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Tom Basso – Beyond Trading Psychology
[00:00:04 – 00:10:26]
Khaled Maziad: So, hello and welcome to Beyond Trading Psychology Show and today I have a very special guest. I have a market wizard who was the CEO of Trend Stat Capital Management and Investment Advisor and Commodity Trading Firm, managing 600 million dollar at its peak. An Engineer by degree, he approaches the markets with math and computers. He has now authored two books; the first book is ‘Panic Proof investing’ which is dedicated to helping investors and the second book is ‘Successful traders’ size their positions, why and how?’ which is dedicated to helps traders size their trading positions. He is one of the legendary traders featured in the New Market Wizards by Jack Schwinger; a book on successful and legendary traders. Ladies and gentlemen please allow me and welcome the legendary trader, Mr. Serenity Tom Basso.
Tom Basso: Hey, good to be here.
Khaled Maziad: Thanks Tom, I really want to appreciate your time for being with us today. And before I start, like for me your interview with Jack Schwinger was the first contact with you, like I didn’t know you before I read the book and that when I read the book I said; wow, like this interview changed my entire life not only in trading but I said like how would someone be that calm and would his hands managing this amount of money, and this is why I want to talk to you about, and this is why we want to talk about different things that I feel that traders are missing, because most people talking about; yeah I want to back testing, I want to do all this awesome stuff; which we have to do it. But we want to go behind the scenes and see like what legendary successful traders like you do behind the scene, especially in things like I want to start first with; I think you told me that you have a story about your confidence, how did you use to boost your confidence. I think like it was a basketball story or something?
Tom Basso: Yeah, when I was in say 12th grade, so I was or yeah I was just trying to get out of high school, primary school I think you call it in many countries. I had a situation where I needed to get up in front of the class and do a book report and I was literally trembling, I mean I’m in front of 20 people that I’ve grown up with, I’ve known some of these people all my life, they lived down the street from me, I played with them out in the street and I’m doing this dumb book report which I actually did read the book and I did write the report and just got to get up and read it. And my hand is shaking and I’m just afraid like crazy to even be up there, and that night I went home and it was profoundly impactful on me because I was nearly just disgusted with myself, I was mad that I when I thought through and I played that back in my you know kind of the tape of your memory of how that all went; I thought boy that is really stupid Tom, you got 20 friends out there in the audience you’re reading a book that you a for, this is stupid. And so, I then started thinking to myself; I need to find a way to not be that ridiculously stupid in the future, but you know that’s pretty hard because it’s still, you know it’s pretty fearful to get up in front of an audience and give a talk.
So, next time I had to do something like that, I tried to rehearse; mentally rehearse how I was going to do that. So, I went into the bathroom in front of a mirror, nobody around, closed the door and I created a small speech and I tried to use different facial expressions, like what if I made a point by doing my finger, like that and you can see yourself like I can on the on the camera right now, and you can see that I’m smiling or very stern on the other hand, and trying to make a point by furrowing my eyebrow and banging down on the podium. So, I played with it, it was kind of amusing, it relaxed me to the point where then when I actually had to do a talk the next time it’s sort of like I was just playing in front of the mirror again. I had already done this. And it made it a lot more just kind of flow and then over my career basketball came-in in college. So, I leave high school, I go to college and I’m on a floor of 50 guys and we had some really good basketball players, and so the first four or five games our floor out of all the college is in first place, in their division and all these really good basketball players were recruited away from the dormitories to the fraternities for the fraternity basketball league, which left the whole floor with one basketball player left who was not going to go to the fraternity, so they needed four guys. They looked around and said; Tom you’re 6’3, you want to play basketball? I said; well I’ve never played before. Now just try to get rebounds and stuff and guard people keep them from shooting whatever you want to do.
So we ended up with a 2-1-2 matching zone which doesn’t mean a lot to most people but that was fetish back in the UCLA John Wooden years, and the one basketball player we had understood how to explain it and what our responsibilities were, and I was on the back right side down by under the basket so I could get the rebounds, and it was logical because everybody on our team was out in front of me, so I kind of got in the habit of just saying; Barry, somebody behind you, Barry somebody to your right, Gary somebody cutting across. I’m yelling out to people you know what’s happening behind them so that they don’t have to look around behind them, I’m telling them what’s happening back there and calling you know; hey! Durf get out to the point. And so when I’m yelling stuff like that out then other people are filling in the gap because somebody’s moving to cover someone, somebody else is floating to where that position used to be you know and all that and we won the championship. So, then sophomore year, we got really full of ourselves. One of the guys went to play in the junior varsity and we got a replacement for him, it was a bit of a hot dog but nonetheless we were in the quarterfinals, we took ourselves very non-serious, there was probably some drinking the night before, we were not on our game and we got down to about the last 15 seconds of the game and we were ahead by one point and the guy in the other team got the ball inbounds, threw it from half court it went off one of our guards fingers and into the basket and we lost by one point.
Junior year, we got the guy back from junior varsity he came back he said; I don’t like playing with those guys that you practice all the time and everything. We got him back. We tightened up. We even got a sub for a sixth guy. We got uniforms. We were serious. We didn’t let any team get within 20 points of us. People did not want to play us, we were like a professional basketball team, we called out our defenses, we ran them to death you know they had nothing. And in senior year was the same thing and people just were just; there were some teams that would just default and say; no you guys won we’d just skip it, they wouldn’t even play us, it was just so embarrassing them. We beat some teams by 30, 40 points inside of an hour, it was astounding. So, what that gave me was the ability to understand that I went from not even playing basketball and four years later I’ve got a team that I’m on that won the championship three out of four years, almost won at the fourth year and I kind of tied together the whole defense and I could tell when people were going behind me, I’m keeping track in my mind; okay a guy’s left my vision over here and he’s not come out that side yet, so he’s behind me and I’m keeping track of all that, yelling stuff out and it gave me a great deal of confidence that I could go against just about anybody with that team and just perform. And that was probably along with more mirror work and thinking through mental processes; how I started realizing that self-confidence and self-esteem are sort of a concept that you can kind of create for yourself. You know the ‘fake it until you make it’ type of thing. There’s a lot to that it’s sort of neuro-linguistically programming yourself to be successful and to be fearless and to be, you know like I don’t like heights but I always if I’m in a situation where there’s a zip line or some kind of bridge that has a railing that looks down to a big, I always try to force myself to go out there, and I’ve gotten better as life is going on at diminishing that fear and I think it’s something that you just sort of work in you have to realize you have it and then do some work on it.
[00:10:26 – 00:20:46]
Khaled Maziad: Absolutely. So, how this helped you in your trading Tom, like this confidence that you started to gain, I mean not only the confidence but the learning from; how did you develop this confidence from going from zero to hero in the basketball, going from zero to hero on reading in front of like public speaking. How did this help you?
Tom Basso: I now speak publicly in front; you know you could ask me to speak to 500 people live and I would ‘sure’ that would be my reaction and I wouldn’t even need to probably prepare any remarks, I mean I just I could do it without even writing anything probably at this point. I’m very, very comfortable with it, I can even sing in front of an audience like in karaoke. So, you know I think with trading, I like to say the market is insidiously good at pushing your buttons and finding whatever weak mental thing you’ve got going and so self-esteem is very useful in that when you develop something that is going to be the way you trade, you’ve got to be able to stay with that strategy and understand that strategy and know that it’s not always going to make you money every day, you’re going to have losing days, you’re going to have winning days, you’ve got to try to even them all out and get to where you want to get to. But what your self-esteem does for you is it allows you to not blame yourself if you have a negative day or perhaps even credit yourself if you have a good day; it keeps you more even keeled because you’re just the guy that runs the algorithm or runs the strategy and executes that order or puts that stop, moves it up, whatever it is that you have to-do to do your strategy, it allows you to have that confidence and that self-esteem to just continue doing it and you don’t let the market beat you up over it; which I think a lot of traders tend to do. They take it personally and I don’t take it personally at all. It’s just my 20 minutes a day running my stuff and markets did what they did and I that probably fed to my profits or losses, you know it’s just a process.
Khaled Maziad: And I think that leads us to the point that many traders, if they lack self-confidence this will happen with them in the market and this might explain that many people are trying to working on many other stuffs, and like trying different trading strategies, but the lack of confidence in themselves that doesn’t allow them to really execute and stay with one trading plan or one system or multiple system and just try to just execute them and be there.
Tom Basso: Right, I run four at the same time. Four different strategies that have nothing to do with each other really, and that allows me to have one thing kind of making money this day and maybe another one not doing anything this day, and another one maybe even lost a little that day, it’s kind of like your kids, you love them all and equally, but some days are more challenging with the one kid than the other kid, and you know that’s the kind of way I look at it but it that self-confidence allows you to just continue to run all those things and you know why they’re there and you don’t get bent out of shape or anything, because one’s having a negative day you just say; okay, well given the markets and what it’s doing today, that’s exactly what it should be doing, it should be losing money today. And other days you can say, now a day like today you know it should be making money and it is making money. So, it’s not broken, don’t fix it, and just keep going on do something else with your life.
Khaled Maziad: That’s amazing Tom. Now, I want to take something that you said about the basketball when you used to yell at your friends and telling them this is behind you, but that tells me that at that time you were developing this awareness because you were aware like who’s coming behind you and then you have this mental image like; if you were running from this place he will be on my right now so I have to take care of that. So, can you talk more about how did you develop this self-awareness and how did it help you in trading?
Tom Basso: Yeah, self-awareness was a process that started from that terrible day doing the book report to basketball, then getting involved in having to sell our money management firm because I was the guy that had the flexibility to travel, a couple of other partners that I had early on could not go anywhere. Ultimately I ended up at Trend Stat and it was all mine, so I’m the figurehead sort of so everybody wants me to give the speech, they want to interview me they want to come see me in my office and ask me questions and do due diligence, and so I’m just constantly in front of a group or a group of people asking me questions or an interviewer or somebody wanting to write about me in a book. And so I’ve got to be able to now do that routinely and I think little by little I developed awareness, I tried meditation but what I found with meditation was it was very calming and that was useful, but it didn’t provide to me as many challenges in everyday life that I would need to be aware of how I respond to those things in everyday life. So, for example, I had a little post-it note that I would stick on my computer screen and it would say ‘be aware’, so every time I’d be glancing around and I’d see this little pink thing up in the corner, I would just take a brief moment and I would say; okay what was I thinking about now, how calm was I, what’s my body doing right now, am I relaxed, or am I stressed, am I tensed, you know just quick inventory. I’m talking seconds, just a quick inventory of whatever. And I found when I did that along the way and I was operating a little more stressed, that I tended to put a little tension into the computer fingers that were on the keyboard and that tended to hitch up my shoulders a little bit, so I’d get tension in the shoulders which in feed into the neck and I would get a little bit more rigid, you know a little bit more tense with the neck. And so I found if I knew that I was stressful and that these symptoms were there, I would just be aware and then realize my fingers are tight and I’d loosen them up, everything would relax, I’d go back to work, you know an hour later I might be aware that I was doing it again, relax, go back to work.
So there’s a feedback loop of taking a moment to be aware and then doing something about it and what ends up happening if you do that long enough, it becomes habitual and you don’t even need the note there anymore, and in fact it starts showing up all the time. Now, at this advanced age of 68, I can tell right away when I put tension into my fingers, so there’s hardly ever any tension in my fingers, even when I’m golfing or doing other things, I have a very light soft grip on the club because I just don’t put tension into my fingers anymore. And that keeps me more relaxed, more serene, you know Jack Schwinger called me Mr. Serenity, I’ve got a reputation to maintain now. You know I think it’s a progression to where an observer self becomes there all the time so that I am in one part of my brain I’m answering your question or talking about awareness, and another part of my brain is watching me use my hands to the camera and smiling or whatever I’m doing, some part of me is actually sort of watching me do what I do, and it seems strange like I got a split personality but it’s just really awareness. It’s really become now just being in the moment and being aware of what I’m doing all the time, how I’m talking, how I’m standing, everything from posture to facial expressions to everything, it’s pretty easy in this Zoom age to look at the camera picture of yourself and see that, you know you’re smiling now, or you’re doing something with your forehead what is that, you know whatever. And I think that if you practice in front of the mirror, practice in front of a camera, do different things and go through life and have life kind of intrude on you, which in meditation you’re in a sort of a quiet place trying to be still, letting your mind, your thoughts flow and trying to put them away and let them come back and, it’s very relaxing. I almost fall asleep meditating. I’m very quick to fall asleep when I try to blank my mind out because that’s kind of how I go to sleep. I blank my mind out and I’m gone in 30 seconds, I’m on the way to deep sleep. When I can do awareness drills in everyday life, like while you’re trading, while you’re walking, while you’re speaking to another person, if you can do it that way you I think you can advance even quicker because you’re realizing how you process information and how you react to it and how your body reacts to it, how your mind reacts to it and I think you can kind of learn and make more adjustments quicker.
[00:20:46 – 00:29:38]
Khaled Maziad: That’s great on this great advice is here. So, now that will lead me to; we want to talk about pain, and I want to talk about two kinds of pain here. I want to talk about this kind of emotional pain and any kind of like physical pain, and I know that you have some stories about that too.
Tom Basso: Well, physical pain, there’s a very, very clear cut story that I’ve told many times, but not to the trading world, probably to more friends. I had an operation when I was in my 30s and they basically cut away this whole part of my face and they folded back the skin and they took out the parotid gland that was a had a cyst on it, so I’m about 34 years old or so, and they put the whole thing back and they you know sewed it up and there was a drainage port and as the thing started solidifying and growing back together, very successful operation thank goodness. But I decided to use the 24 hours or 48 hours or so post-operation to experiment with pain, because it was very, very painful. The type of pain that I would expect you to achieve if you were being tortured in a situation, I mean if they wanted something out of you and they’re going to just inflict pain on you, so intense that you give in and you give them whatever they want. So, I thought to myself all right, how are we going to do this so thanks to Van Tharp who was a psychologist that I worked with way back when I first started in the business, I did some talks with him, and he had exercise that people did called ‘intensifying the feeling’ or something to that effect. So, what you do is at that point in time the pain’s there and I would go to intensify the pain, let’s see if I can make the pain that’s all over my side of my head as intense as I can, concentrate on it, really, really, really feel the pain and what happens is it burns itself out. It just disappears. All of a sudden, it’s gone. And then 15 – 20 minutes later, 25 – 30 whatever it is, here comes the pain again.
So what I did in that instance is I dissociated from the pain, and I did an exercise that was called ‘let’s watch Tom have pain’, so my mind was just observing Tom lying there in the bed, having pain, but not reacting to it, because I’m just observing Tom having the pain, I’m not having the pain, Tom’s having the pain. I’m just over here watching Tom have the pain, so it’d kind of dissociate myself from the person that was having the pain. That would make the pain go away and then it’d be another 20 – 25 minutes and it would come back and I alternated back and forth for about 24 hours and never had to take a pain pill.
Khaled Maziad: That’s awesome. Now I want to talk about the silver trade that you talked about but I want to talk a little bit because sometimes you tell the story that; I had this 100 grand I took it to like 500 grand and then it went back to 150 but I want to talk like, how did you manage that the pain of seeing your account; like the excitement to seeking your account like almost doing like 5x and then going back all those 50 percent how did you manage this emotional pain and being able to stick to your strategy, why are you holding other people money at the same time?
Tom Basso: No this is before I manage, I was still trying to become a trader and learn so I hadn’t quite gotten to managing other people’s monies yet. But yeah there was a lot of excitement during that month or two or whatever it was, and the numbers were 130 to 500 back to 250. So, for a lot of people saying; well you went from 130 to 250, that’s not bad and they would be right. But I’m thinking to myself I was at a half a million and I lost half of it. So, I think, couple things that happened; first, you got to lead up to that by some of the lessons that I learned prior to that trade with missing out on trades and not following my strategy, and man I had those lessons, there were some great trades that I missed out on and other ones that I got in on that lost that ends up taking a profitable month to a negative month, and I just kick myself for; come on dummy just do the stupid strategy and do it every time, every day, don’t miss trades, you’re looking for that next 1000 sample size and missing any one of them is might be a really good one to have in that thousand sample size, and you’re affecting by not being there you’re affecting your thousand sample size by missing a few, and you’re affecting your statistics. So, just run every one of the thousand trades and let your strategy work itself out. So, I learned that lesson early on and now I’m going to follow my strategy. Man silver trade goes over, I’m in on silver and off we go and I am like writing the broking horse, broking horse were I’m holding on for dear life and he’s trying to throw me off and whatever, but I am committed, I’m not going to let go, I’m going to get it done and so that’s how I dealt with the sort of the immediate day-to-day volatility and pain of being in that particular trade. I just kept going back to hold on for dear life because you know that this is a data point and it looks like it’s going to be a profitable one, I am moving my stops up, there’s a lot of limit moves going on, so that’s kind of scary but most of the limit moves are in my direction, so that’s good. I’m making a lot of money, just hold on for dear life. But then the pain of it’s all over and the relief of; okay now I’m at a quarter of a million, you know good for me, I now have money to expand my futures trading, I have more visions of becoming a money manager and everything else. I revisited sort of the pain and ask myself; how does all this make any sense that, is this the way I’ve got to learn to live with training that I’m going to be putting myself in this type of pain and fear, or is there something I can do with my trading strategy that both allows me to buy and sell when I have to buy my strategy, but to manage the amount of ongoing and changing pain level in scary level, you know fear and anxiety level that I have throughout the trade. And I started realizing looking at a lot of charts and I started thinking; you know when I bought silver it was just boring and nobody cared, when I sold it out we had gone through somebody like the hunts trying to corner the market and then the exchange is coming in and changing the margin and having the whole thing collapse, why did I have to hold the same number of positions at the end that I held at the beginning. I can stay with my strategy but vary the amount of exposure I have by changing the number of contracts, which is why the second book ‘successful traders size of positions, why and how’ I put all the formulas I actually used at Trend Stat and still do, right in that book so everybody in the world can use those things and it costs a whopping $10 and…
Khaled Maziad: Where they can find this book Tom yeah?
[00:29:38 – 00:40:20]
Tom Basso: Oh on the enjoytheride.world website or you can you can get I think Amazon and Apple is carrying, it because I seem to keep getting revenues coming in from all over the world; Australia included once a month on my share of I guess the royalties from the sale of the book, thousands of these things have been sold and I think I’ve gotten a lot of great response from the book. I mean the formulas are in there you can with examples and everything, it’s pretty easy to understand, it’s high school math. You probably learned when you were; I don’t know probably 13 years old, 12 years old it’s not that difficult. But that was more the how to deal with intra trade fear or anxiety and an ongoing future trade basis. When I was able to look back and analyze and make some adjustments and that’s how I developed a lot of that math, because I knew that then I might start out. Let’s say you get a silver trade in today’s world and you want to buy 10 contracts, well then it goes crazy all of a sudden, like silver has just recently where it was down around 15 – 16 and then it very quickly got up into the 26, 27, 28 dollars an ounce; there’s no reason why you have to hold 10 just because you bought them at 16 and 10. Maybe when it got to 21, maybe the risk levels were getting bigger and your volatility was getting bigger, so maybe you only need eight to give the portfolio the same exposure that it had at 16 as a percent of the portfolio. So, what you’re doing is normalizing the exposure to all the different markets you trade so that the portfolio remains a portfolio and not just a silver trade with a bunch of other stuff that doesn’t mean anything anymore, and you got you really got one position in your portfolio that’s dominating everything. You don’t need to do that. You can just keep rebalancing, keep adjusting and yet staying with the long position all that time so maybe by the time it gets to 26, maybe you’re down to four contracts or three contracts or even one contract. There was a time after one of the Kuwait war, this would be first time we invaded Iraq, the US back it was a George HW Bush days, so quite a while ago. That oil went from closing at 32 up to 40 at about 8 o’clock at night when the invasion happened and by the time the next morning it was all over practically and it was all the way back down to 22 dollars a barrel. So, that’s in just inside of about a 12-hour period that’s what happened, and when you look at the risk of that kind of volatility and trade unless you had about a four or five million dollar portfolio with Trent Stat, you had zero contracts of crude oil, you couldn’t afford the volatility to keep it as part of your portfolio. The algorithms just take care of it for you; you don’t have to worry about it. So, as I get a profit position that’s going crazy I’m peeling off contracts and trying to maintain that position and it keeps me very serene now.
Khaled Maziad: Don’t have to worry about it. Now let’s talk about managing money, managing other people’s money, and I would imagine like this like just the trading by itself is a hard job like and it’s very hard job and just dealing with your emotion, and dealing with other stuff that’s happened in your life which we’re going to talk about later. How did you manage like, I knew that you have like even clients from Japan and they used to wake up a time, how did you manage these like emotions, not only about your emotions but your clients emotions too?
Tom Basso: Well, the first thing you have to do as a money manager I think, and a lot of money managers do not do this, is that you’re managing your clients monies, not your own. And so everything in my life back in the Trend stat days was geared towards trying to develop better and interesting ways of managing client assets in ways that I think the clients would enjoy the ride, because you know you’re going to have good months bad months but you want to make sure your clients are happy or they leave. And I think a lot of money managers take the attitude of; I know what I’m doing and I trade my own money this particular way and sort of client if you want to come along for the ride, you can and I’ll manage your money too that’s kind of the attitude that a lot of people take. Problem with that is and you can look at it right now in my own life, I’ve got a retirement situation, I’ve designed everything I do for me and it works great and I’m very happy with it, I don’t want to change a thing and I made it through this last like 200 days with like, I think yesterday’s number was I think a positive 122% profit in my personal portfolio, that’s probably the best 200 days that I’ve ever had in my life, and at the same time didn’t have to change the thing because it’s designed exactly for what I need in my retirement portfolio. If I’m trying to do what I’m doing right now for a person who’s not me and not in my situation, and not with my capital, and not with my knowledge of trading psychology, and all the things that go on; they’re never going to stick around. They’re going to be all over the map emotionally, they’re going to be calling me every day and say; how much do we make today, if it’s a good day, and they’re going to be distraught when we have a down day and they’re not going to be able to take the emotional rollercoaster ride, so they’re going to leave, so by designing everything first of all for the client, that helped me a lot, so that allowed me to build you know 600 million under management and that worked pretty well. The other thing that I always tried to remember when somebody was complaining or whatever, firing me even, was; hey, it’s their right, it’s their money, it’s not mine, they have the right, I’m just the hired hand here, I don’t take it personally, I finally got to the point where clients were making so many poor decisions with either hiring me or firing me. I wrote panic-proof investing for them. So, every client that came into Trend stat got a copy of panic proof investing; whether they wanted it or not and many of them probably didn’t read it, but I wanted to try to bring them up to the best level they could be as a client because the money manager, and most clients don’t think of it this way, the money manager can only do what the client will allow that money manager to do. And so you have sort of this fence around you that as a money manager that; I don’t have now being retired where you have to stick to certain things and you got cubby holes that you got to deal with, I am stock manager, I got to buy stocks because of the laws, I have to be long on, I can’t go short how, do I deal with bear market, how do I deal with sideways markets that aren’t going to go anywhere for a long period of time. All of these things feed into this sort of this fencing that’s been put around you as a money manager; that you have to do the best job you possibly can within that known kind of confine and I think a lot of money managers don’t really think in those terms, they want to go off and do all these brilliant things that they can come up with. But in reality you know it’s either they can’t do it because of laws, they can’t do it because the clients just won’t let them do it. If I back in the day to some of my stock clients said; you know I’m doing these futures trading over here and you might want to diversify your portfolio. They might say; I’m a pension plan I can’t do that, or I’m a conservative investor, futures are dangerous I can’t do it. Whatever the excuse, even if it might be a great diversification for their total and I know that mathematically and I do it for myself; means nothing, because that’s not what the client’s all about and I think that’s really where a lot of money managers miss it, they spend a lot of time trying to do what they would want to do to make the most money as possible, much money is possible with as little risk as possible, but they’re doing it for their own puzzle and not solving the client’s puzzle and that allowed me to stay a lot more calm than a lot of guys managing other people’s money.
Khaled Maziad: That’s a great time, I think it’s a great advice to like to start thinking that’s not you trading it’s your client trade and you are adjusting everything for them. Now that question I’m going to, yeah?
Tom Basso: You’re just the hired hand, I mean you’re there because they’re busy being a doctor or whatever, and you’re full time, so you get to do the whole management of the portfolio for the doctor because the doctor is you know doing surgery right now.
Khaled Maziad: Actually that reminds me when I started my company and we were just doing the structure and things, and I remember that counter that; hey this is not your money, this is the company’s money, I just want to let you remember this is not your money it is a company’s money. Actually, I was coming from an employee and like in any money can I come, is it mine. So, it’s interesting, it’s the same concept. Now I want to talk about Tom, like I think how did you used to deal with burnout, like when you were managing other people money and you still have your family and you still have your life, so I want to talk about two things here. How do you use to deal with the client side, plus how do you use like and how did you manage to get your family on board with your mission and your vision and what you do what?
[00:40:20 – 00:52:01]
Tom Basso: I did for the clients and even for just the trader of my own money. I think it works for both of those instances is I always try to keep in mind that there’s good times and bad times. Ed Sequoia once said trading’s like breathing in and breathing out, profits coming in, profits going away, and losses happening. You can’t just breathe in all the time. Losses are a part of the trading puzzle. It’s like breathing out so you can take your next breath in and I thought that was brilliant the way he put it because that’s kind of what trading is all about, markets do not go in one direction forever. So, what I would always do is I’d keep in mind where was my biggest surge which is a move up in the equity curve, that’s a surge I call it, and where is my largest drawdown so when I’m having a surge and I’m being full of myself and I be I’m aware that I’m getting a little ‘wow I’m pretty happy here because I’ve been making money every day for the last five days and things are going really good’ I then put in place in my mind; yeah but remember that time back in whatever year that I was down 22 in you know a short order six months or something until I recovered again. And so that kind of takes me from giddy or high to back to even. And the same flips the other way; let’s say you’re in another draw down. I’m constantly thinking about well yeah remember when I made the 122 back in 2000. So, I’m remembering the good times. And I think that that sort of always keeps me even keeled I realize I’m just here every day to let the markets do what they want to do and to make the right reaction to what the market’s doing, I’m not trying to predict anything, I’m just cranking it every day doing the same thing over and over again. This whole year with all this big return, you’ve got a big covid crash, and then you’ve got the big run-up. So, there’s been lots of movement more record movements than I’ve seen in my lifetime so not surprising to me. I’m making more money than I’ve ever seen in my lifetime because the movements produce profits and I think that a lot of people; I’ve heard stories through the rumor mill that some of the professional commodity trading advisors were having a fairly lousy year this year because they abandoned their strategies in the middle of the crash because, I mean crude oil going negative and all sorts. People were saying this is insane, I don’t even want to be in these markets but that’s their psychology overriding their strategies, which should have already been able to deal with those types of things if they designed them properly. I just every day throughout the whole covid thing and through the run up just did the same thing I did last year. I didn’t make any changes at all and I think that for those people who can do that then extraordinary times like we’ve had are really just opportunities and you’re managing the risk, you’re managing the position sizes, yes my position sizes this year have been a lot smaller than they were last year because the volatility is in risk and stuff is greater, therefore smaller positions but I’ve been able to stay with the trades and do what I want and stay serene and have a good year and kind of enjoy life. I haven’t any problems with that and I think that I think money managers have to try to be able to bring themselves to even.
Now, the second part of the question where you talk about the family being on board, the way I do that is even to today if we go on a vacation, my wife Brenda knows that I only ask for about a couple things make sure wherever we’re staying we have internet or Wi-Fi or something, I bring my computer along and the only other thing I ask is give me my 20 minutes a day, and after that I turn it off. I don’t even look at my phone. 24 hours I’ve got the good till cancels in and I’m good and she’s on board you know I’ve had the conversation, she understands that I’ve got to do that 20 minutes, she roughly understands when I need to do those 20 minutes sort of late in the day after the markets close and I can get my data, and the rest of the time I’m fully on vacation, you know going and seeing the sites and going out to dinner and doing whatever I do. So, I think that’s the way to do it is to quit thinking of yourself as a trader and identifying as a trader, instead identify as a human being one activity of which happens to be trading but there’s also being the husband or the wife, it’s also being the son or the daughter, it’s also being the karaoke singer or it’s also being the guy that prunes the bushes outside. If you think of your life in more broad terms and just say; I’m a human and I do a lot of things and one of them happens to be trading, it puts it a little bit in a more perspective and it keeps you from being so totally stressed and totally addicted and you know waking up. I mean some of the currency traders I heard back in the day when I was doing currency trading, they would have monitors and quote machines down on their side of the bed on all night, so they could wake up and look at what’s the euro doing now or whatever. You know like is it up or down should I need to do, I need to get out of bed and go make a call, you know that’s.
Khaled Maziad: Now they are doing it on the phones all the time, like old traders now they are holding their phones and checking every five minutes what’s happening and it’s crazy.
Tom Basso: Yeah, I mean I if I was doing that I’d be down here like this you know, I’m looking at right in the middle of an interview, I mean I’ve got the phone off. Whatever is happening in the markets right now, I have no idea, I don’t have any I have no quote machines up, I wanted all the bandwidth to make sure that the interview is the zoom call goes well and so I have no idea what the markets are doing right now and I’ll find out at the end of the day when I run my orders and that’s okay with me.
Khaled Maziad: That’s a great time and I really liked what you said about like understanding that we are a multi-dimensional being and instead of we are not just a trader-trader of just one aspect of what we do but you’re still a husband, you’re still a father, you’re still a singer, a son, you still do some other activities. Now I just want to talk about, did you find like having other activities and I mean hobbies like doing things that outside of trading because I found that many traders if their only sort of excitement is trading, so they only tend to focus and as you said it’s become addictive because they got all their excitement and dopamine rush from trading and if they don’t have anything like outside of training, like some sort of habits that they are doing or something that they enjoy it, could you talk about that please?
Tom Basso: Yeah. For me, there are a couple different things. The immediate one for the adrenaline rush would be working out. I enjoy sometimes getting on elliptical and turning on, I don’t know a golf tournament or something on the little television there and off you go and before you know it 45 minutes has gone by and I’m on a 10 setting which is pretty heavy but I am a 200 pound 6’3 guy, so I mean I can do it, but and I feel like myself the adrenaline’s kicked in and I’m thinking to myself I could go another hour I mean, I feel like I’m on top of the world and so that’s one way I get an adrenaline rush. I’m not an adrenaline junkie in general, I’m so calm and so aware of being calm that I sort of have not found the need for adrenaline rushes anymore especially at my 68 years old. But I would also say that golf for me is a very capture my mind item because it’s just like trading you’ll never golf perfectly, you’ll never shoot 54 or whatever the number is that might be theoretically possible, you’d have to have a complete set of perfection come together and human beings are not perfect so you’re not going to be able to make that swing perfectly every single time. And I think that the thrills that you get along the way of you know hitting that wedge shot that just goes perfectly through the air and watching it come down and land right next to the pin, and you know good for me, I nailed that one. That when I’m golfing I’m definitely not thinking of trading, it just completely wipes out the rest of the world, I’m focused on golf and I think that that’s one of the things escapes that I made in the days when I potentially could have just been consumed by trading and running the business and all that; I would try to schedule those outings on Saturday or Sunday where I could go out and play 18 holes with my wife or friends, guys or something, and I would just be totally immersed in that environment and I think that that’s something that has been intriguing to me, because I’m still trying I’m going out after we’re done with this interview and hitting some balls because there was a couple things that happened yesterday that I was not happy with them and so here I am trying to solve my, you know make my golf swing better and try to deal with some things, and you know that’s just an amusing kind of brain tease puzzle that I love as part of my life. So, those two things exercise and golf are real big distractions. I would argue also that every occasionally I actually sell a charity dinner for the humane society here the dogs the stray dogs and things up in the mountains and I offer a five or six course Italian dinner paired with wine and I do it at my house and I do it in full costume. I have the chef’s hat on. I have the chef’s outfit I have Italian music playing candlelight, we really go overboard. And the last bid for my last dinner was 950 to the humane society and so it’s become, I’m kind of well-known now as the Italian chef that that donates these charity dinners and that’s a lot of fun for me because it takes about a day and a half of pretty heavy work to get all the prep done and you know make the cheesecakes and stuff that takes a long time and it’s really fun and thrilling for me to see everybody happy, and to just see them enjoying the different foods that I’ve created and I every dinner I do is different so it’s always interesting for me, it’s a challenge and it’s always fun when I pull it off.
[00:52:01 – 01:00:20]
Khaled Maziad: That’s amazing Tom. So, talking about being a chef and cooking, so what’s your recipe that you can give to us about trading psychology and what traders can do beyond the trading psychology in order to succeed in the market and outside of the market?
Tom Basso: Well, to me there’s three important aspects to trading and every one of these three things have to be there if you’re going to be successful and they aren’t equally important. So, let’s start from the least important first. I think you need to have a way of buying and selling and that’s what everybody usually tries to concentrate, all the newbies come into the business and they want to know; where do you buy, where do you sell, you know is this stock going to go up or down or whatever. That I call it a buy cell engine because the engine drives the decision to buy or sell, so that’s one thing that you have to figure out to be successful and a lot of people don’t have that a lot of people are sitting there; hey Tesla’s been going good the last few days, I think I’m going to buy some, that’s their buy sell engine, that is not a buy sell engine, that’s you flying by the seat of your paths.
The second part that’s necessary is what we would talk about is position sizing. It’s the silver trade, it’s managing a portfolio so it’s a portfolio not one thing and then a collection of other things, it’s trying to make it all work be diversified, exploit picking up unrelated returns out there, you can either through your strategy, through your time periods, through the market you trade, these type of things. That’s the second part and it’s than the buy and sell and I think you’re going to be you’re going to have a while more wild ride you’re not going to enjoy the ride, it’s going to be more up and down and all over the place and not a lot of fun.
The third area and it’s the most important is what we talked about already; the mental side. If you don’t have your mental process, your awareness, your ability to change mental states from anxious to happy and content and to be aware that you’re in a negative type of state that’s not conducive to good trading and to change that mental state into something else that is conducive to trading. I think if you don’t have that; you are going to be able to do the first two. If you if you’re like the CTAs that I talked about in march where they 50% of them abandoned what they were supposed to be doing because covid scared them and it’s a scary time, you know down 35 in one month is setting records. I’ve never seen some of the stuff in my lifetime that I’ve seen this year, it’s pretty crazy and you know with the disease being potentially dangerous, you know yeah I understand you’re fearful for your life and you’re fearful for your trading and you know you’re just going to say; I’m done, I’m just going to sit this out for the next couple weeks and let it settle down. I can understand it but at the same time you’re a professional money manager you should have better control of your mental processes so that your position sizing and your buy sell engine should have taken care of those conditions and you should have the discipline to just keep doing what you’re doing. It’s just the market’s always going to do something different you’ve got to be able to just keep going and I think a lot of people get pushed out of shape by the market. Market pushes their buttons and then they abandon their strategy or they’re in a losing month with a particular strategy so they say; you know Joe over here is making more money now so I’m going to use his strategy now and get rid of mine and then next month Joe’s strategy doesn’t do well and now you got to go out and do Pete’s strategy and then you got to do John’s strategy and you spend the rest of your life searching for the holy grail that doesn’t exist. And it’s really yourself that’s the problem there, that’s the holy grail, is just to you know get your get yourself in order, and get yourself doing the right things and the rest of this stuff is sort of important but it’s essential to have something but it’s not nearly as important as the psychology, because your mental side can over override and completely screw up those first two. So, if you don’t have the mental side right you won’t even get the first two right but you need the first two to as part of the process. I think so if you get all three of those going and I think I have most of my life. I think that’s why I’ve been successful.
Khaled Maziad: That’s great, Tom the last thing like where people can follow you and find your website?
Tom Basso: Well, website enjoytheride.world that’s, dot com was taken so I took dot world because I’m talking to Sydney, Australia right now and so that’s one easy way and there’s lots of free interviews, like this interview I hope will eventually be up there and there’s free stuff, there’s some stuff that you can buy, like the ten dollar book on position sizing, there’s a video series that I think goes for like a couple thousand dollars, it’s like a 16 part video series on ‘how to create a trading strategy to suit you’ and there’s lots of other stuff. There’s webinars on all sorts of topics that we’ve recorded and put up there and the site pays for itself, which is great because then I don’t have to dip into my pocket to run a website to help traders but I enjoy doing it it’s kind of in retirement. I’ve been retired now 17 years and I’m it seems like I’m busier than I was when I was trading sometimes on some days but I try to, I do the website because then I don’t have to worry about; like if you’re in Sydney, Australia and you want to come in and first thing in the morning to the website you can get answers to questions without contacting me personally. So, it’s relieved a lot of the pressure on; I was getting five six emails a day asking all sorts of questions and they’d be the same questions over and over again. Now I can refer people to the website and they can find their answers there a little easier and I don’t have to be available 24 hours a day to answer questions. So, that’s been good, that’s one way you can contact me. The other way, I’m on Facebook, best way there is to like @enjoytheride.world I believe is my page. It does you no good to send me a friend request because there’s a limit on friends in Facebook of five thousand and I don’t know where I am I’m not quite there yet but I don’t ever post on my personal page, it really doesn’t there’s no point to being a friend. Then if we want to go to parler.com ‘p-a-r-l-e-r.com’ they’re the newbie kind of twitter look-alike that refuses to censor anything. I post on that as well and I think I’m just @tombasso or something like that. Just search for my name you find it and just follow me there and you’ll get all my stuff. And my email is Tom@trendstat.com, like it has been for about the last three decades.
Khaled Maziad: That’s great. Thank you so much Tom for your time today. I think you shared with us so much value and so much wisdom and I believe like everyone we’re going to be listening to this one will be listening more and more to it again many times. Thank you so much for your time Tom I really appreciate your time.
Tom Basso: It’s totally my pleasure; I enjoyed talking to you, telling stories.
About Tom Basso
Tom was CEO of Trendstat Capital Management, Inc., an Investment Advisor (RIA) and Commodity Trading (CTA) firm, managing $600 million at its peak. An engineer by degree, he approaches the markets with math and computers.
He has now authored two books:
1- Panic Proof Investing, which is dedicated to helping investors.
2- Successful Traders Size Their Positions – Why and How? which helps traders size their trading positions.
Tom was one of the traders featured in The New Market Wizards by Jack Schwager, a book on successful traders.
Tom currently has a website: http://www.enjoytheride.world with educational resources for traders.
- 0:01 Introduction
- 2:18 How to build confidence using mental rehearsal technique
- 4:54 Boosting the self-confidence in other areas of the life
- 10:31 Why self-confidence and self-esteem is crucial to follow trading strategies
- 14:16 How to cultivate self-awareness using a simple post on a computer screen
- 20:46 A simple technique to dissolve physical pain
- 24:10 Using the fear of missing out to deal with emotional pain and lessons from having a 50% drawdown
- 33:06 Managing emotions as a money manager and the #1 mistake that most money managers do and how to fix it
- 39:50 Dealing with burn out managing other’s people money
- 44:04 How to get your family on board as a trader
- 45:05 Why you should quit identifying yourself as a trader
- 47:17 The importance of having other hobbies and activities too avoid overtrading and trading for excitement
- 52:00 The three secret ingredients to enjoy the ride in trading
- 56:56 How to connect with Tom Basso http://www.EnjoyTheRide.world