The Formula for Success Read online

  1. Mindset is fundamental

  Most people are familiar with the Pareto Principle, also known as the 80:20 Law. It states that in many life scenarios, 80% of the outcomes are a result of 20% of the inputs. For example, people wear 20% of the contents of their wardrobe, 80% of the time; 80% of a company's sales come from 20% of its customers; 20% of the world's population owns 80% of its wealth; 20% of the words in any given language are used 80% of the time, and so on.

  Of course, the Pareto Principle is not an exact science (hence calling it a principle), but it is usually a good starting measure in most cases. In trading and wealth management, it is often said that 80% of the art comes down to mindset and 20% the technical skill of knowing how to trade. It is often said – but, as with most things that people say, few actually believe it or choose to put mindset mastery above that of money skill.

  I would even go as far as to say that, if you skip through this book looking for the technical tips and insider secrets, you are proving your mindset to be in the 20% and that is why you will never quite achieve your goals. The fact is that if you master the right mindset towards money (give 80% of your time and effort to it), you will definitely reap the benefits faster than those who don't.

  Fear and greed

  Warren Buffett, possibly the most successful investor of all time, famously said: ‘Be fearful when others are greedy and greedy only when others are fearful.’ I love this quote (and I can't promise I won't use it again before you finish reading this book) because it is a foundation principle any trader needs to learn. But you don't just need to learn this principle; you need to be able to pull it out of your knowledge and stand on it when the emotions start to kick in – that is why mindset matters.

  Knowing that the right thing to do is stay in a trade when everyone else is panicking – or pull out when the rest of the world is dreaming how to spend the profits they haven't made yet – is different to actually doing it. It takes guts, composure, and faith in your previous (hopefully in-depth and diligent) analysis and research.

  The reason most people get into trading is that they think it might be an easy way to make a lot of money. As you will learn over the next few chapters, I was one of those people in the beginning. What I learned very quickly, however, was that while it could be a way to make a lot of money, it is far from easy. The other thing I learned was that most other people hadn't clocked onto the ‘hard work’ aspect of the algorithm – so their loss was my opportunity for gain.

  Fear and greed are the two main reasons that people fail as traders. These are mindset issues that need to be fixed before you can move on to dealing with the third problem, which is a technical one. Inexperienced, and to be fair sometimes experienced, traders will always lack patience or panic and pull out too early. The signs are there, the numbers, the patterns, and the algorithms are clearly telling them what will happen next, but their emotions overcome and overwhelm their good judgement.

  The biggest practical tip I can share with you here, as you are learning to control your emotions, is very simple: never risk any capital that you cannot afford to lose. If you need to win on any particular deal, as opposed to simply wanting to (and you should always want to), then you make an emotional attachment to the outcome. And the bottom line is that most people without money form a very strong emotional attachment to it. Those who have access to and understand money see it as numbers on a piece of paper or computer screen.

  When you learn to see money as an object, and nothing more, you will become abundant in wealth because you will release yourself from the emotion of money. This may sound strange at first, but it will help to free you from any trace of a fear or greed mentality.

  Think of wealth as a score that you are trying to achieve in an exam. The last time you sat the paper you got 80 out of 100. You might desire to reach 90 or 95 the next time you take the test because you want to be better. That is a good goal. The emotions that will drive you on to hit your target number (or score), however, are determination and achievement – not greed. Likewise, if you were aware that 70 out of 100 was a fail, you would be driven by the same motivations of wanting to make the grade – not the fear of losing money.

  You cannot win without losing

  Did you know that in the entire history of boxing there have only ever been a dozen or so world champions who have retired undefeated? And at the very pinnacle of the sport, in the heavyweight division, only the legendary Rocky Marciano has achieved that feat – defending his title six times between 1952 and 1956. In life, it is almost impossible to become a success without failing from time to time. In fact, any world champion in any sport will tell you that while they hate losing more than anything else, their defeats taught them more than their victories.

  Like any business, the stock markets operate by supply and demand, and the long-term game is almost always the safest. Things do not always move in straight lines and often you have to hold your breath and get uncomfortable before you come up with a winning hand. As long as you are trading with capital that you do not depend upon for your lifestyle and well-being (i.e. you didn't borrow it, need it for bills, or steal it), you should be able to accept the occasional loss.

  The reason that I talk about patience being important in trading (and I'd refer you to Warren Buffett's quote from earlier) is that generally speaking, when an event happens to make people start selling a stock, the price is going to drop. Like lemmings, more people will then panic (without doing any research) and sell. People are selling because they are fearful. Because this is a numbers game – and if you have done enough research, history will tell you this in the vast majority of cases – those stocks are highly likely to rise again at some point. It is a statistical fact. Now, before you run off and buy a falling stock and then come back and try to sue me when it doesn't recover, there are exceptions to the rule. But, generally speaking, patience and the ability to treat money that you can afford to lose as a number on a scorecard are all you need to win as a trader in the long term.

  It is for this reason that, in my business, we employ a dedicated mindset coach, just to make sure no one brings emotional baggage or outside stresses and concerns onto the trading floor. If someone arrives for work here after the morning from hell – banged their toe getting out of bed, cut themselves shaving, stuck in traffic, tore their shirt on a door, etc. – we'd send them home. It's not that they're having an unlucky day, just that their mindset is all in the wrong place.

  Here are two truths that you can rely upon: first, to make £1m as a trader you will have to lose £500k along the way. It will go something like this – you'll make £100k then drop to £80k, go up to £110k then back down to £90k, back up to £130k and so on. If you don't think you have the stomach (and mindset) for losing half a million pounds, go and find another way to make your first million. Second, the trader who tries to make money with a 100% track record will almost certainly blow their whole account first.

  2. Education is crucial

  My second big lesson is to encourage people to get smart. Too many people approach trading like they would a fruit machine or the roulette table – have a go and see how they get on. It simply does not work that way. You need to allocate time to get smart and understand the rules. Then you need to be constantly studying the news and the markets, learning about the companies that interest you, and watching the values of various stocks.

  Believe me, there are a lot of talkers in this industry, and they will take your money in return for their fancy speeches as quickly as a casino would accept an all-in bet on red five. When you choose to learn how to trade or any skill in life, be smart and take advice from people who have been there and done that and proven that they know how to win.

  We live in a world where it has never been easier to access information. Yes, there is a whole lot of fake news out there, and scammers are infiltrating everything trying to make money from the innocent – but the volume of good information still far outweighs the bad. In most cases, if y
ou are diligent and stay well informed it is easy to spot the truth from the lies – you just need to do your research and refer to people that you do trust. Once you have found a safe and trusted source of education, learn as much as you possibly can.

  Most people go through life thinking that it is OK for others because they are smart, or assuming that the person who just drove past them in a Ferarri was born rich. The truth is that most people are just lazy and frightened that investing in learning a new skill won't pay off. And here is the killer fact: if you step out from the majority and actually do something (because most people reading this won't), you suddenly put yourself in the 20% of people who might just own part of the 80% of wealth out there. How's that for a lesson in trading?

  But, as I said, because learning new stuff is hard, being bold and trying something new is uncomfortable, the road looks too difficult, or you don't believe that you can be prosperous – most people won't act. They also base their idea of education on their previous experiences of learning at school. Well, I am certainly not an academic either. I got three Cs, a few Ds and mostly Fs in my GCSEs, but this year I am sitting my CISI (Chartered Institute for Securities & Investment) and IMC (Investment Management Certificate) exams. I don't need to do this since I already run a successful trading company, but I want to push myself into the unknown, knowing that it will benefit me next year.

  3. Understand the broader picture of trading

  In the trading world there are two camps. People think of themselves as either a fundamental or a technical trader. I simply do not understand the war of words, styles, and opinions between these two approaches. Why not just learn and apply both?

  Technical analysis basically means looking at the stock chart and deciding the price of shares based on the technical data the chart is telling you. It assumes that price and volume are the only factors that will decide the likely movement of a stock and trends and patterns are used to predict what it might do in the future. It also takes into account support and resistance levels (which is people's predictable tendency to buy and sell on whole numbers – whereas the profit is often found to the right of the decimal point).

  Fundamental analysis looks below the surface of the chart and interrogates the data to find out what is making it tick. Instead of simply looking at the numbers, you would be looking to understand the intrinsic value of the stock and attempting to predict the future value of the stock or currency. This means looking at the market as a whole, studying industry conditions, reading the news (including publications like ‘non-farm payroll’) and even looking into specific companies. You need to examine a company's earnings per share, profit to earnings ratio in the market, market cap, year on year profits, growth projections, and whether the brokers are rating the company as a buy, sell, or hold. In the Forex markets, you might need to look at the Consumer Price and Retail Price indexes, the Bank of England interest rates, and so on. As I said in top tip number two – there is a lot to learn and study.

  My point here, though, is not to get caught up in one camp or the other. There are two sides to every coin and seeing both very clearly will give you an advantage over those who are too single-minded. If you are prepared to put in the extra work that is.

  4. Be patient

  Another great quote from Warren Buffett goes like this: ‘The stock market is a form of taking money from the impatient and giving it to the patient.’

  I've already talked about this from an actual trading point of view and being patient while you are waiting for the right time to sell or buy a stock. But it is also an important aspect to apply in anything that you decide to pursue in your life. Yes, time is precious, and we all want to live our dreams now – but life does not work that way. You can enjoy your time now, while you are working towards your bigger goals, by all means; but trying to get there too quickly will hinder your progress. Patience isn't just a virtue; it paves the pathway to success.

  Someone once said, ‘it took me twenty years to become an overnight success’, and I think that a version of this saying is true of almost every successful person in any walk of life.

  In the same way that world champion boxers rarely remain undefeated throughout their entire careers, you simply cannot find success overnight. It takes hard work, dedication, good training, and the right mindset. I suppose that is why so many people who dream of prosperity simply put their faith in the longest odds of all – the lottery – because all they are prepared to do is dream.

  Trading is not a get rich quick scheme – it is a way to achieve prosperity (in all its forms and definitions) through the application and understanding of the algorithms (or rules) of life and self-development.

  Let me finish off this section about patience with the story of the Chinese bamboo.

  Like most plants, the Chinese bamboo starts with a seed planted deep under the ground. Provided that it gets the right nurturing (water, good soil, and warmth), it will begin to grow in the depths of the earth, ready for the time when it breaks the surface and shows itself to the world.

  Unlike most other plants, however, the Chinese bamboo is patiently preparing itself for one of the most remarkable feats of growth on the entire planet. After year one, there are no visible signs of growth; likewise, year two passes without a peak. By years three and four the uninformed (or impatient) observer would probably have given up hope and sought out another, more reliable, bamboo. But then, in its fifth year, the Chinese bamboo proves that patience and preparation can truly deliver.

  As that first shoot finds the sunlight, all that pent-up energy bursts forth and the bamboo begins to grow. And boy, does it grow! Stretching towards the sky, at a rate of 2 feet per day (yes, per day), the Chinese bamboo becomes a 90-foot giant within just a month and a half, after spending five whole years lying seemingly dormant in the ground.

  How's that for a long-term investment?

  So, there are some of the biggest lessons I've learned from my first ten years as a trader. Now, let me share with you some of the stories about how I learned them.

  ‘Bad stuff just happens – you get to choose what happens next.’

  Chapter 2

  SCHOOL WAS AN EDUCATION

  School was a real education for me, but not in the academic sense of the word. It was brutal – and it changed me into the worst version of myself. A person who I barely recognise today, but one who had great qualities hidden below the surface just waiting for an opportunity to break out.

  This idea of having different ‘versions’ of who we are is an important thing to understand before we move on because we are all ourselves to the core. It is just that our circumstances (both the ones we choose and the ones fate chooses for us) and the decisions we make determine which version of us goes on to control our lives. Too many people just drift and let life, luck, and laziness shape their path. Some even allow themselves to dream, work hard, and put up a fight – from time to time – but ultimately settle for being ordinary. But if just one person, after reading this book, decides to escape one of the generalised stereotypes I've just described, my mission is accomplished. Although I sincerely hope it will be hundreds or tens of thousands of people (including you).

  You see, everything in life is a choice. You cannot always determine what happens, but you always get to choose how you react to what happens. When life throws obstacles in your way, you get to choose whether you walk the worn path with the crowd, or cut your own path and see what lies on the other side. Then, when you've seen the place that you want to go, you just need to keep going until you get there. And I'm not just talking about blind determination; I'm talking about learning the route, making a plan, and pursuing it with everything that you've got.

  A beacon of decency

  My first school was called Knutsford Primary School, in Watford. The headmaster, Mr Nicholson, was someone I really looked up to and, even to this day, his seemingly superhuman ability to remember every single person's name is a skill I aspire to emulate. My lasting impression of
my time at Knutsford, however, was the day the entire school burnt down – and I mean completely. It was Monday, 1 November 1999, and it was a teachers' inset day, so we were not due in school anyway. You could see the smoke for miles, and it wasn't long before the rumour mill (by phone, of course, because Twitter hadn't been invented by then) began circulating the story.

  Looking back, it was a shocking thing to have happened, and we were all very fortunate that it had begun early in the morning before anyone was on site. The final verdict was that it was an accidental fire started by an electrical fault, but that didn't stop us speculating. Apart from the immediate benefits of our extra one-day holiday being extended to an entire week, the wild imagining sparked off in our minds by such an eerie event was exhilarating. What I didn't realise, at the time, is that what happened after the fire would have more of a lasting impact on my life than the destructive blaze itself.

  I still remember Mr Nicholson being interviewed on TV, and being quietly impressed with how calm and measured he was. That was my headteacher – who knew my name and always smiled and said, ‘hello Samuel’ when he saw me – speaking on the news. Being on TV was an even bigger deal back then, as cable was still in its infancy and pretty much everyone I knew still only had access to the four terrestrial channels.

  By the end of that week, Mr Nicholson had reopened the school, and we spent the next few years in pop-up classrooms made of portacabins. But he remained unflappable and professional throughout the whole process. As I said, I didn't realise it at the time (and I'd like to think he will get to read these words one day), but I believe that his constant integrity and resilience somehow lodged somewhere within my own character during that period of my life.