You don’t have to be a Navy SEAL to use relative strength, but it probably wouldn’t hurt. Eric Greitans, a former SEAL, wrote an article in the Wall Street Journal about what it meant to become a SEAL. And it’s not necessarily what you would think. First of all, very few people get through SEAL training-according to his article only 10-20%. Because it is hard, they just give up. He says about his own training class:
…we had started our indoctrination phase with over 220 students. Only 21 originals from Class 237 would ultimately graduate.
That’s it. Only 10% graduated. (Shades of the 80/20 rule, which is probably true in the market too. 20% of the participants probably make most of the profits.) Physical endurance is a given in SEAL training—everyone who got into the training class is probably physically able to complete it. SEAL training, rigorous as it is, isn’t just about physical training:
…the tests of SEAL training are also designed to push men to their mental and emotional limits.
And physical strength is not what separates the graduates from the dropouts. When I read his description of who made it and who didn’t, it wasn’t what I expected:
But I do know—generally—who won’t make it. There are a dozen types that fail: the weight-lifting meatheads who think that the size of their biceps is an indication of their strength, the kids covered in tattoos announcing to the world how tough they are, the preening leaders who don’t want to get dirty, and the look-at-me former athletes who have always been told they are stars but have never have been pushed beyond the envelope of their talent to the core of their character. In short, those who fail are the ones who focus on show.
Some men who seemed impossibly weak at the beginning of SEAL training—men who puked on runs and had trouble with pull-ups—made it. Some men who were skinny and short and whose teeth chattered just looking at the ocean also made it. Some men who were visibly afraid, sometimes to the point of shaking, made it too.
What distinguishes a SEAL, then, is not their physical prowess, but their mental toughness. Even when put under great mental and emotional stress, they can remain disciplined and focused. They hang on. They don’t ever give in or give up. This is a very useful characteristic in the financial markets as well.
Markets will put investors under great stress as well, tempting them to bail out at the least opportune time. In the article, Lt. Commander Greitans describes a market bottom, although his context is a little different:
When they really wanted to torture us, they’d say, “Anybody who quits right now gets hot coffee and doughnuts. Come on, who wants a doughnut? Who wants a little coffee?”
Out of the corner of my eye, I saw men running for the bell. First two men ran, and then two more, and then another. The instructors had carried the bell out with us to the beach. To quit, you rang the bell three times. I could hear it: Ding, ding, ding. Ding, ding, ding. Ding, ding, ding.
A pack of men quit together… I believe that we had more men quit at that moment than at any other time in all of BUD/S training.
Who says they don’t ring a bell at the bottom? Just as coffee and donuts sounded a lot nicer than standing in the freezing surf, holding cash sounds a lot nicer than gritting your teeth through a correction or sticking with an underperforming strategy through a few lousy quarters. Markets are designed to tempt you to do the wrong thing at the wrong time. And seeing one person bail out gives the next guy implicit permission to do it too—that’s how mass psychology works.
To operate successfully with relative strength (or any winning investment strategy for that matter), you’ve got to have endurance. Although it always feels fantastic when things are going well, markets are not always pleasant. When they are difficult or choppy and relative strength is out of favor, you’ve got to have a reservoir of will power to keep with your discipline. Perhaps only a minority of investors will ever be able to do this succcessfully, but maybe you can be one of them if you keep the image of the Navy SEAL in mind.
Relative Strength Investors Hunting for Their Next Purchase
Source: Wall Street Journal
Posted by Mike Moody 
