Brian McAboy explains how the Peter Principle applies to trading: traders promote themselves to the top of their own business but often lack the multiple skill sets needed to succeed. Many fail early because they skip preparation and training.
You. Hi, Brian McAvoy here with Inside Out Trading. And today's topic is the Peter Principle and how it relates to trading. So what is the Peter Principle? Well, the Peter Principle was brought to the world back in 1968 by a guy named Lawrence Peter. And it's a real simple principle, but it's been widely acclaimed just simply because of its logic and how it really makes sense. But anyway, what it is, in any hierarchy, a person will rise to their level of incompetence and then remain there. And he was specifically referring to in businesses, in companies. And I mean, it essentially says, yeah, an employee will continue to rise until they reach a point where they're not doing so great anymore. And this makes a lot of sense. Now, this was based on a lot of observation that he did because he was trying to just take a look at US businesses and see what the heck is going on. Here's an example of the Peter Principle in action. And I'm sure you've seen this at some point in your life in action, somebody will start on with a company at a fairly low position, maybe entry level, let's say, in manufacturing. A person might start off as just general labor or a material handler, and then they're doing real well. And so they get promoted. And now they're working in, say, production running machines, and they're doing real well there. Then they get promoted to manager, and now they're not really doing so well. The reason for this is not necessarily that the job that they move into is so difficult, but it's different from what they've done before and requires a whole different skill set. And that's really kind of the crux of it is, yes, a person will continue to rise. And so long as the new jobs fall in line with their existing talents and experiences and training, they'll continue to do okay. But when they hit that point where they don't have the training or the talent for it, now they've reached a point of incompetence where they're not as good at doing their job as they used to be. Okay, so how is this related to trading? Well, within your own, within a company where you work, assuming you've got a job, you don't just promote yourself. Somebody else is deciding whether or not to promote you. But when you made the decision to enter trading, you effectively promoted yourself right to the president and CEO of your trading business, your company, the one that you own. And there are several skill sets that go with owning and running, starting a new business, particularly in the trading Industry. You now have several jobs, several occupations. For example, trading itself, just being a trader has a whole set of skill sets that go with it. You've got to be a technical analyst to a degree, possibly also a fundamental analyst. You have to be a system analyst, but you're also a business owner, venture capitalist, because you're the one investing in this venture, this business. You are also the manager of the business and the one who's deciding how the business is to be organized and run and built and grown over years. That has a skill set that goes with it as well. You're also a risk manager and also a system analyst because you have to be able to take a look at a trading system and analyze it and see if it's worthwhile pursuing and be able to do it from a business perspective. Now, the reason I'm bringing all this up to you is because a lot of traders, and don't be offended if this sounds familiar. I mean, I think most all of us have gone through it. You're good at what you're doing. You're an adult. You've been in the adult world for a while. You're working, you've reached a level of proficiency and a level of success, probably a little smarter than average. And so you decide to go into trading. Well, like I said, effectively, you've promoted yourself to the top of the ladder of your own company. And there are a variety of skill sets and a body of knowledge that goes with those. And a lot of traders, though they may have been very successful elsewhere in their adult life, now they've thrown themselves into a whole new position and effectively just smacked the heck out of themselves with the Peter principle because they've thrown themselves into a position or actually against several occupations that they don't have the skill sets for, not yet. In trading, because of the rate at which a person can lose money, you have to acquire those skill sets or develop them very quickly or as quickly as possible because you have to get your business to the point of profitability. That's why so many traders fail so quickly. The statistic of 90% failing in the first six months, that's why it's there, because they're jumping into several occupations that they don't have the skill sets for. They don't have the training or the experience, and they're struggling. It's not that they don't have the capacity to do it. They don't have the preparation for it. And that is really one of the big things where I really try to help people with trading systems. There are systems all over the place, plenty of books detailing them. You can buy systems out on the Internet but that's just one small piece of the overall puzzle. Like I said, you're a venture capitalist, you're a business owner, you're a risk manager, a systems analyst, a technical analyst. You have to manage and run the business. So you've got a whole bunch of hats that you're wearing and you probably didn't have anything to prepare you for when you came into trading. That's where I'm trying to help you out. Anyway, swing on by Insideouttrading.com and I can help you with all these different hats that you have to wear. That's why I'm here. As far as with your system it can help you with that as well. But all the other different hats that you have to wear so that you can get those skill sets developed quickly in a business smart and fairly easy fashion. Brian McAvoy with Inside Out Trading Cheers.
