The Curse of Survival

A young lion is majestic. A pure power look that you’d frame on the wall. But the young ones don’t have the scars of survival yet. They haven’t been battle-tested. They haven’t had to protect their young or territory against a rival pride. They haven’t had to defend their kills against hyenas or compete for a mate.

A lion’s life isn’t an envious one. Same goes for a trader. The longer you’re in the game, the more scars you accumulate. Scars aren’t a negative though. If you have them, it means you’ve survived.

Here in lies the problem though: many investors don’t like scars. They like pristine track records with high Sharpe’s and minimal drawdowns. They prefer pretending that great recent performance is the norm and will continue on.

It never does. Inevitably, a bear market shows up. A credit crisis unfolds. War breaks out. Inflation flares up. Business expenses increase. A client or two fire you. The’ve lived through the boom, but not the bust.

The thing with new traders is that that simply haven’t been around long enough for scars to develop yet. Their sales pitch sounds good and strong out-of-the gate performance attract a lot of capital.

But, like the young lion, their survival skills haven’t been tested yet.

There are many traders with amazing short-term track records, but what often happens is that their strategy inevitably falls out of sync with the markets and suffers large losses.  Rather than forge on, they put their scars in the closet and launch a new thing. A slimy but common tactic.

There aren’t many traders who can even show a 10+ year track record, much less a 20-30+ one. Chances are, if you’ve been trading for this long then you’ve been through some shit. You’ve experienced good times and bad. You’ve likely been tested emotionally and have had to scrap to survive (not only in the markets but in business too).

A disappointing reality is that new unbloodied and untested traders often have an easier time attracting investors than older ones with scars. The hope is still fresh. The sales pitch carries more weight than the track record in the beginning.

Showing scars should not be discouraged. They’re evidence of skill and tenacity. Of strong will and discipline. Scars accumulate only on those that survive.

When you invest with a manager (or an advisor), make sure you know they can take a hit before making too big of a commitment. You’d hate to learn that they can’t after the fact.

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