Two Trading Personalities
Living with someone who trades as a hobby can be one of two things:
- An interesting experience with a relaxed roommate/significant other
- An emotional roller-coaster which brings the volatility of the market into the relationship
Determining which outcome someone will produce as a day trader is entirely dependent on their personality; more specifically, their ability to detach from the outcomes they experience in the market. This is because no matter how good a trader is, they will fail frequently.
The best traders recognize failure as part of the process and simply learn from those failures to inform their future trades. The worst traders become consumed by their failures and allow those failures to bleed into their personal lives.
Furthermore, once they become emotional about their trading, they are likely to make even worse decisions, lose more money, and become more emotional. This positive feedback loop can be toxic to their success as a trader as well as their interactions with others (especially others they live with). Most traders will fall somewhere on a spectrum between these two personality extremes, however, the sad reality is that most people lack the emotional fortitude necessary to keep the markets completely separate from their personal life.
If you want a good predictor of what someone’s personality will be like when they are a trader, try playing poker with them and multiply the personality outcome by 1000 (assuming you are playing with small amounts of money). Like trading, poker is a game of expected value which requires players to conduct risk/reward analysis and allocate capital according to that analysis. If you play with someone who gets angry when they lose and becomes ecstatic when they win, the odds are that person is going to be unable to handle the psychological stress of trading.
If They’re Smart Does That Mean They’ll be Easy to Live With as a Trader?
It’s worth clarifying the role of intelligence in the context of the previous point about emotional responses to trading. The simple answer is that IQ will not prevent someone from becoming unpleasant or downright miserable as a trader/roomate. This relates again to the concept that even the best traders are guaranteed to fail a significant portion of the time. No matter how smart the person you’re living with is, they won’t discover some permanent systematic arbitrage opportunity that allows them to profit 100% of the time. As a result, they will still require emotional intelligence to properly handle the times when their trades fail. In fact, although intelligence certainly helps when trading, living with someone who is overconfident because of their intelligence may exacerbate the degree to which they are affected by trading results.
That is, they will not be used to losing at something so frequently and will be less prepared to handle those losses than their lower-IQ counterparts. This dynamic is confirmed by many of the world’s best traders and investors, including Warren Buffett. Each year, during the Berkshire Hathaway shareholder meeting, Buffett frequently espouses his preference for someone with a solid emotional makeup rather than someone who is brilliant but overconfident.
Proof that IQ alone is inadequate to properly navigate financial markets can be found in the 1998 collapse of LTCM, a highly leveraged hedge fund which brandished two Nobel Prize winners amongst its three founders. When Russia defaulted on their bond obligations, LTCM fell into disrepair and ultimately had to be bailed out.
The simple lesson here is that no amount of intelligence can compensate for egotism, greed, or other emotional defects. Concurrently, no amount of intelligence can make an overly-emotional trader fun to live with.
How do You Manage Living With Someone Who is not Emotionally Prepared to Trade?
Although there are clear personality traits which are preferable in traders, with enough work it is possible to take someone from being an emotional wreck to a systematic and mechanical trader. If you are living with someone who cannot keep their trading from affecting your relationship, take the time to learn about different trading techniques and software which make trading more systematic and reduce direct human interaction with the markets.
Additionally, learn about relaxation techniques like meditation, high-intensity exercise, etc. Once you have gathered this information, present it to the person you’re living with and try to help them seperate your relationship from trading. In fact, if you have a cool head, you may even want to assume certain trading functions to help remove them from the emotionally stressful parts of trading (i.e order execution). If you are lucky enough to be living with someone who is already able to detach themselves from trading, then it is a blast and you don’t need to do anything! In fact, such individuals tend to make fantastic roommates.
The Bottom Line: What’s it Like and What Should You Do?
Living with someone who can’t handle the emotional component of trading will be an extremely unpleasant experience and often continues to get worse over time. The best way to mitigate this problem (other than living with someone else) is to help them manage the trading process through technical and emotional techniques.
Living with someone who can handle the emotional component of trading is an exciting opportunity to learn about financial markets from an inside perspective. Furthermore, these personality types tend to be very easy-going; if they can remain calm inside the financial markets, then they’re probably going to remain calm in a personal relationship.