In most iterated competitive systems, leverage and efficiency tend to go up over time.
The result is a growing disparity between winners and losers, where the winners get allocated increasing amounts of resources to keep growing at the expense of the other participants in the system.
Take a forest, for example.
The trees that are most effective at competing for sunlight are the ones that grow the tallest and are able to spread their branches the widest.
The less effective trees eventually fall behind and are covered by the canopy of the “winning” trees, depriving the former of the sunlight they need to survive. Soon enough, the less effective trees die off, freeing up resources for the winners to absorb and grow even bigger.
This is the natural dynamic of most competitive systems. This is why a mature forest tends to be dominated by a small number of tree species, compared to a young forest.
Consider how this also applies to the competitive landscapes of web search (Google), computer operating systems (Microsoft), banking (JP Morgan Chase), food production (Nestle), luxury cars (Volkswagen), entertainment (Disney). These are the companies that grew bigger by killing off and/or absorbing their competition.
So here’s the question to think about: what’s the difference between the winners and losers here? How was Google able to take up so much of the search engine market share, such that Yahoo (in second place) didn’t even come close?
It wasn’t because Google had more servers, better computer systems, or even better marketing (remember, Google was much smaller than Yahoo when it first started out).
So what made the difference?
The answer, is that the Google founders had better judgement.
They designed the Google search algorithm in a way that gave priority to the web pages that was more relevant to each user’s search query.
When people searched for something in Google, they’d find what they were looking for, 10% more often than they would on Yahoo.
Although Google performed only slightly better than Yahoo, however, the leverage of hundreds of millions of users, and the increasing efficiency of computer servers, meant that the small value they provided (over Yahoo) was magnified over billions of web searches. To its users as a whole, Google wasn’t just 10% better – it was a billion times better.
And so, the bulk of the resources (rewards) went to them.
This is all to make a simple point: in a world of increasing leverage and efficiency, good judgement is the most valuable trait.
Now if we consider the retail trading landscape, with everyone now having access to high-speed internet, countless books, videos and courses to learn from, freely available information online, cloud technology, trading platforms with algorithmic capabilities, ever-increasing numbers of brokers to trade with, and a growing interest in trading, all the ingredients are in place to foster the same “winner takes all” dynamic.
And the thing that ultimately determines whether you end up winning big, isn’t speed or size. It’s whether you can make decisions 10% better than your competition.
This is Philosophical,getting your decisions right is the way to go,every successful trader,firm, celebrity, whoever out there successful in what they do have got most of there judgment right at crucial times which aspiring and established trader have to keep improving upon.
thank you Chris as always.
Thanks Phillips!
Very true, good judgement is important for stock trading
Greeting, Chris. It’s Terry here. I have received this email from you after a long time now. Referring to this blog post, I can see you as the highest tree and my self like the middle tree, but not the short one. I am glad to see that you are always in your road, consistently. I don’t know if you are still in Koh Samui or back in your home country. And I take the opportunity to wish you always the best in your business and in your life.
Now, I have a question for you, completely personal..If you have a personal opinion about the bitcoins, what do you think about the future of the currency market, as long as I read that some currency trading company are providing platforms and trending on bitcoins.
I am not thinking to go and trade this digital currency, but I can’t trust many of the noises creators, even them be big names in the internet or financial businesses. I would like to have a personal opinion from you, if you like to give to me, as a very long time currency trading student and somehow, also as a good friend of you.
Thank you again and good luck in your business.
Hi Terry, good to hear from you. I personally don’t trade Bitcoin but I do see some value in it for long term investment purposes. Perhaps I will write a blog post about this, thanks for the suggestion!
Good point. Brilliant idea. Traders need better judgement on reading the charts…
Judgement is a product of knowledge and knowledge is a product of what you have studied and internalized the studies + discipline in the execution and it must consist just the right amount of stability and flexibility, too discipline like a robot is not likely to land you in profit (you might as well plug in an Expert Adviser to do the trade), too flexible will create more confusion, it must be just the right amount, not too left and not too right. Alas! unfortunately when it comes to knowledge there are tons of books, websites, etc which create more clouds and confusion. It is just like when you go into a garden, there are abundant beautiful flowers and you do not know which is the best to pick.
I agree but How to improve judgement?
a)Better indicator
b) Better trend line
c0 Better understanding of Pivots
d) Better stop losses. Tighter or looser stop losses
e) Better homework or analysis
f) Manual vs automation
Good question. I’ll address this in another blog post – thanks for the suggestion.