Readers who follow my blog will know that I’m a huge weirdo. For example, I used to be obsessed over trading books. I’d spend hours in the “investing” section at Kinokuniya and Borders devouring mountains and mountains of books. (Fact: When Borders closed, I ran out into the rain, turned my head to the sky and yelled, “Why, cruel world? Why?!!!”).
So I have dozens of trading books on my Kindle (damn you Amazon and your “buy-with-one click” button!), and I have dozens more on my bookshelf at home:
But about 2-3 years ago, I stopped reading trading books altogether. Why? Because after years of testing and research, I discovered that the vast majority of us (myself included) will never succeed at trading.
I was on the MRT last week and eavesdropping on a group of 20-something executives excitedly discussing about making $10,000 a month trading forex. One dude was like, “Okay, I’m going to go home and research some trading strategies!” I just sighed and shook my head.
Yes, the idea of trading sounds seductive. But when you test those strategies against real data, you’ll find that there isn’t a single one that can deliver superior results over the long-term (think 10-20 years). Even if there was, there is an almost zero chance that you and I could discover it before the opportunity disappears.
And so if you’re one of the people I was eavesdropping on in the MRT (sorry for being so kaypoh), I hope you get to read this post.
Here’s why I stopped reading trading books altogether:
1. Trading Just Doesn’t Work For Most People
James Altucher couldn’t have put it better in his recent post “The Ultimate Cheat Sheet on What You Should Do With All Of Your Money”. He writes:
“Should I daytrade? Only if you are also willing to take all of your money, rip it into tiny pieces, make cupcakes with one piece of money inside each cupcake and eat all of the cupcakes.
Then you will get sick, and eat all of your money, but it will taste thrilling along the way. Which is what daytrading is.”
“The stock market TAKES your money on bad days. Sometimes it takes a lot of your money. We’re not used to the brutality of that and it can destroy a person psychologically, which makes one (me) trade even worse.”
It’s not just limited to the stock market. Trading any market (forex, commodities, bonds, wild hogs, etc) is almost definitely a bad idea for 99.999% of the people reading this.
(Note: Trading the stock market might suck, but investing in the stock market doesn’t. Most people will fail at the former, but will almost definitely succeed with the latter if they buy and hold it over 20-30 years)
Why will most people fail at trading? Because they’re playing in the same arena as the big, bad, boys of Wall Street. Those guys have computers that can hold stocks for a millionth of a second, spy on your orders, and use that information against you. (And you should totally read Michael Lewis’ new book Flash Boys to find out more.)
2. Everything You Need to Know Can Be Summarized Into A Few Broad Themes
Trading books might not deliver any results for the majority of people, but that doesn’t mean that they’re completely useless. They can teach you all about human nature and psychology and fear and greed, which is awesome.
However, you can probably pick up those few key themes by reading a few good books. Themes like:
- Psychology is way more important than any strategy
- How you control your risk is more important than when you buy and sell
- Relying on a system instead of your gut
- Don’t think about what the market’s going to do, think about what you’re going to do when you get there.
- You’re probably a lot dumber than you think
Don’t bother reading all the tactical stuff like which technical indicators to use, which assets have the best trends, how to overlay “macroeconomics” factors, etc. Most of this stuff doesn’t work anyway. (see Reason #1 above)
A few excellent books that explore the key themes without delving into the useless tactics are:
- “When Genius Failed” by Roger Lowenstein,
- “Liar’s Poker” by Michael Lewis, and
- “The New Market Wizards” by Jack Schwager
3. There Are Better Ways To Get Rich
Trading is one of the few areas of life where luck is often mistaken for skill. If you’re one of the lucky few who’s made some money trading, awesome! But be brutally honest with yourself and consider whether you can repeat that consistently over the next 10 years, or if it was just pure, dumb, luck.
I don’t like relying on luck. If you wanted to make $10,000 a month, there are better ways to do it.
For example, you could systematically invest while you’re young so that your retirement will be taken care of in 20-30 years. You can then afford to take a few small risks with potentially large payoffs like:
- Excelling at your career and getting promoted
- Launching your own business
- Creating a prototype of something awesome, getting factories in China to produce it, and then selling it.
- Honing your skills and hiring yourself out as a consultant
- Creating art that people will love
Truly successful people become rich by adding massive value to the world, not sitting around at their computer screens staring at some dumb stock chart.
So stop wasting your time searching trading books for the perfect tactic. Get out there, talk to people, pick up a skill, put in the work, and above all, add massive value. Life will be way more fulfilling that way.
What has been your experience with trading books so far? Have you tried a strategy you read about in a trading book and succeeded or failed at it? Let me know in the comments below.