Hi Tom,
I’ve just completed your survey. As some others have noted, many of the questions on the survey didn’t seem relevant to me as an investor. Also none of the questions let me get at what has been the specific keys of the issue, for me at least. Hence, this post.
What I imagine you might be doing is along the lines of what Alexander Elder (“Trading for a Living” and “Come into My Trading Room”) did for me many years ago. Of course, it would be improved significantly by packaging in a video format and enhanced by a mobile app that would help ingrain key principles into a person’s memory. More on both below.
Assuming i have a “good” system for investing, here are the most important things I had to master, — which might also be relevant to your coaching program/app.
.A. First and by far the most important, for me personally, is managing (limiting) how much of my money is being put at risk. In simple terms, when times are good, I frequently need to remind myself to not be “greedy”. In practical terms, that means not going over a predetermine limit of how much I’ll put at risk in a particularly appealing stock or in total during rising bull market. The easiest way I’ve found to be mentally “tough enough” to hang in during a major drawdown is to have been mentally “tough enough” to say no to greed in the preceding months when the market was doing well. This is very different than the type of mental “toughness” that I think was referred to in your survey.
.B. Knowing my stock methods inside out also helps because it enables me to make an informed decision about how much to commit to the method(s) so that fear can be kept to a manageable level when downturns come. After designing a model that looks profitable in backtests, I try to make it “break” by “detuning” the weights given to different factors. It is very easy, for me at least, to fine tune a strategy so its drawdown looks very low in testing. But that is almost certainly an illusion. So I try lots of variations of the method’s parameters. The worst results are what I use to determine the “risk” that is in the method. Of course, I use the “best” settings of the parameters for picking the stocks, but I use the detuned weights to estimate the drawdown I am risking.
.C. Having more than one method has been very, very helpful to me. Very often when one method is “misbehaving”, another one is producing good results. That makes it easier to stick with all the methods including the one that is temporarily underperforming. From testing and live experience I know any one of my methods can “misbehave” for several months before taking off. I’ve got to be able to stay in them to catch the sudden upswings. Knowing the method and have more than one method has been very helpful.
.D. Team work – your survey did include this question, but I’d like to explain how it works for me. Before both my wife and I both retired, I’d place the trades in our joint accounts by myself. I found that stressful because I was concerned about making any number of small mistakes – eg, reversing the letters in the ticker, typing in the incorrect number of shares, etc. Some times I’d just skip the weekly rebalancing because it just seemed too stressful. Doing it when stressed could increase errors. From back tests (rebalancing 1 week vs 2 weeks) I knew I was giving up very little by skipping a week (on average about 0.1% of gain for skipping 1 week’s re-balance). But now that we’re both retired, we do it together and it is MUCH easier on me from a stress perspective.
The above are 4 key specifics (for me personally).
But more generally, what I think people like me might want/benefit from in a coaching program would be the following.
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The investing method(s) – has to be known to “work”. Elder calls this your “edge.” But more than this, the method has to be “workable” by you given your personality, available time, etc. Helping a person develop an investment “edge” would likely be too complex for any app, but I really appreciated Elder for stating the obvious — that an “edge” is absolutely essential.
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Financial limitations – how much “risk” money do I really have (affected by how secure my job is, what other income sources I have, does my spouse have a steady income, how solid is my marriage, when do I need money for my children’s college, low big a loss can I endure, how long do I have for it to recover from a drawdown, how much money should always be in cash to cover living expenses for 1-4 years, etc). Note, these limitations go up and down as circumstances change. Coaching could help a person work thorough all these factors, and rework thorough every couple years. Although Elder didn’t explore all the variations I’ve listed, he did get me started to think about this area. I appreciate that a lot.
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Emotional limitations – making a personal list of emotions that negatively affect decisions, then developing strategies to mitigate these problems. I’ve already mentioned one that I found especially relative (points A-C in the list at the top). However, I recall one fellow who told me almost 20 years ago that emotionally he couldn’t stand losses over $200 on any single trade even though he could easily handle much larger losses from a purely financial perspective. He said it didn’t matter whether it was a $1,000 position (so a 20% loss) or a $10,000 position (2% loss). His solution to this idiosyncratic issue was to use stoploss orders. Worked for him. In any case, I could see value for a coaching program to help a person identify both general limitations to set as well as personal idiosyncratic ones.
Also, I can see how a mobile app could be a help not only for content intake, but for reinforcing key points. At one time, I used large post-it notes (taped to my shaving mirror or to the front of my computer screen so I’d be mentally reminded each day) and more recently by adding reminders to my “to-do” list app. I doubt you’ll be surprised to learn that a frequent reminder is along the lines of “Don’t be Greedy”/“Pigs get Slaughtered”. Also, the larger notes taped to my shaving mirror would be the list of possible drawdowns for my various methods which was more detailed version of “Don’t be Greedy”.
Good luck on your project,
Brian