Narrow your Bandwidth; Increase your Focus

Have you noticed that everyone is a specialist these days?   It’s gotten so bad in the medical profession that finding a good general practice / family doctor is a tough ask. Go down the list of almost any profession and you’ll find specialists and then super – specialists within one narrow sub-sector of a specialty.  The reason?  Specialists, especially good ones, are more highly paid than generalists.  They “own the space” they work in.   I found that out first hand a few years ago when i faced jaw surgery.  I searched a radius of 300 miles and kept getting the same name; Dr. Steven Holmes.  He owned the space, was Best in Class, and charged accordingly. When you are getting your face operated on, the “jack of all trades, value guy” probably isn’t a smart option.

Is it a coincidence that a trader who only trades oil is better at it than when you or I put on our one oil trade for the year?  I don’t think so; he loves taking our money.  What about the guy who only trades precious metals?  Probably the same thing.  When we try to do too much, our bandwidth gets stretched thin. When bandwidth is thin, focus is diminished. When focus is diminished, unforced errors increase and trade results suffer.

Check this out. I know a very good trader that addressed his bandwidth issue in the following manner. He only tracks and trades 45 stocks / instruments.  He doesn’t worry about the other 12,000 stocks; he has narrowed his universe to 45 stocks. And guess what?  He owns those 45 stocks. He knows them like the back of his hand and he wins. Coincidence? His bandwidth is narrow and his focus is intense.  He doesn’t miss a beat.

Here is an overview of his stock selection Criteria.

  • Diverse across all sectors so when sector rotation occurs he can participate
  • Trades at least 2 million shares a day.
  • Must have a liquid option chain with tight bid / ask spreads
  • It’s subjective, but the instrument must “move” with enough volatility to make it worth trading.  For instance, $GE might fit all the criteria, but who wants to fight for $2 over 9 months?  You’re looking for momo names that ramp and die on a regular basis. 
  • He includes a select group of commodities:  Copper / Oil / Gold / Silver
  • He further narrows his focus by imposing a 10 position maximum on his portfolio.
  • At times he will replace one of his 45 trading vehicles if for any reason he decides he doesn’t like how it trades / moves etc  

So if you often find your self jumping all over the map and having that “Jack of all trades; Master of None ” feeling,  try dramatically narrowing your bandwidth and jacking your focus to the moon.  I am willing to bet right now that your trading results will improve with that laser-like focus. Over time you can gradually increase your bandwidth to your own personal sweet spot.

Happy Hunting and Good Trading!

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