What Makes Greatness: An Important Lesson From The Trading World by Forbes – Entrepreneurs

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In his path breaking work Greatness: Who Makes History and Why, Professor Dean Keith Simonton arrived at a fascinating finding. His historical analyses compared eminent figures across many fields with their less eminent colleagues. He found that the ratio of successful works to unsuccessful works for the “greats” was not significantly different from that of lesser, but good contributors. The difference was that the creative geniuses who found a place in history were simply more productive than their peers: they produced many more works.

So why is productivity associated with greatness?

Simonton’s answer is that a kind of natural selection is at work. Only a relatively small proportion of total works end up achieving worldwide acclaim. The productive creators reproduce more often, so to speak: they generate more and different “mutations”. Some of these stick; they become recognized (“selected”) and eventually anchor the reputations of the creators. Skilled, but less productive creative talents generate fewer mutations and are statistically less likely to yield very successful “mutations”. In other words, among talented people, what differentiates the great from the good is creative productivity: the ability to generate more and different works. It’s not that the greats succeed more often; they simply give themselves more and more varied opportunities to succeed.

An analogy would be top home run hitters in baseball. Interestingly, the players who have recorded the greatest number of career home runs, such as Barry Bonds, Sammy Sosa, Reggie Jackson, and Alex Rodriguez, are also among the career leaders for strikeouts. All of them have had long careers, usually over 20 years. A big part of their success was having a great swing–not necessarily the most accurate swing–and getting up to the plate many times.

We see this dynamic in the world of trading and finance as well. A large number of the greats interviewed by Jack Schwager for the Market Wizards books have been very active investors and traders. They find many opportunities and some of those become significant. A good example is Paul Tudor Jones, who initially achieved recognition with large gains during the 1987 market crash. As Jones described to Schwager in his interview, “The most important rule of trading is to play great defense, not great offense.” The idea is to have a few very big winners and to not go broke in the process.

Similarly, Linda Raschke, another of Schwager’s interviewees, notes in her recent book Trading Sardines the old adage that “bulls and bears make money–pigs get slaughtered”. She describes in her book her collaboration with researcher Steve Moore and how she was able to identify trades with positive expected returns. Doing so, she notes, “the equity curve maintains a steady uptrend. And, once in a while, a trade will catch a windfall.”

That’s it! For skilled traders, placing many trades, while instituting solid risk management, increases the odds of finding that one “windfall.” Successful traders are active and diverse. Like the greats researched by Simonton, they are more productive and that increases the odds of placing the few career building trades.

A fascinating post from Steve Burns summarizes the difference between great traders and good ones. Citing Stan Druckenmiller, another of Schwager’s Wizards, the author notes that the greats know when to “size up” and pursue large returns. Those “whole hog” trades are not common, but very often it is their presence, alongside the absence of very large losing trades, that accounts for a good share of overall profitability. In other words, the great trader may “strike out” as often as the good trader. It’s the ability to participate in the small number of large opportunities that makes the difference.

So what is the takeaway for those of us operating in performance fields? What makes greatness is failing fast, not losing too much, but repeatedly getting up to bat and making the solid swing. As Druckenmiller is quoted on the NewTraderU site, “The way to build superior long-term returns is through preservation of capital and home runs.” If we expose ourselves to lots of ideas and opportunities, pursue many of them, quickly discard the duds, and dive into those with promise, we provide ourselves with the best odds of achieving something great.

 

February 28, 2019 at 02:58PM
https://www.forbes.com/sites/brettsteenbarger/2019/02/28/what-makes-greatness-an-important-lesson-from-the-trading-world/
Forbes – Entrepreneurs
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