My Robot Trades Like Warren Buffet But I Can’t

The other day I saw a Youtube video of a guy trading the NFPs on his iPhone. He was randomly buying dips in USDJPY at clips of $1 Million, $3 Million, $5 Million at a time against an account size of $5000 USD.

Never mind that he was an American trading illegally with an unregulated overseas broker. Never mind that he was trading at 1000:1 lever factor. Never mind that he was never actually going to see a dime of his winnings (Do you REALLY think any broker who offers 1000:1 lever will actually return your money?)

In a few short hours, he turned that $5000 into 20K and I must admit it was exciting to watch. And that’s exactly what’s wrong with that video. It was the ultimate “dollar and a dream” lottery moment. It was that perfect hit of dopamine that we all crave from the market and of course, it is the road to ruin. Leverage is the opiate of the FX market. It can make us feel like a hero, but the high always wears out and the crash always comes.

The truth of trading is a lot more mundane. Like a sex scene in a Hollywood movie, like a comedy routine written from scratch, the reality of the situation is considerably more pedestrian and far less glamorous than we think. It’s 10 pips and a cloud of dust. Over and over and over again.

Which brings me to Warren Buffett and my robot. Today I read a very interesting article about Mr. Buffett that had a very different take on his success. In Buffett’s Underrated Investment Attribute the writer argues that Buffett’s greatest is skill lies not in picking great investment ideas, but rather walking away from bad ones. The writer gives the example of Sears which in 2005 looked like a toss-up -- yet Buffett passed on the idea without giving it a second thought, not because he was certain that it would go bankrupt but because he knew that turnaround would be hard and Buffett, the ever-astute investor, and ultimate realist wanted to spend his time owning stable, growing businesses that were easier to assess.

That approach dovetails with Buffett’s rule #1 for investing -- “Don’t lose money” which is then quickly followed by rule #2 which is “See rule #1”. Indeed if you look Buffett’s track record, it’s not that he consistently makes more money than the market, its that he loses LESS.

If we as traders are honest with ourselves, we’ll all admit that our underperformance is always caused not by the good trades we missed, but by the bad trades we refused to walk away from. Even as I sit here aimlessly tossing more lots against a rising USDCAD position, I have to admire my robot (which is trading my serious money) as it rests quietly perfectly happy not to engage with the market until a legitimate setup shows up.

That’s a thing about robots. They don’t need excitement. They don’t need dopamine hits. They don’t need to be always right. They are perfectly happy to grind it out, one trade at a time over and over again. And since we can’t all be Warren Buffett, they are as close to his temperament as we’ll ever get.

Boris Schlossberg

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