Line Your Own Pockets

Michael: 00:00

Alright, everyone. Welcome back to another episode of Line Your Own Pockets. And of course, we talk a lot about trading in this show because we are traders and it's a it's a trading show. But there's a lot of other things in your business and around your business that aren't actually trading the market, but are setting up your trading business and making sure it's systematized and and running correctly. And we're gonna talk a little bit about that in this episode.

Michael: 00:26

So why don't you take us away here, Dave?

Dave: 00:28

Yeah. I think I think it's important for listeners, if they haven't listened to the previous episode where we talked about prioritization, I think it's a good one to listen to because it kind of

Michael: 00:37

feeds right into this. Yeah. Put that in the show notes there.

Dave: 00:41

Yeah. So, I mean, if you think about any business, you think about a bakery, right? Of course, you're going to be baking bread, but there's a whole bunch of other processes around selling the bread and doing everything around running a business that have nothing to do with making bread, And the same is true with trading. So sent this message to my newsletter recently where you've heard the common thing, set up your trading to run like a business. And subject of the email was, Don't Run Your Trading Like a Business.

Dave: 01:21

Because if you look at the success rate of small businesses, it's pretty bad, right?

Michael: 01:28

Really bad.

Dave: 01:28

Some large percentage of small businesses fail within five years. But there is a particular type of business that has a much, much higher success rate. And I think we've talked about this before. Probably go ahead and say

Michael: 01:46

what Well, it is, I read the email too. You talk franchises and things like that.

Dave: 01:50

So it's a franchise. It's a much higher success rate. And you think about it, the owner has specifically removed themselves from the day to day running of the business. So to do that, you basically have to systematize everything. Otherwise, there's nothing to sell.

Dave: 02:08

There's nothing no franchisee would want to buy if there's no playbook. But when you're a franchise and you systematize it, you basically are selling the playbook for running the business. So when you do that, those businesses have a much higher success rate. So you should be treating your trading business like a franchise rather than what most traders do, which is just trading like a business where you're intimately involved in every process. You should be automating as much as you can to remove yourself from the day to day running of the trading business.

Michael: 02:53

Well, yeah, automating for sure. I think, you know, documenting is another huge thing. You know, I've been thinking a little bit about that as well. Like a lot of business will have what they call key man insurance, right? So say you're the guy and the whole business is personality brand or something like that, and it's kind of, think of like, I don't know, a Gary Vee or one of these guys that I'm sure has hundreds of people, but working for him, but it's only him that people really care about.

Michael: 03:25

They'll take out insurance on that person because if that person is knocked out for a period of time, a couple months, the whole business could fail. And I was thinking a little bit about that, and of course, right, not not from the insurance side of things, but you know, what happens if I had to take a couple weeks off? Could I do I have documentation that's simple enough that the wife could sit down and, you know, set up the things and and hit the buttons? Maybe not to run the full ship, but, you know, enough to to kinda get by like a skeleton crew kind of operation.

Dave: 03:58

Mhmm. Yeah. I think that's a good way to think about it. And, you know, for my trading, I don't have to turn anything on. Everything is started automatically.

Dave: 04:12

So if I did get hit by a bus, it would continue for some time. I guess I should probably think about what would happen there, but it would definitely continue for some time. But part of the process of getting to that point, you're going to make yourself a lot better because what you'll end up doing is you'll automate the stuff that's not fun, that you're not really providing value for, and you're creating space for yourself to work on the really hard stuff that's really going to move your business, creating new strategies. So the other important thing that it will allow you to do is just the process of doing this will make it such that you can hire somebody, a junior trader, maybe an intern, and it's a lot more turnkey than it otherwise would be. A lot of the traders I work with are thinking about how to scale their trading business.

Dave: 05:18

What are the next steps? They can see the ceiling that they have for themselves, and they're trying to figure out how to scale their business. One guy who prefers to remain anonymous, he's got a team of quants and developers. He's got probably three or four guys that he's hired to help run his business. When you make that step, it's really hard to figure out what you're going to have those people do, especially when you're a one person business.

Dave: 05:56

You're the man, you've done everything. If you don't have stuff systematized really well, it's really like you're pretty much trying to create a carbon copy of yourself. And it's just going to be really difficult to have another person be productive in what you're doing because they're not you. But if you have processes, procedures in place, it becomes more like a franchise where you're giving them a book and you've thought through, okay, here are the things that you can do that will help me, that will free up my time so where I could work on some higher level stuff and really grow the trading business.

Michael: 06:35

Well, and and to go back to kind of how to start that, because, yeah, it's hugely important, which I don't think a lot of people do, is actually just writing down everything that has to be done day to day. And this this, I think you find incredibly eye opening, and I did as well, where, you know, you start out, and I think I had like a 90 step process for a daily routine. Just by going through it so boring and tedious, and this is why I don't think most people do it because it's awful work, but you realize that of that 90 step process, maybe there's 30 or 40 steps that you could either get a service for, or you could automate in some way, or you could and sometimes because actually doing the steps every day kind of becomes like habit, and you get really fast at doing it, You kind of don't put yourself in the shoe of a new person or someone who has to take over or something like that, where a process to, you know, open up an application and hit two buttons or whatever in it is takes you five seconds, but it would take someone else a couple minutes to maybe find those.

Michael: 07:42

So as soon as you kind of painstakingly write out every single thing that you do, and AI I think can really help with this too, because what I end up doing is recording a video of doing everything and feeding that video and the transcript from it into some AIs and have it do this this work, help me with this work forward. But as soon as it's broken out in a map, just completely you're just staring at it in a on a piece of paper, then you go, man, there's probably a lot of things that you're doing every day that are just completely unnecessary or Yeah. With a very small amount of work now can save you hours and hours down the road.

Dave: 08:20

Yeah. I love that idea because it's it's totally true. You you you kinda go through the motions and, you're doing stuff automatically that you've done over and over. Think about McDonald's. Think about how many ways there are to make a hamburger.

Dave: 08:40

Probably dozens of ways. You know how many there are at McDonald's? There's one way, right? And everybody is focused on this one way. Everybody can look at the procedure and say, okay, yeah, this is how we make a hamburger.

Dave: 08:51

That's how they can do it so efficiently. And if you need to make a change to it, you make a change to the one procedure and then it changes across the entire set of stores. So I love that idea because you're right, it's painstaking to do, but it's really eye opening to see exactly the steps you do and exactly how much more efficient you can get by exactly what you said, like figuring out a service to do some things. But also probably the biggest bang for the buck is eliminating steps that you don't need to do. And that procedure will allow you to identify those in a way that's productive.

Dave: 09:32

And you're not going to end up doing this every day, but you should be doing it periodically and taking stock of what you're doing.

Michael: 09:37

Well, and it when you're doing it every day, it just kinda gets lost. Right? When it's in front of you and it becomes an active thing that you're looking to do, you're you're seeing this list and you're very much thinking about how do I remove it? Then you spend your time, like we were talking about doing other things like McDonald's, if they're like, okay, well, this is how someone makes a hamburger, they're always going to be thinking about a more efficient way to do it, a faster way to do it. And then some cost benefit analysis could come in place.

Michael: 10:09

They could look at it and they could say, okay, if we spend $100,000,000 and we upgrade everyone's machines and everyone's stores across whatever, it does this. And you can start to do those cost benefit analysis, like, okay, maybe I buy an upgraded subscription to something that I have that, you know, like an AI or something, but it will be able to do these processes. And with the agentic AIs kind of coming out, and you're gonna be spending a lot of money on them, what they're gonna actually be able to manipulate your computers, it's things like that where if you have something so simple that, and you can explain it to an AI and it could do it, then you know, okay, here's places that you can cut. So the way that I, when I wrote this up, the way that I imagined it again is I get hit by a bus and the wife needs to run statsedgetrading my website for a period of time until hopefully I didn't get hit by bus too hard and I can make it back. But how could I explain that to her in a way that things could kind of run along?

Michael: 11:09

And I think as soon as you're not, you're not doing it for yourself, you're imagining doing it for someone else who doesn't know what you do, then it becomes much easier to, I think, to take those steps.

Dave: 11:19

Yeah. Yeah. So there's a couple of things that reminds me of. One is, I would hire people at Trade Ideas when I was the CTO there. And when you hire somebody, that first phase of when they start and when they start working is so important and so valuable.

Dave: 11:40

It was very valuable for me to see exactly is going on in their head, where are the holes, where are they having to ask questions about, what sort of documentation could we add to an onboarding document that could make them get up to speed faster? How could we set up something to where they could actually commit some code that's useful as quickly as possible? Having that perspective at that moment is really valuable to have because they haven't internalized the whole process, the way things are run, the politics of the organization. So it's a really valuable perspective on that. So yeah, I think that's super valuable.

Dave: 12:32

The other thing you can do is as you document exactly what you do, maybe another easier way is to do a Zoom call with another trader and share how you do certain things.

Michael: 12:46

That's interesting.

Dave: 12:46

Yeah. Because then you could really, I guarantee that you're going to uncover some things about the way the other trader works that you can you can incorporate into your process, and the opposite's true also. So having that collaboration is another great way to to figure out just new ways of doing things.

Michael: 13:05

Yeah. Because what you're trying to bring in is you're trying to bring in that fresh set of eyes somehow, right? Again, imagining somebody outside is doing it, or bring someone in as well. And, you know, it takes me back to one of the most popular things I've done content wise ever, is when we were locked down in the pandemic, and I just, my wife said, okay, I'm not working. Why don't you teach me what it is that you do?

Michael: 13:28

And I did this whole 30 part video series about and it started with very simply because I was gonna go right into here's a candlestick chart, and this is what this means. And she goes, no. I don't know. I don't know what a stock is. She's like, you know, so sometimes having someone just pull you back down to a really base level really, really ends up helping because you have that outside set of eyes where something that might be very obvious to you that you're not even thinking that you could automate right now could become automated.

Michael: 14:00

Like, so for, you know, I'm behind Dave because I actually have to turn on my computer every day and and open up Chrome and do so now I'll start looking at tools from that side of things. And what you'll find, I think, quite often is there may not be tools and services that are trading related, but probably, you know, look at the developer side or the engineer side or or something out there, and you can find tools for that. And same when it comes to, you know, say you're reconciling your trades to your backtest. There might be really cool accounting softwares that that kind of help with that, things that might not be or have a trading moniker or something like that related to it could really end up helping. And you gotta look outside the box, I think, a little bit for for some of this stuff.

Dave: 14:45

Yeah. So think about Let's come up with some concrete things that listeners can take away here. So I've worked with a lot of traders to scale their business, bring somebody into their business that can help. And one of the initial hesitations there is they don't want to share their edge with a new trader or another trader. But they don't see a way around that because when you're looking for somebody to help, it'd be nice if they had some training experience, That would help them hit the ground running.

Dave: 15:28

But there are some things just like you described that you picked a good one there that is exactly a way that somebody could help, but you wouldn't have to give away your trading edge. And that would be a backtest reconciliation, like automation around that. Can see the trades, which is gonna be some, there can see some edge, but you wouldn't have to share the exact rules and exact code that produces those. So having that and, but really what it boils down to is you should be sharing more. You should be building trust with others to share more.

Dave: 16:06

And the initial instinct for a lot of traders is, okay, I'm the man. I've got all these ideas. I can't let them out there because my edge will erode. So I'm not sharing this with anybody. That's really the wrong approach.

Dave: 16:23

And the traders that I've worked with that have been in this business for a long time and do really well, What they say is they wish they would have shared more over the years. It's definitely you should be default sharing. You shouldn't be sharing anonymously. You shouldn't be putting your secret sauce

Michael: 16:47

on some form somewhere.

Dave: 16:49

You don't want to do that, but you want to be constantly networking, constantly building trust with other traders, figuring out what you can do to help them make their lives better, and that will come back to you, and and you'll benefit from that over time.

Michael: 17:06

Yeah. And, you know, we talked about that a little bit with with Bella, and that's one of the traits they look for with their star traders is coming up with with different ideas. And we talked about it too in our whole Trusted Trading Group podcast, where you want to find a group, you want to build a group of people that you can can ping ideas back and forth of. But I really liked when you kind of talked about the things outside of trading. So, you know, look at where you're good at and where you're not, and then maybe look for people that shore up there.

Michael: 17:40

Like I am not a technical person, so it'd be interesting for me to talk to someone who does more of the actual computer side of the automation of that type of thing. That would probably actually add a lot of value to to what I do. And then in return, I may find someone who's really, really technical, but isn't, you know, hasn't been studying the markets or something as long as I have. So then, you know, you're sharing and you're bartering with expertise as opposed to money or even time. Can say, okay, well you teach me how to, you know, hit one button and everything gets set up and put in the right place.

Michael: 18:14

And then in return, you know, we'll talk about something else that you want to from the market side. And the beauty of it is the day of the internet, it's pretty easy to do, right? Back in the day, it would have been way harder to find people with the same interests, but wildly different talents. Where now you can you could just go out on on Twitter or something and deal with a thousand bots, and then you'll find one guy that's that's probably has this this knowledge and this talent for you.

Dave: 18:43

Yeah. Yeah. I love that because you're totally right. You should be looking for people that aren't carbon copies of you. Don't do exactly what you do.

Dave: 18:52

That's where the magic will happen in these collaborations. And that's where you'll find productive work with other traders. You should be constantly looking for that. One other way to think about this is think about your process of creating a trading strategy. You can't snap your fingers and have one created.

Dave: 19:25

It's a whole process for doing that. There's probably some bottlenecks there. So one of the things you could think about is where are the biggest bottlenecks in my process for creating strategies? And what can I do to improve them? What would it mean if I could completely eliminate that certain bottleneck?

Dave: 19:50

Do you have any that come to mind, Michael?

Michael: 19:53

Well, right for me, off the off the bat, it becomes the the programming side of things. Right? Coming up with ideas and all of that is fine. But as someone who doesn't come from a programming background, the ability to turn that into the actual raw bits of the code before optimization, before any of that becomes becomes a thing. And and I I like what you're talking about.

Michael: 20:15

I think the easiest way for someone to do it is just with a flow kind of document. Right? A a box and an arrow and a box and an arrow and just take these parts and separate them out. And then, you know, my answer was easy, but if your answer is a little bit harder, then you should be able to see or even record in how long each of these you know, the next time you build a strategy, track it along its route and see you know, maybe start a beginning date and end date for each step and see where that larger amount of time is, and you can really, really focus there.

Dave: 20:47

Mhmm. So it's funny you mentioned the flowchart because, on my newsletter, I share a bunch of ideas and helping people create strategies faster is basically the entire point of it. And I hear back from a lot of very creative traders and motivated traders. And this one guy wrote back, he gave me a flowchart. And he said, Okay, I've listened to your podcast, watched your newsletter.

Dave: 21:18

Here's my take on your process for coming up with a strategy. It was an awesome workflow document showing exactly the steps. I was blown away. So, we should put a link to that in the show notes. But yeah, I love the flowchart idea.

Dave: 21:36

I think that's a really underrated skill coming up with diagrams like that. Because in a way, you're scaling your ideas because you're sharing that process with the world in a way that people can understand. I mean, explaining processes is sort of notoriously difficult and to have a picture just is an amazing way to get your point across.

Michael: 22:01

Yeah. And I'm I'm actually looking for the the Mac version of it now, but there's tons of applications that I find do this very well. And it's I think it's because I'm a very visual person. But I know like Google has like a whiteboard app and you know, sometimes even just a pen and piece of paper, but you know, what I'm building, and I think a lot of this is because I'm kind of doing this work right now, Freeform, sorry, it's called if you're a Mac guy or you got an iPad or something like that, they have this app that does it is, you know, you create this flow document, and then in each part of the flow document is where I'm putting that, you know, standard operating procedure, whatever you want to call it list of all the things that have to get done. And the as soon as you can just kind of step back and just look at that, like blow it up on your big monitor, you'll really find, oh crap, I'm spending a lot of time here.

Michael: 22:53

And then that creates an interesting question of how do I solve it? Is it a software? Is it AI? Is it, you know, like like Dave was talking about, do you hire someone? Do you have even a nephew or, you know, a friend's kid or something who's interested in finance that you can have do like really basic stuff like the reconciliation part of it, and things like that.

Michael: 23:15

And as soon as you do that, you got to always keep in mind because this is we're basically I feel like we're always doing this, we're giving you a lot of work to do. But at the end of the day, what we're doing is saying, you want to front load this work, so you end up being like that franchise manager where now you should be able to do even more, you know, you should be able to have more systems across more asset types, more timeframes, and your process for building should be better because your brain gets freed up from this kind of day to day minutiae that you've either, if you're going to do it alone, you've either shrunk down, automate it, or again, hand it off to someone else, and you have more time to say, okay, well, what's the next big idea that I can really work on?

Dave: 24:00

Yeah. So there's one other thing I've seen with some traders is when they're looking for help with their trading business, they sometimes will say, Okay, I need to hire a quant. And you have to be really careful about doing that because what I don't want traders to do is fall into the trap where they're basically outsourcing their most valuable skill, which I don't think you want to do. I think you want to keep that in house, but there a whole lot of other things you can outsource in a way that makes sense. Now, can hire a quant, but what you want to be careful about is setting up your collaboration in a way that you're not looking over somebody's shoulder and they're spoon feeding you the strategy.

Dave: 24:57

You want to really learn and have them help you in your process for creating ideas. It's so easy for a lot of traders to fall in that situation where they're just blindly following what somebody else does. You're basically in a guru situation there where you're not really doing it for yourself. So you want to be careful about these collaborations and you don't want to outsource the whole thing. You want to keep what's really valuable and outsource the other stuff.

Dave: 25:28

That way, Like I said, it's turnkey when you want to hire an intern. It becomes really obvious what you're going to give them to do in a way that's not just them doing busy work, it's a way that's actually going to help you and you know, scale your business so you can go into the future and make you know, continue to to increase your equity curve over time.

Michael: 25:54

Well, yeah. Because if if you if you're outsourcing the idea creation, you're essentially just recreating the same problem you were just trying to solve just with someone else. And Yeah. You know, so now it's okay, what if that guy gets hit by a bus, and he's gonna be way less motivated to come back and build and create and do new strategies, because it's not his business, right? So the last thing you want to do is recreate the same problem that you just helped solve, but just with someone with way less motivation to do what you want to do.

Michael: 26:27

And the beauty of it is I think that may not be as much of a problem because hopefully, the thing that you enjoy about trading is coming up with the ideas, you know, going through charts and, and changing different indicators and looking at oh, what what about this? What's happening over here? That kind of stuff. If you don't, if that's not the part you like, I don't think you're gonna be here for a while. Then, you know, think about all the stuff that you don't like.

Michael: 26:56

For me, I hate like all the accounting related, right, reconciliation, right, trade journaling kind of things. So naturally, I hope it falls into the things that you're outsourcing or the things that you don't like doing anyway. And hopefully those things that you don't like doing anyway, aren't the creative process of trading or, you know, monitoring the markets or doing anything like that. Hopefully, you really like that so you can be here for the long run, and then again outsource the stuff. So I always look at it as saying, could I, if AI gets good enough, replace the person with the thing?

Michael: 27:33

And I think if you're at that point, then you're probably doing it right, because hopefully you're not using AI to, you're not typing in how do I make a bunch of money in the markets, but you're doing things like, you know, reconcile these two spreadsheets or, or things like that. So yeah, always just, in my opinion, think in that that mindset of if if AI gets good enough, the person that I'm outsourcing it to, could I just switch it to an AI? And if so, again, I think you're probably going down the right path.

Dave: 28:03

Yeah. So this reminds me of like what I think we should sort of the last topic here, I think. Sure. Which is think about the way think about if you're selling a business, a non trading related Well, if you're heavily involved in the business running, then there's really nothing to sell. Nobody's gonna buy it because you're gonna have to be involved for it to operate, right?

Dave: 28:31

So there's no real value there. But the more you systematize, and I think you could do this with a trading business. I think if you systematize enough, you could make your business sellable. But to do that, you're gonna have to systematize everything. It's gonna have to be turnkey for somebody to come in and want to buy it.

Dave: 28:56

Where most traders are, their business is not set up that way. They're intimately involved with every decision. That's not a sellable asset. So I'm very curious, I really want to listen, hear from some listeners what they think about that. I've not heard of anybody being able to sell their business that way, but I think theoretically, it could be possible.

Dave: 29:21

But to do it, like I said, you're going to have to have, it's going to have to be turnkey for somebody to be interested in buying it.

Michael: 29:28

Yeah. And I I I definitely think yeah. I haven't heard of that either. I think you could do it. I I do think it'd be hard.

Michael: 29:35

It would definitely be selling to another trader because, again, hopefully, the the part that isn't automated is the idea generation. So you're just giving him a, you know, you generate an idea, and then these are the processes you go through in order to make that make that a dream a reality. But yeah, I definitely think you could do it. So, you know, another great episode. I think the starting point, unfortunately, maybe Dave, before we go, you got some ideas how to get people involved.

Michael: 30:05

Is this documenting everything that you do in order to make the trading live? Because I did it kind of the old school way, where I just had like a notepad opened up and I just kind of type things and it was a nightmare of a job, but I'm certainly glad that I did it now. It just it wasn't fun to do at the time. Don't know if we got any better ideas.

Dave: 30:28

Yeah. I think I think that's a good one. Another one is like, just take a video of your screen over the course of the day and be able to go back in sort of a neutral observer mode and watch what you did. And a lot of times I I've done that before, and you could pick up a lot of, things that way.

Michael: 30:45

Cool. Now, hopefully, you're doom scrolling Twitter or whatever on the other screen so you don't have to watch rewatch all that. But as always, I appreciate everyone for tuning in and I hope you got some value here. But as always, I'm Michael Noss.

Dave: 31:01

And I'm Dave May. See you next week on Line Your Own Pockets.