IN TRADING, TIME DOES NOT ALWAYS EQUAL MONEY

• Posted by chicagosean
• on October 17th, 2010

Almost two weeks ago, Charles Kirk of The Kirk Report conducted an amazing interview with Howard Lindzon of Stocktwits. This is not a review of the interview, please click here to read if for yourself if you haven’t already. It is a must read for any Trader, Investor, or aspiring venture capitalist.

I’d like to shine the spotlight on one quote from Howard in this interview that struck a chord with me both because it hit home and it represents a similar goal of mine.

I can’t believe how much time you can spend AWAY from your screens and be successful as a trader and investor. In a nutshell, “less is more.”

I’ve tackled this subject before, most notably in my post about competing against the high-frequency algo robots. In a trading world that continues to speed up, I’m constantly looking for ways to s l o w down. And one of the best ways I’ve accomplished this is by spending less time in front of my trading screens throughout the day and more time reading, brainstorming, and exercising.

I’m never going to be able to compete against Themis Trading on speed. Me executing trades on my mobile phone while sitting on the front steps of the CBOE isn’t exactly the same version of co-location Goldman Sachs is using to gain a little (or a lot of) extra edge.

Now, I know if the fine folks at SMB Capital are reading this, they might take issue with this idea. They are big proponents of screen time, putting in the extra work, and completely immersing yourself in your craft. And I agree with them when it pertains to newer Traders who are in the very important early and exponential point of the learning curve. The best way to gain experience is to, well, sit in front of your damn screen and experience everything possible Mr. Market can throw at you.

Eventually, though, many realize that the commitment required to maintain this level of learning is hard to sustain. And your “experience level” begins to plateau. See, when you’ve been around long enough, you begin to witness the same things happening over and over again. Because – despite being increasingly handled by computers – trading and investing ultimately still comes down to humans and human behavior doesn’t change. Never has, never will.

And the more you’ve been around this game, the more you realize that you can make as much money (and in many cases significantly more) by slowing down your trading and playing for the bigger moves that take place over weeks, months, and even years. It pays to step back from the tick-by-tick moves that’ll drive your mind crazy while destroying your eyesight.

Howard Lindzon has managed a hedge fund for over 10 years and has soundly outperformed the markets during this period. Meanwhile, he’s an active angel investor and has been involved in several startups. And, oh yeah, his full time job is CEO of StockTwits which keeps him quite busy and traveling all over the country. Do you think with all this on his plate, Howard has outperformed the S&P by “trading around” his positions and watching every one-minute candlestick on his charts? I think you know the answer.

Throughout my trading career, I’ve always done better when I’ve done less. Interestingly, “doing less” has taken many different forms.

As a young daytrader beginning in 1998 during the parabolic dot-com ramp and subsequent implosion, I did best when I only traded the open and the close. Yes, I was a high volume, frantic trader back then. But that was the game. My version of slowing down then was to only trade until about 11ET and then come back to my desk around 2:30ET and trade until the 4ET close. When I followed that plan, I invariably had my best trading days. The times I got myself into trouble were usually when I had a bad morning and decided to trade through lunch in an effort to make it back. Predictably, the only person richer by the close was the guy counting my commission dollars.

When I managed a small hedge fund from 2002-2004, my trading style was trend following futures and commodities. I scanned the markets after the close seeking triggers to enter trades. When a trade was triggered, I entered a market order to execute at the open the next day. Upon getting my fill at the open, I would immediately place my stop order for the trade. And then forgot about it. I didn’t sit at my screen watching the market all day. There was no need. During this period of 18-months, my fund returned 58% to my investors AFTER my 20% performance fees and 2% of assets.

Most recently, I’ve had my best success when I’ve taken steps back from the market and formed a “big picture” idea of what I thought the market would do over the next few weeks or months. I then figured how I can best profit from my idea if I’m right, and how I can best limit the damage if I’m wrong or my timing is off. The plan I’ve currently put together involves me executing one, maybe two trades per week. And, predictably, I’ve had a good run.

Trading doesn’t have to be fast. It doesn’t have to be hard. It doesn’t have to be complicated. Some of the most successful traders in the world could probably write out their entire trading plan on the back of a business card.

Lastly, I’d like to end with another great quote from Howard in this interview:

If success means survival and doing something I love, then I guess I’m a success

Yes indeed, Howard.

Thank you, Charles Kirk, for this excellent interview. It was a joy to read and I look forward to many more in your series.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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