I think the single most important decision every investor must make is whether to go systematic or discretionary. And even though it was over ten years ago now, I still remember the formative experience that ultimately led me to become a systematic investor.
It was 2009. I was a prop trader for a foreign currency fund under one of J.P. Morgan’s legendary forex traders.
The guy — we’ll call him “Rick” — was highly accomplished, but he made all of his trade by gut feel.
He was disciplined. He read 10-plus hours of news and analysis every day. But ultimately he just pulled the trigger when it felt right, not when a rules-based systematic strategy triggered a crystal-clear buy or sell signal.
By and large, that approach worked for Rick. But you could always tell when he was having an off day…
His wife would call more often than usual, nagging him about something he was supposed to have done at the house. Or she’d stop by the office with their baby, who typically came in quietly and exited screaming. Or his daughter would stop in after school and remind Rick he was coaching her soccer scrimmage that afternoon.
It was always something personal that threw Rick off his game. Something in life, not the markets, would distract him… annoy him… anger him… or otherwise break his robot-like concentration on his Bloomberg and order buttons.
Under perfect conditions, Rick had a Midas touch. But he struggled when anything disrupted his environment or emotions. He was highly temperamental and “fragile,” if you will.
And although I didn’t fully realize it at the time, I’m now able to see how Rick required perfect conditions to be able to work his discretionary trading magic — a requirement that is utterly unrealistic in the real world, whether you’re a professional trader or an ordinary person and investor.
The Solution Is Systematic
The greatest value in a systematic investment strategy, much like the one I help readers with in my new Millionaire Masterclass, is that it tells you exactly what to do.
It doesn’t matter if you’re having a good day or a bad day, you just check your systematic strategy and do as it says to do.
It doesn’t matter if your partner calls to nag on you…
Or if your child is going through a scary medical issue…
Or if you’re stressed out by tax season…
Or if you have seasonal affective disorder…
Or if anything else happens to you that would typically put you off-center…
If you follow a systematic investment strategy, you can be having the worst day in your life and still make the right moves with your money. It’s simple: you just follow the signals!
This prevents you from getting too scared or conservative when you’re feeling bummed out about something. It also prevents you from getting too bold and overconfident when you’re feeling especially happy, or even manic.
The point is, it’s absolutely normal to go through emotional ups and downs, and to endure distractions and challenges in your personal life, on a routine basis.
Those are normal life conditions, I think you’ll agree. But they’re far from “perfect conditions” for making good investment decisions. And that’s why so many folks fail to succeed at discretionary investing. There are simply too many distractions and emotional pulls in our daily lives for us to make consistently sound investment decisions, based on our “gut feel.”
And the systematic way, I’ve found, is a much better way to go…
The systematic investment approach doesn’t actually engineer perfect conditions, but it does acknowledge that the expectation of perfect conditions is unreasonable, and it works to protect you from the emotional whims you routinely experience under life’s typical conditions.
These alone are enough to give ordinary systematic investors a powerful edge over go-by-gut traders.