You can be right, or you can be rich

If I look back at my 35 years in the markets, there's been a recurring theme: the desire to be right. Surely I'm right and the market's wrong. My thinking, my logic, and my approach are superior to everyone else’s...isn’t it?

It makes sense in a way, right? When you buy an asset, there’s a natural desire to believe you know something others don’t. Especially when the person on the other side of that trade is selling what you’re buying. But, let me tell you from experience: letting that desire to be right take the wheel can cost you big time.

It’s led me to hold onto losing trades for far too long. Earlier on, it had me doubling down on bad positions, thinking they’d recover - only to watch them sink further. And it’s led me to sell positions when they’re up 30% because, well, “I’ve been proven right” – only to watch those same positions soar another 300%.

That desire to be right seems an inbuilt part of me. It’s made me stubborn and a bit judgmental. And although I’ve learned to soften those traits, they’re still there, lurking, waiting to sneak in if I don’t stay vigilant.

Recognising Our Cognitive Biases

The reality is, we all have cognitive biases – those mental blind spots that make us think or act irrationally without even realising it. For me, the desire to be right is a classic example of confirmation bias. My brain, like everyone else’s, loves to be right. So, it’ll take any information it gets and twist it into “proof” of what I already believe.

If I’m convinced a stock’s a winner, I’ll tend to interpret every bit of news as evidence of its potential. Sound familiar? It’s irrational, and it’s dangerous, especially in the world of trading.

This falls under the field of behavioural economics, which has become a hot topic in finance. It’s one thing to be aware of these biases – but the real challenge lies in stopping them from wrecking our trading. And the goal of every trader isn’t just to be right. It’s to make money.

A Game-Changing Insight

Peter Hunt, a member of my very first Mentor Program, sent me down a rabbit hole in this area. I came across a book called The Art of Execution by Lee Freeman Shor. Shor, a former fund manager, studied the trading behaviour of 45 of the world’s best investors over a seven-year period. The results were both surprising and incredibly insightful.

Shor found that even these elite investors only made money on 49% of their investments. Some had a success rate as low as 30%. Yet, most of them still made significant profits overall. How? It all came down to what they did after they bought a stock.

What Shor discovered was that the initial buying decision was important, but not nearly as important as how these traders managed their positions after they were in the trade. That was the real key to success.

The Five Types of Investors

Shor categorised investors into five types based on how they dealt with winning and losing trades:

1. The Rabbits: These traders freeze when they’re losing money. They justify their losses by blaming the market or bad luck. They hold on to losing positions far too long, and as you can guess, their returns suffer.

2. The Assassins: These traders are decisive. They sell losing trades quickly, with set rules like selling if the position falls by 20-33%. They cut their losses, move on, and protect their capital.

3. The Hunters: These traders have a plan to add to losing positions, but they do so with strict rules. They average down with intention, not emotion, often buying more when the price falls by a set percentage.

When it came to winning trades, Shor identified two more types:

4. The Raiders: These traders sell positions for small profits far too quickly, often missing out on the bigger gains that could have followed. They take small wins but struggle to make meaningful returns because those small wins don’t cover their occasional big losses.

5. The Connoisseurs: These are the traders who let their winners run. They don’t cut and run after small gains. They stay in the game, trimming gradually and allowing the big winners to work their magic.

Shor’s key takeaway was simple: to succeed, you need to be an Assassin or a Hunter when managing losses and a Connoisseur when you’re riding winners. Avoid being a Rabbit or a Raider at all costs.

The Winning Formula

Shor distilled his study into five key habits that the best traders followed:

1. Focus on your best ideas.

2. Position size matters – don’t spread yourself too thin.

3. Be greedy when winning – let those winners run.

4. Adapt when losing – cut losers before they spiral.

5. Only invest in liquid stocks – you need the flexibility to act quickly.

And of course, there are five habits that are a recipe for disaster:

1. Over-diversify with too many ideas.

2. Invest small amounts in each trade. (Some trades are worthy of a higher percentage of your equity).

3. Take small profits too early.

4. Refuse to adapt when a trade goes south.

5. Ignore liquidity and get trapped.

What Does This Mean for You?

Whether or not you agree with every one of Shor’s conclusions, the broader lesson is crystal clear: success in trading isn’t about being right all the time. It’s about how you execute your plan.

The best traders have systems, rules, and checklists in place to help them stick to their strategy. These tools reduce emotional decision-making and ensure they’re not falling prey to cognitive biases like confirmation bias.

My biggest takeaway from Shor’s work is that even the most experienced traders need guardrails. We all need those rules and checklists to keep our worst instincts in check – especially that ever-present desire to be right.

And here’s the thing: in trading, you don’t need to be right all the time to win. You just need to manage your trades smartly. So, let’s put aside the ego and focus on what really matters – making money!