3 Investing Truths Ed Seykota Taught Us
The 3rd Is Crucial and Transforms Every Aspect of Life
3 Truths About Investing Ed Seykota Taught Us
The 3rd Is Crucial and Transforms Every Aspect of Life
What if I told you that a single decision, made decades ago, could ripple across time to turn $5,000 into over $12 million? That’s not a plot from a Hollywood movie; it’s the legacy of Ed Seykota, a trailblazer in investing systems. His story isn’t about luck or fleeting fortune—it’s about methodical brilliance and the courage to innovate.
Ed Seykota didn’t just ride the waves of the market; he engineered the surfboard. And today, we’ll dive into the principles that made his journey legendary—lessons not just for investors but for anyone aiming to harness discipline and intuition to achieve greatness.
The secret to success, according to Seykota, lies in combining discipline, adaptability, and a willingness to embrace both logic and intuition. His journey teaches us that achieving extraordinary results is possible when you commit to a system and master your emotions.
The Power of Rules
Seykota’s career began in the 1970s when he used IBM mainframe computers to test investing ideas. Inspired by Richard Donchian’s work on trend-following systems, Seykota developed rules-based strategies that could take emotions out of the equation.
One of his most fundamental principles is this: Eliminate losses. He believed that protecting your capital is the cornerstone of successful investing. Seykota’s first rule wasn’t about making money; it was about not losing it. By having a plan for when things go wrong, you’re not left hoping the market will suddenly turn in your favor.
Think of this like driving a car. You can’t control traffic, but you can wear your seatbelt, follow the rules, and avoid reckless decisions. The goal is to arrive safely, not to beat every car on the road.
Embracing Risk Wisely
One of Seykota’s most counterintuitive yet impactful teachings is that investing isn’t about taking wild risks. It’s about managing them. He advocated for risking only a small percentage of your portfolio—no more than 1% on any single asset. This approach ensures that even if you fail multiple times, you’re still in the game.
Seykota often used the metaphor of surfing: “You ride the waves that come your way, and when they break, you paddle back out.” Success isn’t about catching every wave but making the most of the good ones while minimizing damage when the ocean turns rough.
Discipline and Intuition
Seykota was a staunch advocate for following rules. He believed that discipline defines success. However, he also acknowledged the importance of intuition. Sometimes, the best decisions come from a gut feeling—but only when it’s backed by years of experience and understanding. As he said, “To achieve longevity in investments, you must balance rule-following with moments of creative intuition.”
This delicate balance is like a jazz performance: structured around scales and chords but filled with moments of spontaneous improvisation. Seykota’s genius lay in knowing when to stick to the sheet music and when to riff.
But Seykota’s story isn’t just about numbers and strategies. It’s about the human side of investing—our emotions. In 1992, he founded a community of investors called The Trading Tribe, where participants explored the psychological side of investing. He understood that fear, greed, and hope often override logic, leading to poor decisions.
Through The Trading Tribe, Seykota encouraged investors to confront their emotions, not suppress them. His work emphasized the power of community and shared experience, turning investing from an isolating endeavor into a journey of growth and self-discovery.
Conclusion
So, what can we learn from Ed Seykota? Whether you’re managing investments or navigating life, the principles remain the same:
Protect what matters most. Eliminate unnecessary risks.
Manage your resources wisely. Don’t bet the farm on a single opportunity.
Balance discipline with creativity. Follow the rules, but trust your instincts when it counts.
Seykota didn’t just master the markets; he mastered himself. And in a world driven by emotion, that is the greatest skill of all.
I’ll leave you with this: What rules could you establish in your own life to create the space for discipline and intuition to thrive? Because when you find that balance, you too can ride the waves to success.
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