Back in 2015, I read a book called, The Zurich Axioms, by Max Gunther.Since that time, I have spent a lot of time trying to put Max’s ideas into practice. The following are some of my reflections on what I’ve learnt about greed.
When it comes to investing or gambling, some people have been known to become greedy.Humans are naturally opportunistic — we try to take profit wherever we can find it.This is can work great when you’re scrambling for your next meal in the jungle. The modern world is much more complicated and reacting on instinct can lead to sub-optimal results.
Max Gunther had this to say on greed:
Always take your profit too soon. Decide what gain you want from a venture and when you get it, get out.
There are two main reasons why I don’t follow Gunther’s advice: planning and self-control.
Proper Planning Prevents Pitifully Poor Performance (6Ps)
Firstly, I have to admit that I don’t always think through my investment.I’m not always clear about what I want.I’m not always clear about when I should cut my losses.Too often in the past, I have gone into investments completely unprepared for what will happen — good or bad.
The biggest trick to overcome my aversion to planning has been using a journal dedicated to investing.Making just a few simple notes about what I’m trying to accomplish and the thinking behind the trade has made me a much more successful trader.It only takes seconds and the results were transformative.
Employ Self-Control
The other enemy of great performance, for me, is a lack of self-control.There are three ways that I tend to lose self-control in investment situations: through enthusiasm, fear, and hope.
I continually have to work on not getting carried away with my enthusiasm.I’m not a naturally exuberant person but when I do get excited, I become blind to risk.I stop looking at the downside and focus only on what I stand to gain.This has been a recipe for disaster a couple of times.
It especially causes me to make little mistakes that I would never make if I was thinking more clearly.When I first started trading, for example, I would select “buy” instead of “sell”.When my eyes cleared, I found that I had inadvertently put my entire stake into a product at the worst possible price.I have since learned that if I’m excited or in a hurry to “make a deal” I should stop and come back later.
I also find that fear drives my investments, especially the fear of missing out (FOMO).For example, when conditions look great to make a trade and then the price goes beyond where a trade makes sense.Often in this situation, my imagination kicks in and I hit the “trade” button to my detriment.Every time I do, I look back and see that it was my fear of missing the opportunity that made me do it.
The other way that I let self-control slip to my disadvantage, is by getting convinced by hope.Everyone tells me that “Hope is not a strategy”.As far as I can tell, they’re exactly correct. Still, that doesn’t stop me from ignoring the plan I created and doing contrary things.For example, holding on when all the signals show that I should cut my losses by selling.This is one I still struggle with.
So when it comes to greed, there are four main reasons I don’t follow the advice “Always take your profit too soon.”By applying proper planning, strengthening self-control over fears, enthusiasm, and hope, it is possible to “Decide in advance what gain you want from a venture, and when you get it, get out.”
I’d love to hear how you have overcome greed with planning and execution in the comments below!