Why managing your bad trades matters more than proving you’re a genius.

Contrary to what your mother told you, you are not a unique little snowflake. And you are certainly not as good at investing as you think you are.

This is not a personal attack — it’s a statistical reality. Study after study shows that investors, when asked about the skill of others, are often refreshingly honest: “Most people aren’t very good.” Then they ruin it by adding, “But I’m different.” This bias extends to professionals who should know better — analysts, CFOs, fund managers, and traders. Everyone thinks they’re above average, which is mathematically impossible (don’t be the “well actually” person who wants to talk about medians and means here).

This isn’t just overconfidence; it’s a structural problem. If you start from the belief that you are special, you will trade more, risk more, and ignore evidence that you’re wrong. You’ll misattribute success to skill when it’s really luck, and treat losses as temporary anomalies rather than signals to change your process.

So, what can you do about it?

The first step is to commit to a systematic, phenomenological approach. Find actual, repeatable market phenomena — things that have happened often enough in the past, for clear structural reasons, that they are likely to happen again. Build rules around those phenomena. Test them honestly, and don’t cherry-pick. This isn’t glamorous, but it works, because it starts with something real instead of your own hunches.

The second step is to put your time into things that improve results regardless of your stock-picking genius or lack thereof:

• Managing transaction costs so you aren’t leaking edge into commissions and slippage.
• Deciding when to rebalance to control risk without unnecessarily selling winners.
• Minimizing tax drag so the government isn’t your biggest counterparty.

These are unsexy but additive. They don’t depend on forecasting correctly. They compound quietly in your favor.

But here’s the real problem: you will still feel the itch to trade. Pretending you can willpower it away is like pretending you don’t want dessert. You can’t — and if you try, you’ll just binge later, usually at the worst possible time.

The solution is to manage the temptation, not deny it. Bodybuilders have the concept of a “cheat day” — one day a week when they break the rigorous diet and eat whatever they want. The diet stays intact because the pressure gets released in a controlled way.

We can do the same with investing. Take a small, fixed slice of your bankroll — maybe 5% — and give yourself permission to trade whatever wild idea you have a hunch about. No restrictions other than size. If it blows up, the damage is capped. If it works, you might have found something worth formalizing into your main system.

Most of the time, these trades will fail. Which could at least teach you humility. Occasionally, they’ll uncover a new edge. Either way, you’ve scratched the itch without torching your entire portfolio.

It’s not about never being wrong. It’s about making sure your wrongness is survivable.

Disclaimer

This document does not constitute advice or a recommendation or offer to sell or a solicitation to deal in any security or financial product. It is provided for information purposes only and on the understanding that the recipient has sufficient knowledge and experience to be able to understand and make their own evaluation of the proposals and services described herein, any risks associated therewith and any related legal, tax, accounting, or other material considerations. To the extent that the reader has any questions regarding the applicability of any specific issue discussed above to their specific portfolio or situation, prospective investors are encouraged to contact HTAA or consult with the professional advisor of their choosing.

Except where otherwise indicated, the information contained in this article is based on matters as they exist as of the date of preparation of such material and not as of the date of distribution of any future date. Recipients should not rely on this material in making any future investment decision.