Skip to main content

Markets are Living, Breathing Organisms. You Must Adapt.

As we head into a new year and prepare to leave the old one behind, it's natural to reflect on the challenges and opportunities we'll encounter on the road ahead.

Looking back on 2015, it was a tough year in the stock market for retail and professional investors. In fact, hedge fund returns were so poor that many funds have simply shut down or converted to family offices.

So who did well in this challenging market environment? As the Journal points out, "A Bold Few Traders Earned Billions Flouting Rivals", and conventional wisdom. By steering clear of consensus bets on oil, energy stocks, junk bonds, Apple shares, and currencies, a few skilled hedge fund managers were able to structure their own winning trades and prosper as their rivals faltered. 

Which brings us to our lesson on trading and the ever-changing nature of capital markets. Here's what S&P futures trader and "Market Wizard", Marty Schwartz told aspiring traders at Amherst College:  

"Markets are living, breathing organisms. You have to adjust with them and continually change your methods." - Marty Schwartz

So does that mean we throw out all our rules and disciplines, or abandon risk management safeguards when market conditions change and leave us baffled? No, but we can recognize the need to adapt to changing patterns or trends and learn to position ourselves for success in new market environments.

How important is this skill of adaptability? Well, the head traders at SMB Capital (Steve Spencer and Mike Bellafiore) have identified this trait as a key pillar of trading success, as well as the "#1 Trading Frustration" that most traders, new and old, face.  

Looking ahead, we don't know if the markets will change due to shifts in technology (HFT and "algos"), broadened participation (new entrants and market participants), abrupt rule changes or shifts in regulation, changing correlations, or shifts in price trends (range-bound markets may turn down or trend higher). 

What we do know is that change is inevitable and constant. While human nature seems to remain largely unchanged over time, we must learn to adapt to the shifting tides that occur within our lifetimes. How will you adapt to coming trends and market changes in the new year ahead? Will you make the necessary adjustments to your trading plan, or will you be left behind?

"In times of profound change, the learners inherit the earth, while the learned find themselves beautifully equipped to deal with a world that no longer exists." - Eric Hoffer

Related posts:

1. Marty Schwartz Talks Trading at Amherst (VIDEO).

2. Ray Dalio: Lessons from Hedge Fund Market Wizards.

Subscribe to our free email newsletter. You can follow our real-time updates on Twitter. 

Popular posts from this blog

Seth Klarman: Margin of Safety (pdf)

Welcome, readers! Signup for free email updates at the Finance Trends Newsletter . Update: PDF links removed due to DMCA notice. Please see our extensive Klarman book notes below. New visitors, please check the Finance Trends home page for all new posts. Here's something for anyone who has been trying to get a look at Seth Klarman's now famous, and out of print, 1991 investment book, Margin of Safety .  My knowledge of value investing is pretty much limited to what I've read in Ben Graham's The Intelligent Investor (the book which originally popularized the investment concept of a "Margin of Safety"), so check out the wisdom from Seth Klarman and other investing greats in our related posts below. You can also go straight to Ronald Redfield's Margin of Safety book notes .    Related posts: 1. Seth Klarman interviews and Margin of Safety notes     2. Seth Klarman: Lessons from 2008 3. Investing Lessons from Sir John Templeton 4.

Clean Money - John Rubino: Book review

Clean Money by John Rubino 274 pages. Hoboken, New Jersey John Wiley & Sons. 2009. 1st Edition. The bouyant stock market environment of the past several years is gone, and the financial wreckage of 2008 is still sharp in our minds as a new year starts to unfold. Given the recent across-the-board-declines in global stock markets (and most asset classes) that have left many investors shell-shocked, you might wonder if there is any good reason to consider the merits of a hot new investment theme, such as clean energy. However, we shouldn't be too hasty to write off all future stock investments. After all, the market declines of 2008 may continue into 2009, but they may also leave interesting investment opportunities in their wake. Which brings us to the subject of this review. John Rubino, author and editor of GreenStockInvesting.com , recently released a new book on renewable energy and clean-tech investing entitled, Clean Money: Picking Winners in the Green Tech Boom . In Clean

Slate profiles Victor Niederhoffer

Slate's recent profile of writer/speculator, Vic Niederhoffer has been getting some attention from traders and finance types in recent days. I thought we'd take a look at it here too, to offer up some possible educational value from Vic's experiences with trading and loss. Here's an excerpt from Slate's profile of Victor Niederhoffer : " I've enjoyed getting your e-mails. It sounds like you've thought a lot about being wrong. Well, the reason you contacted me, to call a spade a spade, is that I'm sort of infamous for having made a big, notorious, terrible error not once but twice in my market career. Let's talk about those errors. The first was your investment in the Thai baht, which pretty much wiped you out when the Thai stock market crashed in 1997. I made so many errors there it's pathetic. I made one of my favorite errors: "The mouse with one hole is quickly cornered." That is key. There are certain decisions you make in li