Monday Notes – Interpreting Warren Buffet

I’ve mentioned to a few traders recently that those ultimately crossing the line to join the minority of traders who have figured out this game will often see a shift in their equity curve cycles.

Specifically, this change often evolves from the “four steps forward, ten steps backward” cycle which afflicts many beginning traders (as the result of those blowout days before discipline truly takes root), through the “four steps forward, four steps backward” cycle, and ending with an ongoing “four steps forward, one — or zero – steps backward” phase.

I include “zero” because it reflects a curve during cycles that is typified by steady climbs, followed by pauses — or plateaus — before further climbs.

In terms of my own equity curve, I hated plateaus as recently as the spring of 2009 when I hit that interim burnout phase.  You see, to me, plateaus represented a “doing nothing”, “spinning wheels”, or “banging your head against a wall” phase.

Yet while the journey to reach one’s fullest personal potential as a trader never ends until either choice, circumstance, or death, I feel my trading has evolved in a manner I never quite expected over the last year or so, which is to both accept and embrace interim plateaus.

As both my wife and a decade of babbling will tell you, I don’t do “rest” very well.  For I’m Type A all the way.

Yet there’s indeed something to be said for plateaus.  For they allow one to pause, enjoy the fruits of the earlier climbs, and rest before beginning the next ascent at the time and place of one’s choosing.

And since the only other option after tiring capital ascents is to retreat (nothing goes straight up … never has and never will), becoming comfortable with plateaus may very well reflect another maturing step in your trading evolution.

After all, and as Warren Buffet would remind us, Rule No.1 is to never lose money.  Rule No.2 of course is never to forget rule No.1.

And given the occasional option of resting or falling back, perhaps that’s in part what Mr. Buffet was trying to tell us.

It’s only taken me a decade to figure that out.