💡How to make a strategy profitable?

I started out trading discretionary, going with gut → Then systematic trading put a process in place → I automated the strategy by coding → Then started to look at fundamentals → After years, started taking discretionary bets again → Then started systematizing the discretionary parts.

If you look back, investing looks like you're going in circles. If you have the right perspective, it can be an upward spiral journey of eternal learning and improvement.

After 5 years of strategy hopping, and search for holy grail strategy, I had almost given up. After all these years, out of the hundreds of strategies I had concocted, I had only one decent strategy in hand which was very average. This was the only strategy I couldn’t falsify to be completely useless. Rest all, proved to be useless.

I had no option but to reluctantly stick to my best strategy(which was average at best)

After a couple of years, I began to gain fresh insights of why my strategy worked some time and didn't other times.

With new understanding of my old strategy, I made tiny changes in the way I use it and over time, the performance has become so much better.

Long term investing has a feedback loop that stretches multiple years.

It takes years to finally know if a strategy works or not. And by that time, we would have gained unique insights that appear only by sticking to the strategy for long enough.

The strategy by itself doesn’t grow better with time. But it is us, who get better at using the strategy, with time.

Familiarity breeds growth, in this case.

'Sticking with it' can help turn an average/bad strategy to a great strategy.

Even the most mediocre of portfolios that is dutifully followed will perform better than the most optimized portfolio that is not. Ben Carlson

The great strategy you can't stick with is obviously vastly inferior to the very good strategy you can stick with. Cliff Asness

This epiphany led me to the thought of how to make an average strategy profitable.

For example, One can trade/invest with just a moving average line. Nothing else.

And by doing it for years, he will gain insight on how to make the performance better and better. He will begin to see the patterns and learn when to take the trade and when not to.

It’s not to say, everyone who sticks with it will become better. It’s only those curious few who have a craving to learn and improve, that will keep looking for insights. If we don’t look for the grail, how can we expect to find it.

A strategy after all, is just a tool, like a paintbrush or kitchen knife. By using it for years, we become master of using the tool. Thus the efficiency/effectiveness with which the tool is used greatly increases. The tool(strategy) is not special or a secret. It’s the insight that is hidden within the strategy which unlocks only when enough time is spent with the strategy.

Like a batsman with a bat, a tennis player with racquet, a footballer with a football, the tools don’t have any special powers. They’re just a tool for the player to express their skill. The player unlocks the superpower within himself, by practicing with the tool, playing with it - for years.

In sports, it’s so obvious, the outstanding performance comes from the player, and the tool is ignored. In investing, people tend to believe it is the strategy that makes money and the player who uses the strategy is irrelevant, while reality is just the opposite. The tools are common - available to all - just like bats and balls. It is the player(investor) who by means of sticking with the tool(strategy), extracts outstanding performance from himself and the strategy.

- Sibi

Select any quote/portion of text in the essay above and click, to tweet directly from desktop.

If you liked this read, add your mail below.

Read more essays