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You Can't Become Rich In Your Pocket Until You Become Rich In Your Mind | ||||
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If dramatically increasing the amount of money traded is going to substantially reduce your profit per trade==== Actually, my empirical research has demonstrated tile exact same conclusion. Several years ago, part of my job was evaluating outside trading advisors. In the process, I found out something particularly interesting. There was a handful of advisors who had made money every year. Yet even for this select group, less than 50 percent of their closed client accounts showed a net profit. That really brought home to me how poor most people are in deciding when to enter and exit investments. I think the natural tendency is to invest money with a manager after he has had a hot streak and to withdraw it after a losing streak. Although you discourage people from getting into this business, lets say that somebody comes to you with a serious interest in becoming a trader. What do you tell them? ==== I know this is going to sound patronizing, but honestly, I tell them to read your first book [The Complete Guide to the Futures Markets]. I slow them down by telling them to come back to me after they have digested half of that book, knowing fall well that most of them will never do that. ==== So thats the way you turn people away from the business. Now theres a ringing compliment on my work if I ever heard one. ==== Actually, just picking the book up is a threatening experience. Seriously, I think your book gives people a good idea of the amount of work it takes to become competent in this business. ==== Is one of your motivations for trading having the ability to give a portion of your profits to charity? ==== Precisely, although I hate to put it that simply. In my youth, I was so idealistic that I thought the dollar was that unholy Mammon that one must resist in order to do humanity some higher good. I eventually learned that wealth has a great deal of inherent value. When you see somebody starving, what he needs is money. ==== I assume that you probably long ago passed the point where your trading profits took care of any personal needs or financial security you might envision. In your own case, if the charity aspect were not there, do you think you would still be trading? ==== Im not sure that I would be. I just dont know. Incidentally, let me correct your use of the term charity. I dont think in terms of charity. I think in terms of investing in the poor. If someone is starving and you hand him a buck, youve taught him that what he needs is for someone to give him a handout. I prefer to invest in the poor-to provide capital so they can enhance their own productivity. What the poor need are cottage industries that allow them to become self-sufficient. Thats the type of funding I believe in, and it may not fit the conventional view of charity. I know what Im going to say can be easily misconstrued, but if I could set up a system where I could make money off the poor, then I would have achieved my goal. I know that sounds crass. Of course, my objective is not to make money off the poor, but the point is that charity tends to spawn dependency. Thats why the Great Society war on poverty was such a failure. In contrast, if I can establish someone in a business where he can return my money, then I know his situation is stable. ==== Would you mind saying roughly what percentage of your income you funnel into these efforts to help the poor? ==== As a sweeping generalization, roughly one-third goes to Uncle Sam, one-third I put back into my account to increase my trading size, and one-third I dispense to these various projects. ==== I know that youve become involved with Indians in the Amazon jungle whose tribal customs include killing members of neighboring tribes. Wasnt there an element of fear in visiting this area? ==== No. They kill only each other; they dont bother outsiders. One of their beliefs is that whenever someone dies, his death must be avenged by killing someone from another village. When that person is killed, his village will then seek revenge in turn, and so on. ==== You mean every tune someone dies, they blame the death on a member of another village? It sounds like there wouldnt be anybody left before too long. ==== They dont blame the d-eaths of older people or young children on the evil spirits of another village member, but otherwise the answer to your questions is yes. Fortunately, their killing practices are not too efficient. However, their numbers have diminished drastically over me years, partially because of disease and malnutrition, but also because of this particular custom. I should add that the village I visited has been converted to Christianity and has given up this practice. ==== What has been your own involvement with this village? ==== Ive gone down there for extended visits about four or five times since 1982. My efforts are directed to helping them progress. For example, I helped make all the arrangements for setting up a sawmill operation. The last time I visited the village, they were building gorgeous houses. If you had seen the squalor they once lived in-children playing with cockroaches on dirt floors, rubbing filth all over their little faces-then you could understand the euphoria I felt when I saw their new homes. ==== Arent you concerned that by helping Westernize these villages, their way of life will be destroyed to their ultimate detriment? ==== Its a commonly held belief here in the civilized West that the cultures and life-styles of isolated peoples are to be valued and preserved. And I find that view romantically attractive. I would be inclined to agree with this premise if only I could find someone in one of these cultures who would stop laughing at it. An Indian I know named Bee was once read a newspaper article about his beautiful culture. Bee responded by asking, Where does this man live that he could be so foolish? He was told that the man lived and worked in Caracas. Why does he sit up there in his comfortable office and write this nonsense about us? Bee asked. Why doesnt he come down here with his family and join us? Then we can all enjoy this beautiful place together. Theyre mystified by our lack of compassion. Academics make compelling arguments extolling the beauty and virtues of Indian culture, but I agree with the Indians. ==== So the Indians generally accept the intrusion of civilization? ==== Yes. I have never met an Indian who didnt want progress- Sure, some of them want to maintain their beliefs and customs, but they all want the benefits of civilization. [Authors comment: Although I question the generalization that civilization is beneficial to tribal societies, having read Ritchies Victim of Delusion, which describes the unimaginable brutality of life and death in this society (told from the perspective of me Indians), it is hard to me the loss of their way of life.] ==== Let me make a rather abrupt transition from the Amazon to the world of trading. I know that youre considering shifting from being a private trader to managing public funds. Since you have already been quite successful trading your own funds and have a sizable personal account, wouldnt it just be easier to continue to do the same thing? Why undertake all the headaches that come with money management? ==== If dramatically increasing the amount of money traded is going to substantially reduce your profit per trade, then your implication is right: the profit incentive fees may not provide sufficient compensation for the degradation in trading profits. ==== But in your own case, you obviously feel that your approach is not volume sensitive. ==== Thats right, because its so long term. ==== Lets talk about specifics. On average, how many times a year will your approach signal a shift from long to short or vice versa in a given market? ==== Generally speaking, between one and five times per year in each market. ==== Thats probably far fewer than most people would think. ==== Right. Of course, I would prefer only one trade per year. In fact, perhaps my best trade ever was one that I held for over four years. ==== What trade was that? ==== I was long soybean meal and short soybean oil and just kept rolling the position over. ==== What kept you in that trade for so long? ==== Monthly profits. [At this point, Joe Ritchie enters the room. He is carrying a tray of coffee and dessert. The interview with Joe continues in the next chapter.] Five basic trading principles appear to be elemental to Mark Ritchies trading success. These can be summarized as follows: 1. Do your own research. 2. Keep each position size so small that it almost seems to be a waste of your time. 3. Have the patience to stay with a winning position as long as that position is working, even if it means keeping a single position for years. 4. View risk of open profits differently from the risk as measured from starting equity in a trade. The point is that in order to ride winning positions to their maximum potential, it is necessary to endure periodic losses in open profits greater than the risk level that would be advisable when a position is first implemented. 5. Recognize and control your greed. |
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