More Thoughts on Performance Consistency…

Here’s another quick story that reinforces the importance of performance consistency in you’re your core processes.

On my plane ride out west this week, I had the opportunity to speak with someone who trades (equities) for a living. And I mean “for a living” – not dabbling with a few trades here and there, but this is someone who uses his trading income to put food on the table. Needless to say, when he began talking his approach, my ears perked up more than a little.

One of his “golden rules” of trading is to perform consistently, within clearly established guidelines. As I talked with him, I realized how different this guy was from what most of us think of when we think of traders. The image most of us have is one of a quasi- gambler who operates amidst high pressure and continuous uncertainty. I can tell you though, this guy couldn’t have been further from that stereotype.

What I saw was an individual who had a clear process. He had rules he followed regarding when to enter a position. If certain signals were not present, he didn’t enter the position- period. Unlike most of us, he knew when he would exit BEFORE he entered the position. Say what? I’m not talking about just a stop/ loss should the price reverse against him. I’m talking about also having gain targets. If those targets were hit, he was out. No questions asked. If the position kept going up, it didn’t bother him. He judged success not by the amount of money he made each day, but rather how well he followed his method or process.

Of course, his process was based on years of back-testing in many different types of markets, so there was a clear linkage between his process and his expected results- a linkage that I suspect had played out many times over given his level of apparent success.

But when it came to managing his trades, all that mattered was that he followed his process. He had winning trades and losing trades. Losing trades were just part of the process. He knew how to accept those and move on. His process didn’t require him to be “right” 100% of the time. It just required him to stay within his trading parameters.

I couldn’t help but seeing some big connections, and implications for the discipline of performance management that all of us would be wise to consider. Look at how much focus he placed on having a clear process, with indicators that told him whether or not he was following it. Look at how he judged success, not by any one day’s outcome, but by whether he was within his guidelines. Look at how he handled losing trades. Unless he deviated from plan, they were an expected part of the journey (kind of like an airliner on autopilot – the aircraft does not hold a precise altitude, but rather an altitude that is +/- some programmed variance to deal with normal movement and turbulence).

No doubt results are important, and you’d be foolish to follow a process too rigidly, particularly if you don’t have good linkages between the process and results. But if you’ve taken the time and built your measurement framework well, this “process control” element can be a useful enhancement to your performance management program.