The Formula for Success Page 8
How to make the change
Everything in life comes down to cause and effect, lead or be led, make choices or go with the flow. For example, if your four closest friends smoke, you will likely become the fifth. If your workmates go to the gym regularly, you will probably end up joining them in the quest for a six-pack. And if the people you hang around with are all budding entrepreneurs, you may well decide that is the life for you too!
Here is the thing though. If you want to quit smoking – get new friends. If you would rather stay unfit than feel under pressure to join in – get another job. And if you hate listening to other people's exciting stories of wealth opportunities, new ventures, defying an hourly rate, and having the freedom to choose your lifestyle, find other places to hang around. You are unique, but you are also mouldable and can be influenced by your surroundings.
I have already told you some of the horror stories of my schooldays and how they influenced my early life. I explained how I retreated to the safety of my bedroom to play war games against invisible foes alongside my invisible friends as a way of escape. The absolute, fundamental, plain-hard-facts of the matter are that if I hadn't decided to do something with my life, I might still be in that room. If I hadn't decided to at least try to get back into college, there would not be around 60 people working for Samuel and Co Trading, also my UK cryptocurrency, Yield Coin, would not exist; my Dad would not have his £128000 dreamboat; and there would not be a Rolls Royce Wraith and Ferrari 488 parked outside my house. I decided to do something and found a way to turn my uniqueness into prosperity and wealth.
Whatever situation you are in today – were born into, have been pushed into, drifted aimlessly into, or are in because of poor decisions you made in the past – you can change your circumstances. It starts with finding out who you are and what you want from however many years you have before you. Then you need to invest in your uniqueness and surround yourself with people or places that support those traits. And finally, you need to work as hard as you can (although if you've found the right thing, it won't really feel like work) until you find your idea of wealth.
Here is an example of how my good friend Chaz did just that.
Meet Chaz Orr
My Mum was a banker and had worked hard to put money into the family home, her retirement fund, some savings for my studies, and a trading portfolio. Then there came a time, with everything feeling safe and secure, that she decided to throw off the stress and toil of the big city and follow her passion into a career change in nursing. So far so good, why shouldn't she do the thing that she loved most of all and help people?
Then came 2008 and the financial crash. Disaster struck, and we lost pretty much everything. Mum was ill at the time (having a major operation), Dad was having an affair (and not paying the mortgage), and I was oblivious to just how bad things were going. Mum's shares (which were 100% tied up in the banking sector) plummeted to a worthless value, by 2011 she had lost the house, and during that time all of her savings had been swallowed up. It was about as bad as it could get and there really was no way to recover the situation. So that was my first taste and lasting impression of the trading world. I didn't trust anybody.
We moved into a rented apartment and, having learned from her own mistakes, my Mum started to teach me how to trade a more diversified portfolio in the stock market. I was interested but sceptical, and basically pretty useless, struggling to get my head around how it all worked. Not deterred, however, Mum moved me on to currency trading (Forex), and after a while, I managed to grasp enough to generate a little success. This was definitely more my thing, and I started to dabble in Forex.
From dabbling to finding my purpose
I ended up going to Hertfordshire University to study Songwriting and Music Production, and between (sometimes during) lectures I'd be trading currencies and trying to keep my small live account in the black. Often I would sit at the very back of the hall or seek out the highest vantage point on campus to try and get enough signal to close a trade.
While on Facebook one day, I noticed that a friend from college, Tom, was talking about trading and mentioned this guy called Samuel Leach. It turned out that he'd been teaching him how to trade and claimed to have made £3000 that week. Far from being impressed, this made me quite suspicious (perfect life, Facebook claims, and all that), even though it was someone I knew and trusted telling me the story. But I did some research and found out as much as I could about Samuel before eventually asking Tom to make an introduction.
I hadn't seen Tom for a while by that time, but what impressed me was the massive change that a few short years wrought on him. From the common old Watford lad, who seemed to be studying just to pass the time, he seemed transformed into a confident, professional, and focused young man with a purpose. Something was going on here – maybe there was more to this than I thought?
Meeting Samuel for the first time put a lot of my fears at ease, but I was still cautious – watching everything your family has worked for disappear does that to you. But his backstory rang true with mine, we'd been to the same college, I felt a good vibe from that first meeting, and Tom was a changed man.
Clarity and big decisions
So I enrolled in the Junior Training Programme (JTP) and committed myself to absorb everything I could about trading, alongside my degree. Of course, that meant a few things had to change about my lifestyle, and an average day began to look a little manic. I'd wake up at 4am, go for a jog, pick up a McDonald breakfast (I know!), return to my room (and cardboard box desk), and start trading – while sneaking off to lectures or fitting in the odd assignment here and there.
This was not easy – my mind was being stretched in different directions, I was always tired, the few friends I had thought I was going crazy, and weekends and weekdays merged into one. But I was making money, loving the learning, and absolutely determined to make the most of the opportunity.
By the end of the second year of my degree, I realised that the education saturation and sleep deprivation was just too much – I had to make a decision. Samuel had helped me see who I was, shown me who I could be, and given me the tools and roadmap to becoming the very best version of that vision. But I still had a burning desire to finish off my degree and get a good result there – I'd worked my whole life towards that goal. After talking it through with him, I realised that I could do both – just not at the same time. I was young and finally in control of my destiny, so I dedicated myself to Songwriting and Music Production for another year (and got a 2:1 for my efforts).
A gap year followed, where I slowly drifted back into poor decisions and financial management. I was spending too much, not clearing my student debt, and generally just letting each day come and go on a whim. The habits I'd been taught all my life were controlling my behaviour again, and it finally dawned on me that I needed to get back into an environment that would bring the best out of me. I knew what to do but wasn't doing it.
To cut a long story short, I spotted a gap in Samuel's armour (yes, he is still learning too) in that his YouTube presence wasn't what it should have been. And I used that opening as a way back into the fold. After a quick conversation, we came up with a plan, and I took over the video production and filming for Samuel's business.
My main goal is to help the world see Samuel the way that I do and learn from the things he does.
Applying the life algorithms, technical training, and mind clarity that I've learned from Samuel has helped me discover my own unique skills and talents. But more importantly, it has shown me that the path destiny had planned for me isn't the one that I had to walk. I have been able to choose a better life and love every minute of it.
‘You can be a bad trader forever, but you are only a failed trader when you quit.’
Chapter 9
TAKE RISKS BUT NEVER GAMBLE
There is only one definition that I am aware of under which I could be considered a gambler (and even that is a highly profitable one in which I am 70% m
ore likely to win). The online Oxford Dictionary gives these definitions of the verb, to gamble:
play games of chance for money
take risky action in the hope of a desired result.
While dictionary.com defines the noun, gamble:
any matter or thing involving risk or hazardous uncertainty
a venture in a game of chance for stakes, especially for high stakes.
I can tell you with 100% certainty (I'd even put a sizeable stake against it) that I am not a gambler. The only instance in which I am occasionally slotted into a gambling category (and this is UK law, not my own choice or definition) is when I engage in Forex Spread Betting. This is where you bid on the price movement of currency pairs (e.g. US$ vs. £ or € vs. US$). The spread is the difference between the bid and the ask price, and traders will need to evaluate whether the price of the currency pair will be lower than the bid price or higher than the ask price.
Just like any other trade, executed correctly this is a calculated risk – not an uncertain gamble – it is just that the legal terminology deems it gambling. And the result is that the transaction is tax-free (in the UK at least). Happy days!
Risk versus gambling
If you want my definition of a gamble, it is where a trade has odds of 50% or less of turning out in your favour. Personally, I wouldn't even take much below 70% because I want to win, and I don't ever gamble. If that sounds too straight cut and gives you the impression that trading is easy, then think again. You see, the reality is that to be able to accurately calculate those odds, you have to do a whole lot of work and research. There isn't a chart which tells you the chances of you winning a trade – if there was everyone would follow it, and it would defeat itself, by default. It would be a bit like the phenomena created by Google maps and Waze, where everyone follows the ‘live data’ to avoid the traffic jam and ends up causing another queue in the previously clear road.
The trader that wins most often is the one who has invested more time, effort, and intelligent research into the trade before committing their hand. That is why the trader who takes calculated risks will always (and I absolutely mean always) win over any reasonable length of time. Even if they occasionally lose out on a deal because the unexpected happens. Unexpected, by definition, is not a common occurrence and should be studied to see if any lessons can be learned or simply put behind you as you move on to the next win.
Once again, I hope I am not oversimplifying these things, but the logic is sound – it is the hard work and emotional management aspects of trading that catches most people out.
Risk profiles
In trading, you have different trader profiles. You'll have some whose strategy is to win 50% of the time and others who set out to win 90% of the time. This doesn't make one any worse or better than the other, they have just mapped out different routes to get to the same result: a profit. In simple terms, it means that a trader with a 50% win ratio is likely to win more per trade, while the 90% trader wins smaller amounts per deal but enjoys more fist pumps. Let's look at these in more detail:
Mrs 50% operates on a 2-1 profit factor, meaning that on average she wins twice the amount that she risks. So, for every £10 she trades successfully, she will have a £20 return (in addition to her initial £10).
Mr 90%, however, only enters into deals where he can win half of the amount he has risked. This means that for his £10 to make £20, he must make four successful trades (in effect, winning £5 each time).
Why doesn't Mrs 50% just increase her number of trades, you might ask? Or couldn't Mr 90% copy Mrs 50% in the trades that she makes? Well, that is where people's individual ability (reading the markets and the news, understanding fundamental and technical skills, and sheer volume of effort and research) and risk tolerance comes into play. People who have a low risk tolerance are likely to make poor decisions when under pressure.
I've met traders who quite happily, and very successfully, operate on a 20% win ratio but regularly see returns of 10 times the amount that they trade. It really comes down to the type of person you are, your skill and experience, and the time you are prepared to invest in analysing the risk.
In Chapter 11 where I teach you Leach Theory, you will meet two incredibly successful people (one a trader and the other one of the most innovative entrepreneurs alive today) who have very different approaches to risk. Ironically, the one who is actually a trader is far less risk-averse than the world-changing pioneer. The following one of his quotes has long been, and will continue to be, the cornerstone of my whole trading philosophy.
‘Be fearful when others are greedy and greedy only when others are fearful.’
Warren Buffett
Never take a punt on anything
Why on earth would I, or any sane person for that matter, take a punt on something with their own hard-earned money? To be clear here, I don't count buying raffle tickets to support good causes, or even a few quid a week (no more though) on the lottery, as taking a punt. For most people, these things are a form of entertainment – but there are also a lot of people out there who depend on the billions-to-one chances for their hopes and dreams.
At the very safest end of investing, there are places you can put your money with the same level of certainty that you can be sure your Mum will always love you. For example, if you were to put your savings into certain ETF funds, over 20 years you will get an average of 4% return per year on your investment. I would be 99.9% certain of that – how can that be gambling?
Conversely, I reckon that around 95% of retail traders in the Forex markets consistently make a loss. To most people that would make Forex sound like a pretty risky place to trade. But the fact of the matter is that in the 5% cut of those who make a sizeable profit the same small group of traders consistently appear. So, it must be down to more than just chance.
Let's also consider what the majority of people consider to be the safest place to put their hard-earned sweat-and-tears savings: the bank. Even after the recent crashes and banking scandals, the mindset of the general public is to find the best interest rate they can find and place their money in that account. Now, the truth is that, from a major crash and losing everything point of view, your money is safer now than it was 10 years ago. But the harsh reality is that the interest rates are so low you are actually losing money – or at the very least your money is losing value.
You see, as inflation increases, the actual, real-world, spending power of any particular currency decreases. For example, if Product A is worth £10 today and inflation rises by 5%, it would be worth £10.50 the following year. If £10 had earned 3% in the bank, over the same period, it would now be worth £10.30. That means you would no longer be able to buy the things that you would have been able to buy last year – even though the numeric value of your savings appears to have increased.
Surely, any logic in the world would lead you to the conclusion that savings in low-interest bank accounts are an even worse investment than a gamble – they are sure-fire, 100%, guaranteed loss. Doing nothing is often a bigger risk than taking a punt.
Just to be clear, in case we ever met in person, if there is one thing that makes me shudder it is when a trader says to me that they are going to take a punt on a trade. To me, that just says they are in a gambler's mindset. If you ever say that to me, brace yourself for a lecture (you have been warned).
Trade to win
I assume that you are reading this book because you are interested, to some degree, in becoming a trader or learning more about trading. The single biggest thing I can teach you is to treat your trading as a business. By that I mean you should make business decisions based on what you know of the market. You should do your market (or competitor) research, analyse patterns and past performance, look at outside influences (current or likely to happen), be clear on what you can afford to invest, and have a long-term view.
The difference between a business decision and a personal one is often emotion and mindset. Yes, there is a lot of t
echnical skill involved in becoming a successful trader, but I would confidently say that 90% comes down to attitude, state of mind, and your ability to control your emotions.
If I win 70% of the time, and I take 10 trades, I expect to lose 3 of them. It is easy to get emotional about those losses, but I have worked out the odds, done my analysis in as much as depth as possible, and I expect that to happen. That is simply the way the business works.
Poker is another great example of the general misconceptions around gambling. The odds at casinos, the lottery, one-armed bandits (the clue is in the name), and the like are always heavily weighted against the punter. They have to be because they are run like a business, and a business cannot succeed unless it wins more than it loses. Poker, however, is a player's market. That means that the player's chances of winning, each time they sit down at a table, are almost entirely dependent on their own skill compared to the other players. There is a tiny percentage that depends on the run of the cards or lucky hands, but no more than that – I promise you. You see, the longer the game goes on, the more evenly the chances of everyone receiving good cards becomes because that is a fundamental ‘law’ (no chance there) of averages. Poker is at least 90% a game of skill!
The very fact that there are professional poker players and a World Championships, where the same top players compete and win year after year, tells you that it is a game which has very little to do with gambling. You cannot say the same of roulette or fruit machines. In fact, Dale, one of the team here at Samuel & Co, regularly enters top poker competitions and has finished in the top 5 (out of 750 competitors) on many occasions.