Market Wizard Tom Basso - "Mr. Serenity"
In this podcast Michael Covel interviews Market Wizard Tom Basso. Michael notes that his interviews with Tom Basso are some of his most popular podcasts. I agree, Tom is one of my favourite traders and I always learn some nuggets of trading wisdom when I listen to him speak. Michael has combined all 4 of his interviews with Tom into one podcast that runs well over 4 hours. This podcast review focuses on the first interview in the podcast but I encourage you to listen to the complete podcast, you won’t regret it. Part 1 of the podcast includes an early recording of an event Tom spoke at in the early to mid 1990’s. Michael included this audio to demonstrate that Tom’s trading style has changed very little over the past quarter century. In this presentation Tom provides an excellent overview of the elements of successful trading. Tom’s nickname is “Mr. Serenity”. I think it will be clear once you listen to Tom speak how he got that nickname. Tom Basso was featured in Jack Schwager’s book New Market Wizards. Tom initial started trading at 12 years old when he used proceeds from his paper route to buy his first mutual fund. He graduated from college as a Chemical Engineer and credits his engineering mindset to his trading success. Tom eventually left his engineering career and founded Trendstat Capital Management. At Trendstat Tom’s goal was to use computers eliminate the decision process from trading Michael and Tom talk in depth about Tom’s trend following trading philosophy with a focus on the psychology of trading. One of my favourite parts of the interview is when Tom talks about missing a silver trade when his parents came to visit and he spent a week as a tour guide showing them around town. During the week he took off from trading he missed a huge move in Silver that significantly impacted his annual return. Since that time, he has never missed a day of trading, executed his trading strategy each and every day, even when he goes on vacation. This is the goal of The Voodoo Trading Journal, provide you with a daily process so you never miss an important trade. Tom is a big golf fan and in the interview Tom and Michael compare the process Bubba Watson used to win the 2012 Masters to trend following trading. The interview includes a good discussion on the key things new traders should focus on. They end the interview with an interesting discussion on entrepreneurship.
Trading advice from the Podcast that will make you a better trader:
- There isn’t one single holy grail trading strategy. You need to develop a trading strategy that you fully understand and fits your personality.
- Three main components to all trading strategies: 1) where do you buy and where do you sell. – How to get in and out of your trades; 2) Money Management – How much to risk on each trade; 3) Trading Psychology– Your trading strategy needs to match your personality.
- Concentrate on the process and let the results take care of themselves.
- Everything that is known about a stock is reflected in the chart.
- Good trading should be boring.
- You need to figure out how much portfolio drawdown you are comfortable with and design the risk management component of you trading strategy to reflect that. If you can only stomach a 20% drawdown your risk per trade must reflect that and will probably need to be well below 2% of equity.
- Trading Psychology is the most important part of any trading strategy.
- How you enter and exit a trade are the least important factors.
- With proper money management rules, you could randomly enter and exit stocks by flipping a coin and still be profitable.
- Let your profits run and cut your losses short.
- You can’t have any emotional attachment to your holdings.
- The markets love to push your buttons.
- Focus on the process not the outcome.
- Focus on hitting singles not homeruns
- As a trend following trader the bulk of you profits in any given year usually come from 2 or 3 trades. You need to make sure you have a process in place so you don’t miss those 2 or 3 trades.
- You need to be comfortable with the fact that trading profits are lumpy and come in clumps. You can’t assume you will make money every month.