Competence vs confidence

Competence vs confidence

 

A few years back, I had the chance to view a startup from an insider's perspective.

It didn’t take long for me to realize I didn’t want anything to do with this business.

The founder is a smart guy that came from a consulting background, but had never started a business from the ground up.

From what I heard through the grapevine, he read one of the many “lean startup” books that teach you to do a few minimal things to confirm the business model, and then throw a bunch of money at making it work.

The business model was to create happy hour pricing for services like haircuts, massage, etc to incentivize people to come in during slow times.

It makes sense from the perspective of a client to come in at an odd time and get a discount for a haircut…the theory being that the hairstylist or massage therapist is just sitting there, twiddling her thumbs.

They did some polling (of college students…mistake #1) and found that they would (of course) pay less for something.

That got the ball rolling, and they started hiring dozens of people.

But they didn’t bother asking the hairstylists if they wanted to give discounts for their time…

As you might have guessed, there was tremendous friction.

Their solution: Throw more money down the bottomless hole of startup hell.

The company blew up within a year and $1 million spent.

If you look at the graph at the beginning of this message, you’ll see that people are often the most confident when they are fairly new to a subject.

It’s called the Dunning-Kruger Effect.

As they gain experience from the school of hard knocks, they suddenly realize: “Holy crap, I suck!” and their confidence crashes to earth faster than a lead bi-plane.

Then over time, they really do become an expert in their craft because they have faced the harsh reality of the real world…if they stick it out.

Most don't.

In the stock market, you get to move from Know-it-All Ned to Humble Henry at a break-neck pace.

Unfortunately for many (including myself back in the day), the humble stage only occurs when their account hits rock bottom at zero.

That’s why it’s a great idea to do a self-assessment – right now – based on the reality of your trading situation.

Are you making consistent money in the stock market?

Or are you still moving from strategy to strategy (or no strategy at all)?

While it might be a painful truth, your trading account balance doesn’t lie.

I’ve known traders that have been at it 20+ years without making a profit.

When they assess themselves, they say they rank above average.

When they use their trading account to assess their performance, I hear a lot of excuses, but begrudgingly, after a coming to Jesus moment, they admit they are below average.

It’s painful to admit these weaknesses because let’s face it: No one wants to admit to their faults and shortcomings.

But I promise that if you look deep inside yourself, and see reality for what it really is, you can then begin the path to recovery and the prosperity that ultimately follows.

Keep at it. Never give up on your goals.

Think about where you want your lifestyle to be in a few years…and where you don't want to be.

Write that down.

Now you'll have something to both push away from like a hot stove, and pull you towards like a tractor beam.

Trade smart,

Dan “Prince of Proof” Murphy