed to operate in a vacuum. We benefit from the thoughts and observations of others. They are sparks and catalysts for our own new realizations.

• Seek wisdom and experience. As Confucius says: “By three methods we may learn wisdom: First by reflection, which is noblest; Second by imitation, which is easiest; and third by experience, which is bitterest.” Experience doesn’t always have to be bitter — sometimes it can be fun — but the process of accumulating it can be tough! Finding yourself in the company of wise and experienced traders, who you can observe and learn from, is often a great way to imitate and reflect — all the while building your own foundation.

As a quick aside, I would be remiss in not mentioning the following. The learning aspect — helping traders grow via observation and side-by-side participation — is a big part of what makes the Mercenary Live Feed such an excellent tool.

As a Live Feed subscriber wrote to us just recently:

I am greatly enjoying the learning experience of watching your portfolio move and grow on a day to day basis.  This upcoming market adjustment will be the first I experience with any semblance of a conscious idea of what is going on, and I look forward to seeing how you deal with the various components of your portfolio in shifting over from a bullish market to a bearish market.

JS

p.s. Like this article? For more, visit our Knowledge Center!

p.p.s. If you haven't already, check out the Mercenary Live Feed!



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