Wednesday, January 14, 2015


From Ari Kiev's "Mental Strategies of Top Traders."

This simple (but hard to do) 11-step outline is a fantastic way to organize your thoughts as a trader.

For 2015, I have resolved to use it, formally, for all of my new positions.  This way I can get more size, and will have the conviction to ride out this volatility.

I think the mistake most of us do as traders is to sort of "Get a hunch and bet a bunch."  In other words, we don't actually do the real boring, hard work of knowing our position.  And what happens when we don't do enough work?  We don't have the conviction to hold our stocks when they get hit with volatility, especially around events or earnings calls.

I find that for myself, when I've done the work, I have the conviction to ignore the chorus of bench-warmers who are telling me how stupid I am to have a variant view.  Sure, it's lonely, but it's always lonely at the top.  By definition, the winner of the race is there alone, before anyone else arrives.

The other thing I notice is how much BAD information/opinions there is out there.  Even highly respected major analysts at big firms get things wrong OFTEN.  "Often wrong, never in doubt" is their mantra.  How do we, with a variant view, ignore their bleating?  By doing the work.

And a variant view- that is the key to this whole game!  Most of the money I've made in stocks is in the painful positions, the ones that no one likes.  One way to ameliorate that pain is bourbon.  But an even better way is to follow this checklist.  To a tee.

So I'm sharing it with you here:

An outline for establishing a variant view:

  1. Understand your sector.  Find something changing, a transformative event.
  2. Do the work that will increase your conviction that your expectations will be realized.
  3. Don’t worry about day-to-day price fluctuations if your thesis is correct.
  4. Define the variant view and set up some benchmarks to see whether your thesis is playing out. 
  5. Technical analysis can support your thesis.
  6. Get sized with good ideas even if you have got only one or two data points.  You have to think bigger than your own limited set of data points.
  7. You can expect 4 to 5 good ideas per year.  Go down multiple paths since you don’t know which ones will come to fruition.
  8. Don’t worry too much about the downside.  Take a variant view and keep doing the work.
  9. Sell into strength as the rest of the Street starts to recognize the story and your variant view is becoming consensus. However, there is value in holding on as a story unfolds even past the point where the idea becomes consensus.
  10. Dig deeper; talk with people in the industry, read financials, listen to conference calls, build your own models.
  11. It is often uncomfortable when your views diverge from the consensus, but this is where there is the most opportunity.

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