Michael Tefula @michaeltefula: would you ever go into a career knowing you had a very very low chance of success? How would you prepare for it financially?
ANSWER:
Every change is scary. Entering into a new relationship has a low chance of success. Starting a new job. Moving states. Going into a meeting with new people that you have to convince to like you. I get scared of every new thing I have to try. But how many times does one change careers in life? More than you would think? How many times do we take the plunge, do we jump off the building not seeing the net that is waiting there to catch us. The net is always there. We just can’t see it the moment we jump.
One time I switched careers. I wanted to go from being an Internet investor (which hadn’t worked out well for me in the 2000-2002 period and I went broke) into daytrading and hedge fund investing.
My chances of success was slim to none. But at the time I loved it. I wanted to do it. I was getting too depressed going broke and losing my house. I had to get off the floor and do something. There are always ways to increase chances. Every day you can do something new to increase chances, to lay the groundwork. I’m envious you get a chance to ride that steep learning curve. It’s a beautiful roller coaster.
A) First off, live a healthier life. This doesn’t mean just food. But use tdp.me to track tiny improvements in these four categories: physical, emotional, mental, and spiritual. For me this meant: going to sleep earlier, stop drinking, eat better, waking up earlier, take long walks. On the emotional side, I cut off all ties to anyone negative. This was hard to do. One time I had to hang up on my parents, who were upset at me. Six months later, before I had a chance to talk to them again, my father had a stroke. I heard about that and went to sleep that night in great pain, knowing that I would never talk to him again, and the prior six months were my last chances to speak to him and I never used it. Sometimes bad things happen.
On the spiritual side I began to meditate every day. Even if it was just for five minutes. I needed to clear my head of all the fear and anxiety that had built up. It was like a steam valve. I needed to let out the steam. And on the mental side, I started to write down ideas every day. Ideas of things I needed to learn, people I needed to network with, ideas I had for trading systems. And so on.
Living a healthier life is the most important way to increase your chances but the next steps were almost as important.
B) I probably read over 200 books on investing. I read books by or about every major investor: Warren Buffett, George Soros, the “market wizards” series, any books about traders. I read about daytrading techniques, options trading, arbitrage techniques, value investing, fixed income investing, I read about M&A deals that went bad, that went good, I read about convertible arbitrage, I read about the psychology of trading. I read everything twice. I must have read at least 100 books before I started trading even one dime.
C) Community. I started participating in message boards about trading and investing. I reached out to the writers of books I enjoyed and began dialogues with them to learn more. I started meeting other investors for coffees just to learn more about their lives, their jobs, their techniques, their lifestyles. I began to “network”.
D) Software. I knew how to program. So I downloaded every tick of stock market data from 1950 on. Every stock. Every market index. And I started writing software that looked for patterns. For example, what happens if the market goes down 4 days in a row. What happens if a stock opens up 20% down on the day after earnings day, etc. I probably wrote over 500 programs. Then I started showing other people how to program the way I was so that we all began sharing patterns.
E) Trading. I needed to trade to make a living. I had no money. My expenses were outrageous. I had no excuse for such expenses except that during the internet boom I mistakenly decided to live like a drunken rock star. Now I had to survive and I did it by trading the systems I had programmed. And using the techniques I had read about to help me set position size, deal with the psychology, diversify with different techniques ranging from arbitrage to short-term to value.
F) Ideas. I started writing down ideas for articles I wanted to write. Jim Cramer liked my ideas and I started writing for thestreet.com and then the Financial Times and then I did a bunch of books on trading.
G) Networking more. Since my track record was getting good I started sending it out to other hedge fund managers. More and more of them started giving me money to trade, which I did successfully until I decided I didn’t want to trade anymore but I knew enough about hedge funds that I converted everything I was doing into investing into other traders and I started a fund of funds.
H) Downsizing. I knew that it could take years before I saw significant results from my new career. So I sold/lost the apartment I had been living in in NYC and went into a self-imposed exile about 70 miles north. My expenses were reduced by about 80%. I could breathe again. And in that new freedom, I could explore.
Every step of the way I reduced the risk that I would fail. Ultimately it came full circle. I was running a fund of hedge funds that was paying my income, plus I was writing and doing well and then I decided to get back to my Internet roots so I built a website that I, as an investor, felt was more useful than any other investing website.
It’s when you combine two areas that you’ve mastered and fallen in love with that you end up creating something unique that nobody has done before. Your own baby that can grow and thrive with your love and passion behind it. I did it and it was profitable from day one and then I sold it when it had millions of unique users a month. I was proud of it.
It’s through passion and love that you minimize your risk. But that only takes you to the bridge that will take you to your new career. Ultimately health, and massive preparation, reading, learning, networking, self-education, sacrifice, and actual experience will bring you across that bridge to your career.
From beginning to end when I decided to do this new career it took me: 2 years before I was making a real living and about 6 years before I can say I was VERY successful at it. I think this is a good rule of thumb. If you want to change careers and you put in the work and preparation then expect at least one year before you are making steady money, and 2-3 years before you are making a living, and you have to stick with it for 5-7 years before it starts being a big success. I’ve done this four times and I would say this rule of thumb has been true each time. For instance, in 2007 I started angel investing and I can attest that after doing all of the above it is only now I am really starting to see the results of that.