Trading Psychology in 60 seconds - To be a trader is to be a social loafer

Most of us are not social loafers. What’s a social loafer? It’s someone who tries to do as little as possible of the hard graft in order to get a job done, especially in a group situation. Remember doing those group projects at high school and you always got stuck with the class loser in your group? The loser, who you knew, was not going to bring anything to the table, but at the end of it all, he would share in the great mark you got for the project – which you seemed to do most of the work for. The truth is, when quizzed about our attitude towards social loafers, most of have complete contempt towards them. We feel like they let the side down and often we feel like we were the only one who could see them letting the side down and because of that, we then get annoyed when they get equal share of the glory for a job well done.

The social loafer theory states that as a work group gets larger in size – you know, as more and more people come on board to work on a project, that often an individual’s personal contribution decreases disproportionately to that group size. There is a perceived diffusion of personal responsibility to go above and beyond with personal time and effort as the size of the working group increases. Now you can see the similarities here with the market can’t you.

The truth is, in the market, to be a trader is to be a social loafer. And as I said at the start, most of us – by work ethic and breeding – we all want to contribute to society and therefore are not social loafers by nature, so the idea that, “to be a trader is to be a social loafer”   that can be a difficult concept to comprehend or even to accept.

In the market the work group is everybody else – except for us. That includes, fund managers, mum and dad investors, day traders, fundamental and technical traders and investors – give everyone a label, it doesn’t matter because to be a trader is to sit outside of all these other participants and to simply do a disproportionate level of work but ultimately, get a maximum level of glory (profit) as possible.

We might be only one of a hundred buyers at a certain price level. We will definitely be only one of a thousand buyers who collectively help to move the share price. But that’s it. After that, we ride on the coat tails of the collective spirit where others do the work, but in theory, we get the profit. For many commentators and money managers, this social loafing of day traders and short term traders is a bug bear for them. You can hear it in their disparaging comments. You can hear it in the quotes that they sprout time and again such as “its time in the market, not timing the market” that works. God forbid, I even recall hearing a commentator on the old Your Money, Your Call TV program suggest that if you don’t hold onto a stock patiently when it decreases in value, then you don’t deserve to profit from it when it begins to trend upwards again. But to be a successful trader or investor, we must avoid those downtrends and surf the uptrends like a social loafer in dreadlocks.  Remain aloof from the market – sure research stocks and the economy – keep abreast of everything, but by all means, be a social loafer without conscience and without care for the group.

The audio version of this article can be heard on the Money Thief Podcast.