Posts filed under “Philosophy”

How Hard is it to Become the Michael Jordan of Trading?

I have been meaning to get to this interesting article Heidi N. Moore wrote over at Marketplace radio. “They Are Day Traders. Hear them Roar.” A terrific looking commercial for OpenTrader accompanies the article (video here).

The video is pretty slick. But as intriguing as it looks, it overstates what I believe is the true criticism of trading — not that its all luck, not that no one can beat the market — but rather, that the odds are very much stacked against you. The truth is it is really, really hard to do professionally.

I have always found that for newbie traders, a better analogy than a casino is the possibility becoming a professional athlete. Trading and athletics have many parallels. Both require a combination of natural skills, discipline, and very hard work. Both require an ability to deal with elements of randomness that is challenging in a competitive environment. At the NCAA level, just about any team can beat any other on any given afternoon. A lucky bounce, a bad call, a hot streak, and the underdog wins.

It is no coincidence that many trading desks are stacked with former college athletes.

I believe the odds of going on to be a professional athlete are similar to being a successful trader at the highest levels of the profession. The NCAA puts out a statistical analysis looking at the “Estimated Probability of Competing in Athletics Beyond the High School Interscholastic Level.” If you have some natural talent and work on your skills, you can probably compete at the High School junior varsity level. More skills, hard work, a little luck, and you make it to Varsity.

The talent pool gets much more competitive at the college level. The NCAA estimates approximately 3% of HS basketball players, and 6% of HS football and baseball players make an NCAA team.

If those number look daunting, the cut is far more challenging at the professional level. In basketball, only 1.2% of NCAA senior players get drafted by an NBA team. NFL drafts 1.7% of NCAA senior football players; Baseball holds the best odds, where 8.9% of NCAA baseball players will get drafted by a Major League Baseball club — but that includes minor league farm teams.

Lets crunch the numbers to put this into full context: A mere 0.03% of high school basketball players eventually get  drafted by an NBA team. Football, its 0.08%, and baseball its 0.44% (including farm teams).

Are the odds identical? Not precisely — there are many more people scratching out a decent living as semi-pro traders than there are semi-pro ball players earning enough to feed their families. And if you find you have a specific talent for it, and are willing to put in the long hours of work required, trading can be incredibly rewarding.

But the fantasy of being the next Michael Jordan, or in trading parlance, Steve Cohen? The odds are very very long against it . . .

>

Estimated Probability of Competing in Athletics Beyond the H.S. Interscholastic Level

Student-Athletes Men’s Basketball Women’s Basketball Football Baseball Men’s Ice Hockey Men’s Soccer
High School Student Athletes 540,207 439,550 1,109,278 472,644 36,475 391,839
High School Senior Student Athletes 154,345 125,586 316,937 135,041 10,421 111,954
NCAA Student Athletes 17,008 15,423 66,313 30,365 3,945 21,770
NCAA Freshman Roster Positions 4,859 4,407 18,947 8,676 1,127 6,220
NCAA Senior Student Athletes 3,780 3,427 14,736 6,748 877 4,838
NCAA Student Athletes Drafted 44 32 250 600 33 76
Percent High School to NCAA 3.1% 3.5% 6.0% 6.4% 10.8% 5.6%
Percent NCAA to Professional 1.2% 0.9% 1.7% 8.9% 3.8% 1.6%
Percent High School to Professional 0.03% 0.03% 0.08% 0.44% 0.32% 0.07%

Note: These percentages are based on estimated data and should be considered approximations of the actual percentages.
Source: NCAA

Category: Apprenticed Investor, Philosophy, Trading

QOTD: Financial Crisis Recoveries

How prescient was this, circa January 2008: “Broadly speaking, financial crises are protracted affairs. More often than not, the aftermath of severe financial crises share three characteristics: First, asset market collapses are deep and prolonged. Real housing price declines average 35 percent stretched out over six years, while equity price collapses average 55 percent over…Read More

Category: Bailouts, Philosophy

Listening to Dead Philosophers

This post was originally published today at The Financial Philosopher. Whenever a timely milestone, such as this new calendar quarter and the second half of the year, is reached I do my best to resist the tiresome looking-back-and-looking-forward ritual.  To remove myself from the timely chatter, I indulge in the timeless words of philosophers from…Read More

Category: Philosophy, Psychology

Happy Birthday, America, but it’s time to grow up.

> I have a new column out in the Sunday Washington Post business section on, well, America. “It’s been 235 years already? America, it’s time to grow up.”  The sub hed is “Happy birthday, America. But at 235 years old, you’re flabby, creaky and easily led astray.” The column speaks to the nation as if…Read More

Category: Apprenticed Investor, Philosophy

Wisdom from the Wealthy: Sunday’s WaPo Column

> In case you missed it, my Sunday Washington Post column is on the interesting life lessons I have learned from people of great wealth. I excerpted it yesterday. Rather than run yet another excerpt, I’d rather a) Point you to “7 life lessons from the very wealthy,” and 2) pull some of the quotes…Read More

Category: Philosophy

Shiller on EMH

I hope you did not miss the weekend post of Yale Professor Bob Shiller’s Efficient Market Hypothesis discussion. Shiller: More Expectations Theory, Less Efficient Market Hypothesis Well worth your time . . .

Category: Philosophy, Really, really bad calls

Yale professor Bob Shiller’s column in the Sunday NYT ( The Sickness Beneath the Slump) is filled with interesting tidbits, data and analysis. You may be tempted to think of his column as the typical Residential Real Estate analysis, looking at historical prices and current trends. Don’t. What the good professor does this morning is…Read More

Category: Philosophy, Real Estate, Really, really bad calls

Investment Advice from George Carlin

I believe philosophers can be the best investors and that comedians can be the best philosophers. Therefore one may logically deduce that comedians can make the best investors. Look no further than the philosophy of the late and great George Carlin to prove my point: Don’t confuse causation with correlation. “Death is caused by swallowing small…Read More

Category: Philosophy, Psychology

Apocalypse Thinking: All Too Human Pattern Seeking

I was a little surprised about some of the pushback to the Oh, No, Not the End of the World (Again) column. Which made this column in New Scientist all the more delightful. It starts with pattern seeking: “Cognitively, there are several processes at work, starting with the fact that our brains are pattern-seeking belief…Read More

Category: Philosophy, Psychology, Science

Welcome to Socialist America!

To those of you who irrationally fear the US is turning into a Socialist state, I say unto thee: YOU ARE TOO LATE! We’ve already turned into a red nation of commies! At least, that seems to be how some folks see it.  It is a quite a bit more accurate to describe the current…Read More

Category: Economy, Philosophy