Are We in the Era of the Cowboy Investor?

In conversations about widely successful investors and traders, the same names will always reoccur: Warren Buffett, Jesse Livermore, W.D.Gann and so on. However, when you ask for a great investor of the current era, most people would struggle to name one.

Is this a sign of the widespread appeal that trading has generated? Perhaps due to the increased accessibility of trading, individual names are being lost amongst the crowd. Or maybe this is just a telling sign of the success rate and culture present in the modern era of investment.

Of course, industries that once had technological barriers to entry have enjoyed a boom in participation rates thanks to the Internet. With trading in particular, the introduction of online brokerage accounts means any individual around the world can execute their own trades and analyse markets in real-time, without the need of a middleman, as was once the case.

Guest post by  Nicholas Puri

Combined with the public perception of the luxurious lifestyle that traders enjoy, the ease of accessing the financial markets becomes a tantalising proposition. The brokerage firms offering mainstream accounts are not naïve to this proposition either; their marketing is centered on the ease of access and low-costs involved – “you can be in control of your own destiny with zero commission costs”. Of course, trade transactions may be low cost, but the financial impact of the position itself can be severely detrimental.

The gambler within us seems to rear its ugly head when investments are involved, with many people willing to ‘take a punt’ on a position. Therefore, it comes as no surprise that the statistic for success in trading is so low. But, if only 5% of the market are successfully making a profit out of trading, what exactly are the other 95% doing so wrong?

Allow me introduce you to the Cowboy Investor.

In a similar way to the cowboy tradesmen, who find inventive ways to complete a task in the quickest time possible, at the unfortunate expense of quality; many new financial traders are following the same ‘bish, bash, bosh’ mantra.

In an industry that can make or break wealth, why are most newcomers so reluctant to put in the hours needed to gain the essential knowledge?

The art of ‘blowing an account’ in the quickest time possible appears to be the preferred method of self-development. The internet is littered with forums and websites committed to the act of learning to trade. However, participants seem more inclined to discuss potential ‘holy grail’ trading systems and finding the quickest way to get started, than to actually learn the ins and outs of the industry. Is this a by-product of our instant-gratification culture?

It appears to be entirely acceptable now for an individual to seek advice on a forum, learn about a couple of trading indicators, assume they know everything there is to know about market movements (since they have read one book on ‘Price Action’) and then set themselves loose on the market to make their fortune. They may even go as far as to refer to themselves as a Trader.

These same individuals hold inspirational and innovative figures such as W.D. Gann in high esteem – a man who spent a decade researching ancient mathematical practices, natural laws and historic stock market movements, to gain the knowledge needed to build his success.

An interview from the December 1909 issue of The Ticker and Investment Digest with Gann himself, provides a magnificent quote on the subject, over a century ago:

I soon began to realize that all successful men, whether Lawyers, Doctors or Scientists, devoted years of time to the study and investigation of their particular pursuit or profession before attempting to make any money out of it.

So why is it that people learning to trade or invest feel they do not need to take their development as seriously as other professions? The problem does not start and end with the ‘gambling instinct’, I feel there is a greater issue at play – and the issue can also be the solution.

The clear lack of formal training that is available for learning to trade is inhibiting. Of course, university degrees on the subject do exist, but they are not as widespread or as well regarded as other fields such as architecture, economics or law. In some respects, this is understandable, and is also confirmed by the investment banking criteria for new traders; physics, mathematics and engineering backgrounds being desirable, ahead of a degree in trading itself.

Perhaps if the study of trading and financial markets was given a more formal grounding and an academic approach by those wishing to learn the subject, it would lead to the profession receiving the respect it deserves from new entrants. There is undoubtedly more than enough academic and thought-provoking content as well as many scientific schools of thought, to warrant this type of approach to the matter.

This change in perception could greatly reduce the success rate of online trading ‘scams’ and ultimately save many people the pain of naively burning through their hard earned money. It’s certainly no easy ride for the cowboy investor.  Yee-haw!