I remember the first time I sat down in one of the best private financial libraries that I know. So, so, many great books, both new and old, surrounded me. I felt truly inspired. The thoughts of so many people were there for the reading. The stronger feeling at the time, I must admit, was one of pure overwhelm. With all that knowledge, literally at my fingertips, I had no idea where to start…
My good friend Christopher Castroviejo owns the books on the shelves. He himself is a walking library of the financial markets. That’s because he’s not only an ex-Wall Streeter, but he’s also the person who takes his financial self-improvement to the highest level out of anyone that I know.
This is why I still find his library so daunting. He knows every book there and every concept within each book. Talking with him is both a blessing and a curse.
The blessing comes because he has such broad knowledge on the widest range of investing issues. He can and does share great insight on any financial subject imaginable.
But because of this incredible breadth of knowledge, he can (and usually does) find great reasons for both sides of any trade or investment. And this can lead the less initiated to confusion and indecision.
I find that many traders and investors run into a tangential problem, especially early in their journey, of not knowing where to target their studies. Should you concentrate your educational efforts and become very knowledgeable in one area? Or should you take a broad view and learn a little about a wide range of financial tools? The answer is both. But the order of your study is critical.
Clarity for Your Study Plan: The “City Slickers” Principle
In the great 1991 movie “City Slickers”, there was an old and wise cowboy, named Curly, played by Jack Palance in an Academy Award-winning performance.
Curly, who turns out to be a philosopher in leather chaps, gave this advice for living life to Billy Crystal’s character, Mitch, while they were bopping along on horseback.
Curly: Do you know what the secret of life is?
[He holds up one leather-gloved finger]
Curly: This.
Mitch: Your finger?
Curly: One thing. Just one thing. You stick to that and the rest don’t mean s***.
Mitch: But what is the “one thing?”
Curly: [smiles] That’s what *you* have to find out.
Just one thing. Start with the intention of becoming very knowledgeable in one area of the financial markets. Decide whether you prefer fundamental analysis or technical analysis. Then within those broad areas decide the specific topic that you will study. If you want to specialize in fundamental analysis, don’t just become good at reading financial statements. Become an expert at cash flow from operations. Or debt to equity ratios. Or any other specific item that you believe drives the performance of a stock.
That’s also great advice (dare I say critical advice) for traders and investors as they set up their educational plan. I understand it this way: Get good at one thing before branching out.
Note that I said to get good at, not just learn about, the thing. This requires practice and we’ll talk more about how to practice well in future articles.
If you’re going to specialize in technical analysis, don’t try to do too much at once. Choose an area to concentrate on. Choose not just chart patterns but concentrate on continuation patterns or reversal patterns. Don’t just work on trend-following indicators, but specialize in ADX, moving averages or Parabolic SAR.
Branch out slowly. Once you reach a fairly high level of competence in your chosen “first discipline” make your next field of study a related area. If you start in fundamental analysis, choose a related area of fundamental analysis to study. Jumping into a very different area of study could diminish or “water down” your education plan quickly.
As you branch out, be sure to include the macro picture. Traders and investors, especially new traders and investors, tend to ignore the macro-economic issues in their course of study. After you have attained some level of mastery in your chosen specific field of study, macro-economics is a productive place to turn. Look to understand the interest rate environment, the effects of currency fluctuations, and the inflation picture. These areas can help to give traders and investors a good understanding of the broader influences on the market.
If you don’t know how to put all this together, check out RJ Hixson’s upcoming course Blueprint for Trading Success. I had the honor of helping to write and teach at the very first Business Planning course here at VTI and I know that RJ does a fantastic job giving you a practical and useful structure for putting together a great plan for treating your trading like a business.
Digging into one specific area before broadening your educational efforts can prove to be very useful for most traders and investors. Almost all market participants would benefit from an in-depth understanding of one area of the financial world before they look at understanding the broader influences. Find your “one thing” and then hit the books!
I always enjoy hearing your thoughts and comments. What are the risk factors that you’re watching in the financial markets now? Please send me your thoughts at drbarton “at” vantharp.com
Great trading and God bless you,
D. R.