Thursday, June 15, 2006

Blueprint for an Uncompromised Life - Part Five: Multiplier Effects

Note: This is the final installment in the five-part series that examines the factors that contribute to extraordinary creative achievement. My regular postings to TraderFeed and the Trading Psychology Weblog will commence on Friday.

We have seen that expert performers in their fields undergo a very specific developmental process, beginning with crystallizing experiences, mentorship, and the achievement of competence through structured practice. Equally important, expert performers follow a different developmental trajectory from their less accomplished peers.

This developmental trajectory takes advantage of what researchers call multiplier effects. A simple example from Sandra Scarr's research on intellectual development will illustrate the power of these effects. Young children with high and low IQs follow very different life paths on average, though they start from similar upbringings. This is because the high IQ children tend to seek out higher IQ peers and thus receive more intellectual stimulation from their environment. They also are more likely to be targeted for enriched academic experiences. Over time, these differences compound, creating multiplier effects and widely diverging developmental paths.

Consider two intern traders at a trading firm: one shows initial talent for reading short-term market patterns, the other picks up the patterns more slowly. Initially, their P/L differs only modestly. The quicker student, however, is selected by the firm's top trader as a member of that trading team and is given extensive mentoring. The slower student is not provided this enriched experience. As a result, by the end of the year, the two students are following very different career paths, with a wide performance gap.

We see a similar phenomenon when children born earlier in the year have physically matured to a greater degree than children born later in the year and hence tend to be selected for enriched Little League and other athletic experiences. The initial gap in performance widens as the mature children are provided superior experiences relative to their peers.

Multiplier effects mean that what is inborn to the individual--talents--help to shape environmental experiences that in turn maximize these talents. Highly successful individuals place themselves in environments that take maximum advantage of their interests, talents, and skills.

Nothing is more important for traders--and people in general--than to find their niches: those settings that will help them make the most of who they are. Many traders think they are not reaching their potential because of emotional blocks. Often, however, their performance blocks are of a very different nature: they are not trading the markets or styles that capitalize on their talents and supercharge their learning and P/L through multiplier effects.


Roshigary said...

If you're open to it, I'd like to offer you a work that I hope will aid you in your research. From your
previous articles about Col. Boyd to the most recent reading of "The Toyota Way" I can guess that
your research is pretty wide ranging.

Deep Survival by Laurence Gonzales talks about experts who are faced with exrtreme circunstances
and what it takes to survive those circumstances. Much of the book reminds me of your own research and writing, and many of the passages within it could be lifted out and placed in a trading room.

The theme seems consistent with what little I can guess about your forthcoming book. I believe that
if you read it, you'll discover something that can aid you in your own book, if you haven't already
covered it. Reading the first two or three chapters should tell you whether or not it will be useful to you.

Thanks for listening, and I hope this was or will be of some use to you.

I posted this here hoping the recommendation is germane to others who are also studying the stages of expertise.

Brett Steenbarger, Ph.D. said...

Thank you *very* much for this book recommendation. It does, indeed, sound quite relevant to human performance and *very* applicable to trading. The processes one goes through to survive extreme training challenges (such as in the military Special Forces) are akin to the processes one must internalize for trading with high risk and reward. The Deep Survival book appears to touch upon these. I will definitely check it out. Thanks again--