Elite Trader Insights: Erik Smolinski

Episode 6: Marine Corps Discipline Crushes the Markets

Each week we try to unlock the collective wisdom of the Trading Elite. Strategies and unique insights from hours of interviews with top traders, sliced into bite-sized pieces and delivered to your inbox for your pleasure.

Erik Smolinski

Despite growing up in a tough environment with an abusive father and facing violence in his neighbourhood, Erik Smolinski always remained motivated and curious. He was inspired by his high school teacher who spoke about investing and the power of compounding. This sparked a passion in Erik, and he took action! His time as a Marine Corps officer taught him discipline, responsibility, accountability, and patience, which he applied to his trading plans. By using derivative strategies, he minimised losses and consistently outperformed the market over the long term.

Erik is a Marine veteran who also trades options, invests in real estate, and supports startup companies as an angel investor. He believes in sharing genuine and trustworthy investing advice through his Youtube channel. Erik became a millionaire on his own before he turned 30 by working extremely hard and staying committed to his unique mindset. He began investing in 2007 and estimates that he has spent over 30,000 hours improving his skills.

This interview with Erik Smolinski offers a rich narrative that can be distilled into actionable advice for day traders. Here are some of the top key learnings and unique perspectives from his experience:

1. Start Investing Early with What You Have: Despite not being able to afford big-name stocks initially, Erik's early start in the stock market was crucial. In true Warren Buffet style, he ‘Bought What he Knew’, buying single shares of companies like Apple, & Netflix. This highlights the importance of starting your investment journey as early as possible, even with limited resources.

2. Educate Yourself Thoroughly: Erik's dedication to self-education through library research and the use of a Compound Interest calculator on a government website, underscores the value of utilising available resources to understand the market better.

3. The Importance of a Trading Plan: Erik developed a comprehensive trading plan over time, which evolved to include not just stock market endeavours but also angel investing and real estate plans. This plan, nearly 300 pages long, acts as his ‘Bible’, and contains his rules, strategies, and defined trade setups that he must follow when trading. This emphasises the necessity of having a detailed strategy and knowledge base. His advice is, if you have got one START ONE.

"The way that I think about it is you should be able to put the trading plan in front of somebody and they might not be able to trade it perfectly, it's not an automated system, I don't think that's really quite there for retail traders yet in terms of market structure for us to be able to reliably extract alpha that way, but so there's discretion, but I think you should be able to put your trading plan in front of somebody and they should be able to generally follow it if they know nothing about markets."

4. Document and Track Everything: His approach to meticulously documenting and tracking his investments, strategies, and market learnings serves as a reminder of the importance of keeping detailed records to reference and learn from over time.

5. Learn from Mistakes and Be Adaptable: Erik's first few years of trading were not successful, but he viewed these experiences as learning opportunities. He was constantly testing new strategies but was not accurately tracking the results, and thus his focus was far too short-term. This resilience and adaptability are crucial in the ever-changing market environment.

6. Understand Market Structure and Financial Instruments: By writing down the history of stock markets, market execution, financial statements, and the history of various financial instruments, Erik highlights the importance of a deep understanding of market fundamentals and mechanisms. These writings are a permanent fixture in his Trading ‘Bible’.

7. Portfolio Management and Risk Assessment: His notes on money saving strategies, leverage, return categorization, and the use of the modified Kelly Criterion for sizing investments demonstrate the importance of sophisticated portfolio management and risk assessment techniques. He runs a Speculative portfolio and Long Term portfolio, which he runs very differently.

8. Strategic Allocation: Erik divides his portfolio into core and speculative allocations, illustrating the value of having a balanced and diversified investment strategy that aligns with one's risk tolerance and financial goals.

9. Accountability in Trading: Learning ultimate accountability from his time with Marine Corps officers, Erik stresses that in trading, the only variable one can control is oneself. This mindset is vital for long-term success.

10. Continuous Learning and Adaptation: Finally, Erik's narrative reflects a journey of continuous learning, adaptation, and the pursuit of new strategies in response to market changes. His goal to make more beginner-friendly content in 2024 shows his commitment to sharing knowledge and encouraging new traders.

11. Be Prepared: Erik’s Trading Plan for the day covers all possible outcomes, and his strategy / plan for what to do in those situations. This helps manage the psychological aspect of trading.

"It's thinking through things before you come across that situation. It's the same thing we do in the military as an officer. I have to create what's called a five-paragraph order for any mission we go on. Does the plan always accurately reflect what happens? Rarely. But I have preemptively thought through a ton of conditions so as these random things are popping up, there's no more shell shock."

I really enjoyed this podcast. One of the other main aspects that resonated with me personally is that Erik is on a constant lookout for the High Probability Trades. He asks the question of each trade: “Why does this trade deserve my money?” If it doesn’t, he doesn’t trade it. If it is such a compelling opportunity that it ‘deserves’ his money, he considers it irresponsible to not trade it.

Cheers

Marto