Wednesday, January 27, 2010

If it ain’t broke

I subscribe to the free newsletter “a phrase a week.” The origin of this past week’s clichéd phrase, “if it ain’t broke, don’t fix it,” stunned me. I was sure it went pretty far back in down home American linguistic history. On the contrary. Apparently the author was Bert Lance, OMB director in the Carter administration. He was quoted in 1977 as saying that he could “save Uncle Sam billions if he [could] get the government to adopt a simple motto: ‘If it ain’t broke, don’t fix it.’”

This 33-year-old piece of advice might be good for government, but I don’t think it would serve the trader well. The phrase, as parsed by the newsletter, means “If something is working adequately well, leave it alone.” But if a trading plan is working adequately well, it could presumably work better and it could start to crack at any time. Markets have a penchant for wrecking the best laid plans. The trading plan shouldn’t be scuttled, but the trader should always be stress testing it and working around the edges looking for ways to improve it. She should be in constant search of new trade ideas and new strategies for order entry and risk management that might complement or tweak those in the “adequate” plan. “Fixing” a trading plan doesn’t cost scads of money, only time.

In fact, in the world of finance we might adopt a much less punchy phrase: If you don’t fix it—and keep fixing it, you might end up broke. As we know only too well from the recent Wall Street debacle, some things that weren’t at first glance obviously ”broke” couldn’t be fixed; others cost Uncle Sam billions to “fix,” at least temporarily. Unless you have a very generous uncle who will bail you out when your trading plan loses more money than you anticipated, keep fixing, fixing, fixing.

1 comment:

  1. The strategy you are recommending -- always look for new ideas -- is the strategy that evolution uses. It works pretty well there.