Editor’s note: This article was first published in December 2013, and its figures about Altucher, “11 books” and “more than 20 companies”, describe him at that time; both have grown since.
James Altucher is now a successful writer with 11 books to his name and an entrepreneur who has started more than 20 companies, some of which he has sold and others he ran into bankruptcy. For many years Altucher was a day trader who moved as much as $50 million in a single trading session.
He may look a bit comical at first, but make no mistake: James Altucher is someone to admire and follow as an excellent professional, both in business and in life lessons in general. Here is his account of his time as a trader and everything he says he learned about investing, about himself and about life.
I was a trader for many years and it nearly killed me. I made money both from a share of the profits I made for other people and from investing my own money. I moved as much as $40 or $50 million a day. I did this from 2001 to 2004.
I learned as much about trading as I did about myself, discovering what I was good at and what I was truly horrible at, to the point of bordering on the psychotic.
Day trading is the best job in the world on the days you make money. You have a trade you start, and 20 minutes later you can already be out with a big profit, thinking all day about how much money you’ve made.
But it is the worst job in the world on a bad day, when your heart races because you’ve spent that day losing money. I did it for years because I was out of work in everything else.
1. You can’t predict the future. Everyone thinks they can, but they can’t.
This doesn’t apply only to trading. It applies to everything. You can be married for 10 years and the next thing you know you’re divorced, and you couldn’t have predicted it on your wedding day.
You can be healthy, eat your vegetables and exercise, and a year later die of cancer.
If you want to avoid high doses of stress, stop trying to predict the future.
Of course, you can try to tilt the odds in your favour. In other words, if you don’t go around jumping off bridges, you will most likely still be alive in 12 months’ time.
2. Hope is not a strategy.
If you reach the point where hope is all you have left, it’s because you did something very wrong earlier on. Hope is not a bad thing, but if it’s the only thing you’re relying on, that’s a bad sign. You need to design strategies for everything and back up hope with action.
3. Taking risks versus reducing risk.
Some people take too many risks and go bankrupt. That happened to me. Other times people are too timid and don’t take enough risks.
When I started day trading I was so scared of risk that if I’d had a small gain I would have wanted to end the session, but then it wouldn’t be a good business. The key is to take on bigger and bigger risks as you work out better and better ways of dealing with those risks.
(Read: 4 things I learned from being broke: financial education)
A somewhat silly example would be: “I can risk driving without a licence as long as I stay under the speed limit.” In the end, it’s all statistics and probability, so if you have a method for reducing risk, it is easier to make decisions about anything. (This is what we call “controlled risk”.)
4. Avoid commitment bias.
In investing, in trading or in life in general, if something isn’t working, even if your heart wishes it would, you have to learn to say NO and cut your losses.
If a business relationship isn’t working, don’t put more energy and time into it. There is a bias (one of many others we have discussed) called “commitment bias”. We think that because we have already put time, energy and money into something, we must keep fighting for it. But this is just a mental bias you have to say NO to.
The fact that you have been in a project or relationship of any kind for one day, one month or 10 years doesn’t mean you should carry on if you really know you shouldn’t because it isn’t going well, regardless of the time, energy and money invested.
5. Physical and mental health.
A trading day brings out the best and the worst in you, so you need to look after yourself.
If you don’t get enough sleep, if you don’t eat well, if you don’t exercise, if you don’t surround yourself with positive people and you’re not grateful for what you have, you will lose all your money and go broke. Obviously, this applies to everything in life.
6. Day trading is a dream that ends up turning into a nightmare.
Day trading is everyone’s dream, because it can make you a lot of money, and you can make it from anywhere. It can give you freedom and happiness.
It isn’t going to work, but people want to believe it. Most think they have something that makes them smarter and more special than everyone else, so it will work for them. We have explained before who really makes money from trading.
Further reading
- How to build resilience to failure
- 40 universal truths for success
- 11 reflections on money
- 26 lessons to prepare your child for the real world
Featured image: Jaclyn Nash (photographer), Public domain, via Wikimedia Commons.
