With regard to risk:
“This great emphasis on volatility in corporate finance we regard as nonsense. Let me put it this way; as long as the odds are in our favor and we’re not risking the whole company on one throw of the dice or anything close to it, we don’t mind volatility in results. What we want are favorable odds.” - Charlie Munger (From collections of Munger’s remarks, often linked to Berkshire or related discussions.)
“When any person [or guy] offers you a chance to earn lots of money without risk, don’t listen to the rest of their sentence. Follow this and you’ll save yourself a lot of misery.” - Charlie Munger (Commonly cited in Munger quote collections.)
With regard to practice:
“Obviously if you want to get good at something which is competitive, you have to think about it a lot, learn it a lot and practice it a lot. In this world you have to keep learning all the time because the world keeps changing and your competitors will be learning all the time. So you just have to get up each morning and aim to go to bed knowing more than when you got up. If you keep doing that for a while you will accumulate some experience good and bad, people who do that almost never fail utterly. You may rise slowly, but you are sure to rise.”
(2010 Berkshire Hathaway Annual Meeting; also compiled in David Clark’s The Tao of Charlie Munger)
I got pretty “Munger-y” with that last bunch of quotes, but I think it expresses best the nature of the topic I will write about today.
This is the subject matter of the next two installments, including this one.
Watch this video when it premieres at 19:00 EST!
Next week, I will get deeper into the numbers, but a couple of things must be noted. Trading is like golf. You need to journal your successes and mistakes, and understand what it costs when you do make mistakes. Those calculations are discussed in this video!
Before you trade with any real money, you should trade with a trade simulator. It may take you three to six months before you are comfortable with it, but you need a trading plan you have back-tested first, and then implement it by trading with simulator money! It could take you a month to over a year perhaps to get used to the process, but it it essential to your growth into being a profitable trader.
When you do that, you must journal the trades as well. Follow the rules as stated here and then continue to take notes about your successful steps and your failures, and then review them so that you can improve. I will go into more detail in coming weeks!
Check the description in the video for sources of the data provided in this video.
Thanks for supporting the Buffalo Trader’s Writing Desk! More helpful content is coming. If you want more, consider becoming a paid subscriber!
Munger's bit about not minding volatility as long as the odds are in your favor is the one I keep coming back to. Do you keep notes on every trade or only the ones that go wrong?