Psychological Analysis for Trading & Investing | Adam Sarhan | Hot Wallet

Scott McGregor  
Adam Sarhan is the host of the Smart Money Circle Show, which by the way is in its ninth season. He is the author of the best selling book, Psychological Analysis for Investing and Trading. He's a contributor to Forbes and can be seen all over financial media. He's also the CEO and Founder of 50. Park investments. Adam, your book is the one that I recommend to anyone that asks me about trading books. It is so good, my friend. Links for everything Adam will be in the shownotes. Thank you so much for spending your time with me today, sir, 

Adam Sarhan  
It's my pleasure. Thank you, Scott, for having inviting me on. Thank you. I'm glad that you liked the book. And by all means, I'm very excited to see where the winds gonna blow us today. 

Scott McGregor  
Fantastic. Well, I touched on your background a little bit, but we'd love to get started with how you got involved in the markets. 

Adam Sarhan  
Sure. So I'm one of those stories, an unconventional story but self made success story on Wall Street, I started with less than nothing, I couldn't eat at one point in my life early on. And I grew up in a world where I'm like, Okay, I got one of two options, I need to either learn or just stay what I'm doing and stay in that kind of, you know, situation where I wasn't comfortable. And so I knew I didn't know I didn't go to Harvard or Yale, I didn't go work at a big investment bank. Instead, I self taught. So I have one job is to learn. And that was my it is not even was it is my biggest strength and my biggest skill or asset, whatever word you want to use, I have a voracious appetite for learning. So when I start with the premise, I know I don't know, that humbles me and the markets God is you know, and the audience knows is a tremendously powerful humbling instrument. What it just really is, right. So having entered the arena, I look at it like a gladiator arena almost or a battle zone, something like that a competitive it's a highly competitive environment where anybody can compete, and anybody can win. Entering that arena with the understanding and the humility of knowing I don't know, gave me a huge advantage. Now. I wish I could tell you I got in the market and became a multimillionaire overnight. No, it took me over. I mean, over a decade or so even longer, before I became a multimillionaire was able to make money and became "Oh, wow, I actually got this". I suffered from just about all of the possible mistakes you can make. I don't want to say beginner mistakes, I can tell you beginner, intermediate, advanced still making mistakes, right? I'm lucky if I can tie my shoes in the morning. That's how I approach the world. So I started early in my career, I started trading stocks as a teenager in the 90s. I fell in love with markets right away. I'm, I'm short. So if I'm gonna play basketball against Shaquille O'Neal, or Michael Jordan or LeBron James, I don't have a chance and you know what to win. And that's a physical limitation. But in this business, Scott, not only do I have a chance to win, but I have a chance to compete and have a chance to thrive, right? Because it's based on what it's based on my intellect. So if not based on my physical limitation, or you know, people get older, they can't run as fast. So a lot of athletes have to retire someone here. This is an infinite game, right? It's not a finite game. So again, it's based on something that I can, I can control that knowledge, right, it's I could continue to learn, I could choose to learn, I could choose not to so on and so forth. So what I realized early on, after making all the mistakes under the sun, I wrote up the.com boom in late 90s. And then the crash, thankfully, I was able to get out of the way, I was just getting started, I had no money. And the money that I lost was a very small amount. But really what got me hooked into markets was my best friend growing up. He, as you know, in the book, if you've read it, he became a commodities trader at Man Financial. This is back in the late 90s, early 2000s, which is the big one of the biggest commodity trading futures companies in the world at the time. And John Corzine, unfortunately, took it down and buried it years later. But while he was working, he turned a very small amount of money, but five grand into over 100 grand in a few weeks. And for me it guy with nothing like oh my god, like that's all the money in the world. And this guy did it without lifting a finger so to speak. When you click a mouse and money goes up, money goes down, like whoa. So my first question is, I was like, Hey, how do I get involved? I want it right. Then all of a sudden, I opened up an account. He had lost about 25 grand on the Friday before my account was opened, his bosses didn't want him trading anymore because it was distracting him from his day job, rightfully so. And it was a perfect time for him the exit, and we decided to 50/50 partnership. So he came in, he would manage my account for me. And the first day, the account doubled. I put all my money in like this was all in right. And I was like, oh my god, this is the greatest thing in the world. They called him up. I said, Hey, you know, what do you think we'll be at the end of the year? He goes, so you know, this was phenomenal returns. Everyone knows about markets. A 20% return for the entire year is considered fantastic. Some of the best traders in the world average about 20 to 30 percent. And that's phenomenal, right? year in year out over decades, this guy at 100% return in the day. So obviously, now knowing what I know now about statistics and numbers and performance that's just not sustainable. So I never forget this guy. He told me I bet a million bucks. And I'm thinking to myself, he just turned five to 100 and change... he just doubled my account. Why can't we get to 100.... You know, you could 10x it to get to a million it's that's not a problem. Yeah. And it was like the little cartoon light bulb went off I had the euphoria aha moment just hot I mean, elated feelings of euphoria, right? Then of course what happens the next day the profits are gone. The next day after that the accounts bankrupt by Wednesday. Okay, whoa, he's a hey, don't worry about it was a one off whatever send some more money in. I don't problem is I don't have more money to send in. So I go borrow on credit card, send some more money in. And then the next day the account doubles. So if you ever watched the movie Trading Places with Eddie Murphy and Dan Aykroyd, and they're coming to America, there's a scene from coming to America where Eddie Murphy throws the Duke brothers a bunch of money. It's like it's just you know, pocket change. And then Mortimer stands up one of the Duke brothers, they were back when Wharton we're back. And we have a brother stands up. So that's how I felt. I saw that scene. replaying in my mind on Thursday, we've doubled the account again. And they're like, Okay, we're great. We're back. And then Friday, the accounts bankrupt again. Oh, and I'm like, wow, yeah, that was just like the up and down the emotional rollercoaster the the experience of wealth creation and wealth loss. And now I'm in debt up to my eyeballs, and so on and so forth. I'm like, Oh, my God. But that was painful event at the time, it turned into a massive blessing, right? Because that planted the proverbial seed for me to go out there and want to learn even more. So now I had a calling in life. This is my, my passion, my calling my my future. I just saw crystal clear. 

Scott McGregor  
And what year is this? Adam? What year is this? 

Adam Sarhan  
This was 2000. '99, 2000, 2001, when all this happened, so I started in the mid 90s. But really 98-99 was like the huge bull market. And then the market topped out in 2000. That's when I started trading. The future is with him right around that timeframe in to '01. So that was around that time, okay. And then at the end of the week, I'm broke, I'm in debt, I'm bankrupt. And they said, Okay, still, I love the guy till today. He's actually a partner of mine now and big hedge fund we have. But that's a whole nother story that he runs. I realized, I know, I don't know. And now I've got one job is to learn. And I'm keep going back to that learn because you've got in your audience, all of us, anybody that wants to participate in markets, you really have one job, it's just to learn, right? What's stopping me from being a billionaire? What's stopping you with your audience or whoever? It's not the economy. It's not the market. It's not, it's ourselves! It's not, I just don't know what to do to be a billionaire. I'll be honest, that's nothing... You know, in fact, I strongly recommend people being intellectually honest with themselves. So I fired him as a, you know, money manager, because I went bankrupt, they fired him or he fired me or didn't work out whatever word whatever you want to, we always joke around about it. And I went to the drawing board, and I use that pain as fuel, unbeknownst to me at the time, to really go out there and learn everything under the sun. Because this was 2000, 2001, 2002-ish in that timeframe. Google wasn't around me gonna come public and slow for Google had just started their website. But Facebook wasn't there. Twitter wasn't there. LinkedIn wasn't there. I mean, there was none of this stuff. Gmail was wasn't even around at this point in time, let alone all of the ChatGPT and AI, none of this stuff existed, right. So I'm like, Alright, I've got one job. I, I never grew up as a reader, or even a writer. Now I'm an author, I wrote a book. And it was number one on Amazon for two months after I published it, which I'm very proud of and happy with. But I realized, I've got to learn the best way for me to learn is to read. So I just, I had an insatiable appetite. And I read and I read, and I read, and I read and I read it, and I had no money, but I was working these very low income jobs, to pay the bills, and just to make some money and get myself out of debt, and so on and so forth. And I read everything under the sun. At the time, there were seminars being offered by Investors Business Daily, I loved fundamental analysis, because that's Peter Lynch, know your company, know what invest in what you love, Graham, and Buffett, and all these kinds of guys, and that was great. But it didn't give me any concept of timing, technical analysis, that's fundamental analysis. And then there's technical analysis, which are those, those are the two big, you know, competing schools of thought on Wall Street. Technical analysis, you study the stock, you look at the stock entry, the patterns, price, volume, so on and so forth. So think of it as two animals, one or two entities, one would be the business, and the other would be the stock. And then you could have a good stock, lousy business and vice versa. So the it's almost like two religions that are feuding or two sports teams that don't like each other. And I'm like, well, there's good here and there's good here and some of the Venn diagram, Bill O'Neil from Investor's Business Daily, came, I came across his teachings, and he took the good from here from here and put it together and built his own investment system. And that's when the penny dropped, the light bulb went off. I was like, wow, this really makes sense. So I took all of his classes level 1,2,3, and 4, I met him met his son, Scott, and I became well versed in the cancelin world. I applied to jobs all over Wall Street, everyone said no to me, because I didn't come from money. Basically, the interview was real simple. And I did this at all the big investment banks had him if we hire you today, how much can you raise tomorrow? And I said, Nobody, nothing because I don't have access to big wealthy network of people. So they said, okay, good luck, come back, when you can raise some money. I said, alright, I'll work hard. Didn't matter. I don't have access, you know. So that's, that was my reoccurring theme. Finally, I got a job on Wall Street, and I stopped doing those mind numbingly low income jobs. And it was in grad school, this was 2004. And it's when I started my business. So I had accumulated about three or four years of just put my head down, not read, read, read, I under a finished undergrad. And then I started my business in my dorm room in grad school. And unlike (Bill) Gates and Zuckerberg, who had, you know, became multi-billionaire tremendous success. I've had my fair share of success since then. And really, Scott, it is it's based on, I'd accumulated enough knowledge, I started testing what I learned. And I realized that the market, it's there's almost like a beauty to it. Because you can look at it, like I mentioned earlier, like a battleground or a gladiator an arena where you're going to go in there and fight or as an unfriendly place, or you can look at it as a friendly place. And this is a really powerful lesson. So I have a lot of other realizations, too. I love success. I love winning. And I love to study successful people. And it's the show Smart Money circle, right? And people can go to the website or go on YouTube. It's all free, on Smart Money Circle. And I interview today, some of the biggest largest money managers and CEOs of publicly traded companies that I can get my hands on wide, because there's some smart folks over there. And I want to learn from them. I still do until today. And what I realized got was back is that you really the challenge here. You can study fundamental analysis all you want study technical analysis, all you want, but there's a gap and there's a void. And that's what I came up with the concept of psychological analysis, is that no matter how much you know, or learn that, ultimately what defines your success or inability to succeed, is your relationship with yourself and your relationship with others and other things, including money. It's your psychology. Do you have a winning mindset? Or a growth mindset or a losing mindset? It's just everything is binary. It's simple. And I used to complicate things when I was younger, I thought it would make me smarter. Now, it's the exact opposite. There's a certain elegance and simplicity. So my first job getting back to that story on Wall Street was working for a website called CANSLIM.net. CANSLIM was the investment system from Investor's Business Daily, it's no longer around, IBD bought them out, shut them down afterwards. They it was a great deal, great environment, great guy who started the site. Super, super nice. He gave me my first shot love the guy to death. And there we had a very simple process. We'd have a newsletter for CANSLIM Growth Investors. I knew it all because I already studied all that stuff. And I met him at a company, he was giving a seminar. So I went up to him. I said, Hey, do you have any advice on assemble to get started in the business? And he goes, my assistant just quit. Why don't you come in for an interview? I said, Sure. So I went in Friday at noon, and I kid you not Scott, true story I left at midnight. Well, needless to say, I got the job. And we hit it off became fast friends, we both spoke the cancelin language I had already taken, you know level 1, 2, 3 from O'Neil and met Scott and Bill and it was well versed in the CANSLIM, we spoke the same language. And he was preparing an aftermarket report. And then he was going to Chicago the next week, and he was gonna stay late in the office and have dinner he invited me to stay. And I was just young, hungry kid, I'm like, I'd love to learn. And he was putting together charts and I helped them put together the presentation. And then basically within a week or two I took over the site and I started writing a lot of the content. And then I got licensed as a Series 7 Broker registered rep, you know, a normal broker at the time, but I quickly realized it's not for me because I had to call every client and say "Hey, Mr. Jones, or Hey Scott or Hey Jack, Mary, your Joe your whatever. Okay, is it okay if I buy 100 shares of Apple" and then sell it and then we were charging 2% Commission's on the way in and it was just the business model. Even it was in my young 20s at the time, didn't make any sense to me. I'm like, This doesn't make any sense. It's not sustainable is not for me. So I left they got bought out anyway, and they were shutting down. And I went off on my own. So my name is Adam. This is now '07-08-ish around that timeframe. And I turned bearish on the market because I'm a student of markets. I went back and studied history economic history, going back to the third century. I realize there are certain behaviors that just repeat over and over and over again, you get these booms and then busts the cycles on Wall Street, I started the economy, going back to third century realized was agriculture dominant for a long time and the industrial revolution, then you had services, then you're the age of information, and so on and so forth. And during those different cycles, you'd have different bull and bear markets within that big, huge, ginormous, economic expansion. So all right. What are those traits? And just like Einstein had the epiphany when he realized E equals MC squared. All right, there's certain constants. When I understood that human nature is a constant in markets, fear and greed, emotions, drive, behavior, and purchases, people buy based on emotion, and they justify it based on logic. And I call that emotional logic in my book, because it's flawed, right. And if you have a mind, you have biases, cognitive biases exist, whether you're aware of them or not, is a whole nother story, but they're there. So I really, I started diving deep into the psychology stuff. And I realized that all throughout the centuries, the tulip bubble the.com, bubble, the credit, but it doesn't matter. The people change, the language changes, the religion changes, the race changes, the centuries change, but the one constants, Human Nature doesn't change. And then all of a sudden was like, wow, I have something tangible I can sink my teeth into or just grab. And then Scott, I was like, Alright. Think of a computer you ever call customer service and like the printer is not working? The first quarter the computer is not working. The first question they ask, is it plugged in? Oh, no, it's not plugged in. So that's user error, right? There's nothing wrong with the machine. Yeah, it's just the users not doesn't know how to use it. Well, I realized that that's me. That's the story of my life. Right? So I'm like, Alright, there's nothing wrong with the market. You know, Einstein said this best. He's like, you can look at the universe as a friendly place or an unfriendly place. So I had the same concept for markets. And I said, Alright, let me look at this business. Zoom out. Let's look at some higher level thinking here. Right? One of the biases that I talked about in the book, and that really impacts all of us just about is the personal blind spot bias. And what's that? It's basically a bias where if you ask 100, newlyweds, how many of you are gonna get divorced tonight? Like, you know, raise your hand on their night they get married? No one's gonna raise their hand. Yet statistically, we know half of them are gonna get divorced. Riddle me that Batman, right? Something's up there. They can't see themselves objectively. That's the personal blind spot bias. Yeah, well, I'm a human last I checked. If this applies to other humans, it shows you know what applies to me. And then I realized, Oh, my goodness, if I'm not even aware of that, what other biases Am I not aware of that are impacting my decisions. Emotions are so powerful, and they're just intertwined are entrenched in all of us interdependent or whatever word you want to use. I have a young, I have young kids, right? My daughter is 11 My son's six. And you know, the character venom from Spider Man? Oh, yeah, of course. So what does Venom do? He literally consumes the person, right? He takes them over. And then he turns them into, like, there's dark character and Venom, he just takes over the character, the host. It's the same thing with the emotions. So I realized that it's user error. So my job my passion in life, became, figure out how to improve the user. What can I control? Which that's me, right? My actions, my decisions, or any work in control. So I can't control what happens to me in life, but I can control how I react to it. I buy the stock, I sell the stock, there is no maybe on Wall Street. You're either in or you're out. And that's why I love it. Right, that binary factor. You long, you're short. So that's that. Then as my journey progressed, because this is a discovery process, right? Like early on in my days, like I told you, there was no Google, I used to go fly up to DC and go to the Library of Congress, I sit there for hours and like weekends upon weekends, reading books that are no longer in print, just to get an edge, that slight edge. And then over time, you don't know when that aha moment comes, that awakening comes but you just start realizing, you look back at like, oh, wow, I've learned all this. And then at apply certain things like a scientist with a scientific method, you have a hypothesis, you test it, if it works great. If it doesn't work, change the hypothesis, test a new one, right? And keep doing it until you find one that works. And that's what I did with my trading. So knowing thyself is really important. Are you a long term investor? Are you short term trader? Are you risk averse? Are you comfortable having losses, so on and so forth, and then figuring out an approach that works for you? And that's basically the whole model the book, give you my investment strategy, and I give you a foundation, a framework you can use to create your own Trading, Investing.... Gaurdrails, formula, methodology, approach whatever word you want to use system, something that you can use structures, the word that I use, create your own structure. So you can actually go out there and navigate markets in a profitable fashion.

Scott McGregor  
Wow, that is that is a heck of a story, a heck of a journey. And the book is fantastic. Once again, we'll put the links to get the book for yourself in the show notes. Adam, do you think what we went through in 2020? And 2021? Do you consider that a bubble? 

Yeah, I think there's no question that the 2000s after the.com COVID. Mini crash, the s&p 500 doubled. In 18 months or less. The average returns got over 100 years is seven or 8%. In the S&P, it's not normal to see that the market double in a little over 12 months. That's a bubble. If that's not a bubble, tell me what a bubble is. And I'm all for it. Right? So the bubble burst in 2022. And that, by the way, that was the S&P 500. If you look at the post COVID stocks that went up that stayed home stocks and all those that craze then you saw these stocks, go to Mars and then come crashing down. Some of them lost 70-80, even 90% of their value. And that's normal. That's what happens after busts. So if you see a stock that goes up 3, 4, or 500-600%, and that comes down 90% or 80% or more. That's not a boom and a bust. I don't know what it is. 

Yeah, definitely. So what's your outlook for 2023? If 2022 was the burst of the bubble? Where are we here? And now? 

Adam Sarhan  
Yeah, so that's a really good question. My thought process with the market, it's real simple. It's the next move wins. Right? The markets trying to bottom, we put in a bottom in October, we have a little head and shoulders pattern, a bottoming pattern, I talked about this on my membership website is called Findleadingstocks.com. There's a free trial there for three months, everyone can go sign up, it's a weekly newsletter. So I update people weekly with my thoughts. And you're forming a right shoulder of a big head and shoulders bottom. If the market can break above 4100 to 4200, the S&P can for that matter, and stay above that level, we're probably going to go higher, if we don't, and instead we break down below the 200 day moving average and break down below December's lows, then we're going to retest, most likely October's lows, we break those, we're gonna have another leg down. Inflation is still extremely high, yes, it's coming down. But we used to have 2% of the upper limit. Now they're trying to get it down to 2%. So it's a lower limit. That's not sustainable, six 7% 5% inflation, that's very high, the average person can't afford life in three to five years. If it stays at four or five 6%. The Fed knows that. And that's going to cause massive, massive problems. So the Fed slowing down on raising rates, we get that they can pause, they can pivot and start cutting rates if needed. But that's going to happen, in my opinion, when two things happen. First, the jobs, unemployment goes up, because historically, unemployment was way higher. And second, you're going to have housing prices come down. If we see housing prices come down significantly, and unemployment go up significantly, then inflation is going to come down just about a gimme, it's a guarantee. Until those two things happen. The feds gonna continue to err on the side of, hey, let's raise rates maybe slower than before, maybe pause for a little bit. But they really can't start cutting until inflation drops big time. And we unemployment that go up and our housing to come down in my humble opinion. So a lot of this, it's a game of tug of war, these patterns, I've learned to morph on Wall Street. So you could have a head and shoulders bottom looks great now, but if you undercut that right shoulder, and you take out the head of that patterns negated. And you could have couple of handles, you could have double bottoms, that could evolve, could morph, they could work, they could not work, they could fail. So for now, it's a game of tug of war. And it goes back and forth. If the Fed comes out tomorrow and cuts rates blast off and go to the moon, near term. So the answer the question, I'm a data dependent person, I don't know what I'm eating for dinner tonight, let alone where the market is going to be tomorrow, or next week or next year. So instead of making predictions, I interpret what I see happening. And then Scott, as I outlined in the book, I anticipate with prudence, what may happen next, and then I plan accordingly by positioning myself with the most important variable of any thing, no matter what your investment approach is, in my opinion, is risk. I have a whole chapter in the book dedicated to risk. Why? Because the ones that fail in Wall Street historically failed for one reason one reason only. They don't respect risk. Doesn't matter if you're fundamentally if you're technical if your psychological analysis of us, you know, moons or the astronomy it does smoke signals are shamon, it doesn't matter, hypnosis, I don't care, you throw darts against the wall, the ones that blow up in his business in 2008. Scott, the entire investment banking model failed. Okay? The five biggest banks, Goldman Morgan, Lehman, Bear, and Merrill, Morgan, and Goldman are the only two standing, the other ones failed or got bought out. And Morgan and Goldman both change from investment banks to commercial banks. If you go now, why did they fail, Wachovia failed, you can go on and on and on all these different banks right there. Lehman, why they fail, they don't because they took on too much risk and and didn't mitigate that risk. They didn't respect risk. It's just simple, right? It's one thing they all fail not because the the loans or the MBS, or CDs or L,M,N,O,P,Q,R,S or  T,U,V, because other investors made the same exact decisions and made the same investments, but they respected risk. So the inability to respect risk is why they failed. So, that's where the winners separate themselves from everybody else, respecting risk. So one of the key lessons that I strongly strongly want to share with everybody is understand your risk tolerance and figure out an approach your investing approach that works with respect to what you're comfortable risking. So once you're in a situation where you're able to say, oh, okay, I'm able to risk X amount, or not risk X amount, you're under the words, you focus on what you can control, you can't control the upside, the stock can double, triple, quadruple, it can go straight down on you after you buy it, you can't control the upside, but you can control to a certain extent how much you can risk. And if you focus on that, Scott, all of a sudden, you look at things differently. And when you look at things differently, guess what things change, what changes, real simple. The ability for you to understand, clarity, understand how Wall Street really works. Somebody on my show, told me one time sky was a fantastic, fantastic line. He goes Adam, we don't buy and sell stocks at our shop. I said, So what do you do? He said, We buy and sell risk. And so to you. 

Scott McGregor  
I love that I actually that that leads me into one of my next questions. On your show Smart Money circle. Adam, you have over 80 conversations with fund managers and investors, what are some commonalities that you've picked out from some of the most successful ones? 

Adam Sarhan  
So that's a really good question. The there's several number one, they understand how to make rational, not emotional decisions. And that's why I wrote the book. Respecting risk, removing your emotions from decision making process are the two core 10 or two of the core tenants of the book. There's more, but there's two of them. You ever do something's Scott and hit a wall?

Scott McGregor  
 Like every day. 

Adam Sarhan  
Every day? Yeah. Welcome to my world. 

Scott McGregor  
I'm a trader, man. Of course, I hit a wall every day. 

Adam Sarhan  
I call these things mental walls. And one of the things that successful people do is that they understand this is all lessons from the show and again, in the book simplified is that they understand that we're in the performance business. What does that mean? Just like athletes or entertainers are in the performance business as well. It means a few things. Number one, it's not a predictable outcome. I'll give you a Million Dollars right now, Scott, if you could tell me with 100% certainty what the color blue looks like. I'll give 5 Million to your audience if they can tell me what chocolate tastes like. Can't do it. It's physically impossible. I'll give you a million dollars right now to go trade for me and I want you to make sure every single trade is a losing trade. If you do that with 1000 trades, I'll give you 10 million bucks. Can't do it. Right. You follow it? You love to try though...

Scott McGregor  
Adam. I'm tempted to I do. I do accept donations. So you know, if you if you want to go down that road, let me know. 

Adam Sarhan  
So my point is, is that if here's the deal in there's certain business, there's two kinds of businesses is a business that gives you a predictable outcome. Like a dry cleaner, you put the clothes in the machine, it comes out clean just about every single time an accountant, you go to an accountant, they're gonna do your taxes, they might not do the best taxes, maybe somebody else can do a better job but the job will get done. A dentist is going to fill your cavity any credible dentists can fill a cavity with just about 100% guaranteed success, right? 

Scott McGregor  
Yeah. 

Adam Sarhan  
Now, there's that's one business model, predictable outcome. Uber, you pick up here, you drop off here, guaranteed it's going to work every time. Now, we're just about varying a crash or some unforeseen event right. Okay. The next business model, which is welcome to our world, Scott is the unpredictable model meaning, it's not a guaranteed result. There is no predictable outcome. A lawyer can't guarantee she's going to win a court. A trader can't guarantee that you're going to make money year in, year out. In fact, the best traders in the world some of them have losing years. It's normal. It's part of the process. A professional athlete can't guarantee they're gonna hit a homerun every time they stand up at bat. Can't do it. Now, the best baseball players in the world strikeouts seven out of 10 times or there abouts right, they only hit three out of 10. Right. So that brings me to my next point. It's it's really important to understand the truth and clarity when investing and not get caught up in the hype. A lot of people ask me, What's your percent win ratio or win loss ratio? It's irrelevant. Why it's absolutely useless information. It's like me talking to you right now. And shifting gears and talking about GI Joe, or Teenage Mutant Ninja Turtles has nothing to do with the conversation. Why? Let's say there's 10 trades, simple example here, you lose nine of those trades. Each time you lose, you lose one. So you're minus nine the 10th trade you win 10. Net-Net, you're up one, right? 10 trades, you win one time you win 10 nine other times you lose one each time. So 10 minus nine is one. That's a 90% losing ratio. But the 10 out of 10 trades your net positive one. Now the other fellow has the same 10 trades wins, nine of them wins one each time. So the plus nine the 10. Trade, they lose 10. They're minus one at the end of the 10 trades, yet they have a 90% success ratio. It has nothing to do with anything. They're missing the mark. What matters? Risk/Reward. How much are you losing when you're wrong, and how much you make when you're right. So that's some of the lessons that I've learned from the show. Other lessons, Scott, the emotional part of it. Now we're all you have in mind you have biases, right? So understand the cognitive biases that impact our decisions is really really powerful. This book is the only book that I know of investment book that I that has cartoons. I literally put cartoons in the book. Show me because I got the audiobook. Yeah, sure. So we all have a good side. I like that side. So I created cartoon character. 

Scott McGregor  
Did you draw those yourself? 

Adam Sarhan  
No, a friend of mine, named Sean. He's really he actually helped me edit the book. And I give him a big shout at the beginning of the book. He's really really it's super, super sweetheart. 

Scott McGregor  
Love it.

Adam Sarhan  
What are these characters inside all of us? I believe there's good evil there's there's a Smart Money superhero inside of us. And then there's what I call the dumb money beast. The dumb money beasts. Think of like a Tasmanian Devil is a highly emotional creature that runs around causing chaos. And they make emotional decisions. Look, here's actually one of the sections. It says the danger. I'm gonna second the danger of emotional logic. Right? What does that mean? Is that you buying based on your emotions, and then you're justifying it based on the decision you already made. The logic that justifies that decision. Nobody buys a stock because they absolutely despise it. "I hate the stock, I'm buying". 

Scott McGregor  
Haha!

Adam Sarhan  
You get it? Why would people buy stocks, they buy it because they like it. They buy it because they enjoy the..somethin'... whatever it is. There's an emotional positive emotion, they like it. They feel good. Enter any other emotion you want. But it all comes down to good feeling / bad feeling / positive feeling / negative feeling, right? They buy it because they like it, then they find they justified based on the logic, the price, the breakout, the volume, this sh-malume, the price to earnings ratio of each little, little bit whatever element they want. Yeah, it's all confirmation bias. What is confirmation bias? Read the book and you'll find out right or Google it. That's one of the many biases that impact our decisions. So going back to the lessons that I've learned is that the smartest people in the business, it's not just in our business in in a performance based business where you get paid to perform. And by the way, you get paid extremely well. If you're able to perform at that high level. Why? Because you're able to excel and you're able to do things that most other people physically and by the way, mentally cannot do. There's a really good show on Netflix. It's called or documentary or Docu series. It's called...what is it called? Break Point. And they interview, my wife was just telling me about this, they interview some of the best tennis players in the world today, like alive now. And I just started watching the first episode last night and it's really fantastic. Because tennis players like us I get paid very very well to hit the ball over the net. I love tennis. I'm a big tennis fan. And I think it's it's a tremendously rewarding sport and I love it so to speak, but it doesn't matter. That's my own bias if you don't care about what I like, and what I don't like. Tennis is a great sport, right? All right, fine. The interview some of the best tennis players in the world, and they show them what, what is needed to get ahead. What do you have to do to become the best of the best? And what's really interesting as they're going through interviewing these tennis players, I can't help but think about how much overlap there is to trading and becoming the best at trading. Why? Because you have and I have all of us the same exact, we're in the same exact arena. We see the same data, we look at the same stocks, what separates the winners from everybody else, the top 1% that win year in year out is what they do with the data. What do you do with the information? When do you enter? Notice you it's individual? That's what psychology psychological analysis about Master thyself, right? Know thyself, how can I improve? How can I level up? How can I get better? How do I make better decisions? How do I perform better? What's my physiology? Because fear is a really big component. What's my relationship with money? Good or bad? How do I improve it? What can I do to perform better? This isn't a job, Scott, where you're paid by the hour. You're not trading time for money. In fact, a lot of what you've learned about work has to be unlearned to be successful in this arena, because we're not trading time for money. Most jobs that's what you do, number one.  Number two, your money usually most people are taught to work for their money. Here, you literally do the opposite. Your money works for you. And that's hard for people to do because you step back and let the market do its thing. That's what I call time arbitrage. In the book, most people are looking at the leaves in the forest. They missed the forest. They live missed the trees. They're looking at every tick. I call it Tikka-situs, you ever get bronchitis or any other kind of staring at every tick in the market, you're going to make emotional decisions. And that's going to cause you to see the leaves that are right here. But you're going to miss the trees and and or maybe you see the tree but you missed the forest. You missed the big huge trends and the big moves. So, knowing thyself, knowing what you're good at knowing your strengths, knowing your weaknesses, knowing your blind spots, like Ray Dalio talks about so incredibly powerful. This business is a mental business. It's about performing better be aware of your physiology, because they're intertwined. Are you in good shape? Are you in bad shape? What are your triggers? What are your fears? What's your biggest fear? Mine was for years going broke. Now I'm no longer fearful of going broke. I know it's not going to happen. But it dominated my because of my childhood for. For decades, I was struggling with that when I first started making money in this business that I was making 10 grand a week, and I thought it was all the money in the world. And I still had impostor syndrome if you Google it's a big thing. I couldn't believe it. I was taking money out of the market me little Oh, Adam, why would want I don't deserve you know, all that negative thought. I self sabotage it. And I learned interesting is to it got back on the horse. I'm just sharing these stories. Because we're all human. I put my pants on one leg at a time like everybody else. And then all of a sudden, but I pushed through. So the learning curve here. This is how it works. I talked about this in the book too. It's really exciting. When you learn something new... tennis stocks, investing, art, singing, it doesn't matter. You get a big jolt, you get dopamine, okay, great. And then eventually you hit a wall. You learn, learn, learn, you hit a wall. Most people are programmed to seek pleasure and avoid pain. They hit a wall, they get pain, that joy of learning at the beginning. It's fun, it's exciting. It's thrilling. It's new, novelty, new, it's so powerful and isn't emotion. And then it gets pain because they hit a wall. Then they shy away they look for another shiny object or new investment system, a new trading system, and then bam! They get the dopamine hit again. And then another shiny object, they become a jack-of-all-trades and master-of-none. Successful people understand that learning curve, they hit that wall, they anticipate it and they destroy it. Then they get another leg up, you level up, then you hit another wall. Then you break through that. And you level up. My daughter who's 11 It's taught me so much about life and my son to children in general. It just adults, but without it's unfiltered. Right? So, "Schmelf" the dumb money beast in the book came from when my daughter was young one night we were watching beauty in the beast and she stayed up late. It's my fault. And she want didn't want to brush her teeth. She had you know a fit. She was three years old. And she wanted to didn't want to brush her teeth. So my wife's in the bathroom with her trying to brush her teeth and she's you know, like she's in that emotional state of hysteria almost like just not thinking not seeing straight. So I come upstairs I don't know what possessed me but I stood up I'm like, "SCHMELF!" And I get up and I make this stomping sound like I'm stomping on an ant and it was the funniest thing in the world. Imagine your dad, you're super tired, you're three years old. You see this guy making the stomping sound getting soridiculous and jumping up and down and laughing and screaming. She switches from just like bawling her eyes out to uncontrollable laughter. Scott, she's on the floor. 

Scott McGregor  
Love it! 

Adam Sarhan  
Her state changes instantly. Five, not even like, three minutes later, she's brushing her teeth with bells on. I'm never going to do this with another human being let alone a child. Right? But I understand that it's the state you're in the mental state is that controls just about everything. Right. I've been up I've been down. I've had my good day bed like everybody else. All right, when you're off when you're down, right? And you're trading where these gonna happen. You can have good results a lousy results. Yeah, well, I think, you know, a lot of people, they trade their mood, they trade the personality or what they're going through right now. And so a lot of people, you know, if they're, if they're angry, they're going to be angry at the stock, and they're gonna trade harder and push it harder. And that's usually when they lose more and lose 100%. So that so that's where it was like, oh, okay, there's "Schmelf", and that's a dumb money beast. So talk about pain and pleasure. And then I'll wrap up, because I know that this is around the timeframe. There's consequences to all of our decisions, right? We're programmed as humans to seek pleasure and avoid pain. All right, fine. Dalio talks about this right short term consequences intermediate long term, I'll just keep it simple. When you eat a cookie, most people do they get pain or pleasure instantly with that cupcake or that cookie?

Scott McGregor  
Well, I don't know about you, but I get lots of pleasure.

Adam Sarhan  
to

Right! 100%. Now, that's short term pleasure. But if you eat a cookie all day, every day for your only meals, no other nutrition, what happens after 50 6070 years, 30 years? Well, I can tell you what happened after the pandemic, I gained about 25 pounds.

Scott McGregor  
Exactly.

Adam Sarhan  
And think about it though Scott, it leads to pain. So short term, you get pleasure from that activity, but long term, you get pain. Diabetes, overweight, so on and so forth. Now, going to the gym, most people associate pain with that short term, I don't want to do the situps. I don't want to sweat it. But if they do that long term, they get the game, they get the pleasure. So understanding order of consequences and understanding your brain how you're programmed is really, really powerful. So here's another thing in the book. I talk about "Schmelf" & the superhero. You see if you could see that. (Shows picture)

Scott McGregor  
Yeah. Oh, yeah, I see it. 

Adam Sarhan  
Yeah. So, "Schmelf" was eating cookies. And superheroes eating an apple. Right? So look at the name of the chapter, "How to make Smarter Decisions." It's all life's about. If you can make smarter decisions, and eat those apples every once in a while whoever bite into the cookie, that's fine. You don't have to eat the whole cookie. But understand that how to make smarter decisions in all of life, the totality of life. Somebody actually, my wife, gave me a great line, it's big money, energy, understand the smart money energy, understand how The Top 1% Think, how they act.  A friend of mine told me "...that because Adam, you're so intense!" Me, I'm intense. I like to, you know, joke around and play. I don't look at myself as intense, somewhat, but he's not successful. Somebody who's infinitely more successful than me looks at me like I'm a wuss, I'm not even, like I should do 10 times more 100 times more. So it's all relative, but really understand thyself, Master thyself, remove the emotions and decision making process. Learn how to get better, just a slight edge every day, get better focus on the input, your decisions, and the output making money will take care of itself over the long term.

Scott McGregor  
So good. Adam, you. I could talk to you for hours and hours. I do have a few more questions. If you have time for me. And the book you do mentioned Stan Weinstein, what about him influenced your trading? And what other books do you consider other than your own mandatory reading?

Adam Sarhan  
Oh, wow. So great question. Stan Weinstein is one of the greatest people that have impacted Wall Street what I mean by that he's influenced positively shared his teachings with 1000s and 1000s. Now I mean, I don't even know I mean, people just endless amount of people. And I'll find it in the books I could show you the actual dialog here, or, sorry, the illustration. The illustration is real simple. He caught he created what's called, or identified, not created, but identified stage analysis. Okay, here it is. There's four stages to every stock, you have stage one, which is the base. Stage two is the uptrend. Stage three is the top of the stock and stage four is a downtrend. Here's the illustration in the book, give credit to Weinstein. And there's a stage analysis that's on page. Let's see what number is that page, page 60. For those of you that have a hard copy of the book, and that's phenomenal. I love simplicity. The K.I.S.S. method. The military's  Keep It Simple....the Last "S" is for me. I need to understand something like a two or four I can explain to a five year old or a to a 10 year old. (The) Stock goes up we make them only for long. Stock goes down, we're short. Anything more than that you lose me, right? So this stage analysis was really really powerful because he breaks it down into simple terms. Other books that I love his book is "How to Profit in Bull and Bear Markets". Great book. Marty Schwartz. Pitbull. Great books. William O'Neil, "How to Make Money in Stocks", great book. "Monster Stocks" by John Boik, phenomenal. He's got a few books, John Boik, love that guy, love his books. Let's see here. It depends how deep you want to go. I love psychology. So I have a lot of other psychology books. I've got hundreds of trading books. Read, Graham, if you want if you read Peter Lynch, "One Up on Wall Street". I'm looking at bookshelf as I speak with you here. There's Trend Following" Michael Covel has a really good book too. "Trading in the Zone" is a good book. I mean, there's so many of them from a Trading Book standpoint. But if you really want to level up, understand the performance aspect of it, and read books on performance on psychology on the power. "The Power of Now" is one of my favorite books ever. You read "A Course in Miracles", phenomenal book. Read, "Relentless" by Tim Grover. Read, "Winning" by Tim Grover. He was the trainer for Michael Jordan and for Kobe Bryant and for Dwayne Wade and all these other guys. I mean, it's the same language. It's the same lessons that are taught over and over again. Let's look at on my bookshelf. What else I got... "Emotional Intelligence" so powerful. Understand your own emotions understand what makes you tick. What else here? Marty's Zweig's book "Winning on Wall Street" such a great, great book. I we spoke about Pitbull, that's a great book. So understand the rules of life is a really good book to show

Scott McGregor  
You also mentioned "Think & Grow Rich" Napoleon Hill, which is one of my favorites. I listen to this at least once a year. What is one of your takeaways from this one?

Adam Sarhan  
Yeah, so "Think & Grow Rich", Napoleon Hill, Dale Carnegie... No question, read all of that. Think & Grow Rich, Accurate Thinking. Okay, we're all looking at the same thing. You look at this and tell me is this blue or purple? Or that yellow? Or is it pink? Stock is good or stock is bad? It's an opinion. Accurate Thinking and Accountability are two superpowers if you can understand how to accurately think and then how to hold yourself accountable. And I have a coaching program on Findleadingstocks.com where I work with traders that want to level up. It's just that it's accurate thinking, and it's accountability. And I took it straight from Napoleon Hill. And I tell everybody that signs up. We're here to help you think accurately make smarter decisions. And I'm gonna hold you accountable. Because you can get away with it. This trading is a it's a very it's a business where there is virtually no accountability. I lost 10 Grand today, I don't have to tell you, I lost 10 Grand today. I lost 100 Grand today, I don't have to tell my wife, I lost 100 Grand today. I made a Million Dollars. And I don't have to tell anybody, I made a Million Dollars, right? There's no accountability. Now, between you, yourself ....and me, myself and I.  Like, you know, between you and yourself, you can BS yourself all you want. But if you want to be successful, you've got to be intellectually honest. You've got to be able to accurately think, look at the facts and interpret them objectively. And hold yourself accountable. And it's very difficult for people to do it, because it's biases and I help people do that, given the structure.

Scott McGregor  
Very cool. You're one of the only traders that I know that talks about the subconscious mind. Tell me how you reprogrammed your subconscious mind for success. And then how do you keep that program up to date Adam?

Adam Sarhan  
That's a great question. So this is one of those things where nobody taught me: "success is a choice". I wish I could show you my screen. Hold on. Let me do this.

Scott McGregor  
I think you can I think

Adam Sarhan  
You can can share my screen at the bottom. Yeah,

Scott McGregor  
I think you should be able to.

Adam Sarhan  
Hold on watch this. Even easier thing to do here on my desktop on my computer? This is what it says.

Scott McGregor  
I love that. Success is a decision.

Adam Sarhan  
Literally it's a decision that's my I stare at that on my desktop every single day. That's all it says it's just success is a decision. Do you want to be successful? Yes or no? Most people want to be successful. Okay, show me what actions you're taking to be successful. Because, talk is cheap. Sticks and stones can do what break our bones but names can ever harm me kind of thing, right? All right. Why can names not harm me? Because there's no action. A stick & getting whacked in the head. Yeah, I can break my bone. Get it? "I want a flat stomach". How many sit-ups did you do today? Zero. You don't want a flat stomach. That's accountability. So choosing to be successful is step one. That's number one. Step two, I open the book, the even the chapter one. Okay. Leo Melamed, who's the guy who invented Stock Market Futures and Currency Futures and Treasury Futures. He's the chairman of the C.M.E. He's been on my show a few times. Immense, super great guy, mentor, guy, not even a mentor because he came late my life but just a role model hero of mine. Holocaust survivor. Next level. He came here with nothing. Built, you know, became the chairman and CEO as CME, and invented Stock Market Futures and all that stuff. He literally talks about the importance of choosing success. His family left Poland, and was chased out of they went to Japan, landed in Chicago, he knew nothing had no money. And he could have been a drug addict or could have died or could have been a pimp or a prostitute or whatnot. Not a prostitute... A gangster. Right? 

Scott McGregor  
Yeah. 

Adam Sarhan  
What he end up doing? 

Scott McGregor  
He chose to be successful.

Adam Sarhan  
Became the Chairman of the CME. Choice. Right. So, step one, this is the prologue, what does it say there Scott?  

Scott McGregor  
You deserve to win and be rich. 

Adam Sarhan  
Yeah. 

Scott McGregor  
I love that.

Adam Sarhan  
That's, that's not even the chapter. That's the prologue, before you begin the book. So understanding that you deserve, just read the prologue, if nothing else. Buy the hardcopy what I would recommend, because there's a lot of good stuff here and take notes on it. Here's Chapter One: "How to think like The Top 1%". Yeah, there's a whole chapter dedicated to mindset before we even talk about stocks, or fundamental analysis, or technical analysis, or any of that stuff. Why? Because the mindset dictates your success. Somebody who never gives up somebody who wants to activate their inner superhero, somebody who wants to go from an L to W, like my buddy, Moshe says, he goes from a loser to a winner an L to a W, can do it. But they have to want to do it. And then put the work in chapter one, "How to Think like The Top 1%". Chapter Two: "Why You're Not Beating The Market and What You Can Do About It". Chapter Three: "The 1 Question You Need To Ask Before You Get Started." And then we talked about Fundamental Analysis. Chapter Four, Technical Analysis. Five, Six is "How to Develop a Winning Strategy That Beats the Market." Seven, we talked about Psychological Analysis. Notice when it's introduced, Chapter Seven. Chapter Eight, here's another whole chapter dedicated to answering this question, "Master Your Mental State, and Your Life Will Change". Chapter Nine, "How to Make Smarter Decisions." Chapter 10, "What's Holding You Back? Your Mental Walls and Cognitive Biases." and then "How to Destroy them Master the Learning Cycle", we briefly spoke about that. The most important skill to master on Wall Street, which is spoiler alert, risk management, right? And then what happens next, looking to the right of the chart, most people look to the left of the chart. And then "Welcome to the Smart Money Circle". So some of these, I mean, there's a whole book I can't even answer, begin to answer those here. I gave you some of them. But there's so many more. I mean, I'm so passionate about helping people go from Ls to Ws, like I did with my life. Nobody was there for me. So I'm here to help other people who want it.

Scott McGregor  
I love it so much, man, like I came from a scarcity mindset. Before I got into trading and investing. You know, I was in my bank overdraft for every month for 15 years and stuff like that. And now, you know, now I'm feeling a little more success. But obviously, there's a lot of mental Gremlins that I have to work out. And so I actually have a journal behind me and every morning I write out, "I am deserving of money in a good steward of the dollars I receive" as a reaffirmation to myself, you know, working through some of the things that you've talked about over this interview. So, man, just such powerful material here. You know, I would like to finish by just really recognizing what you do for the trading community as a whole. You know, when I first saw you, you don't know this, you're working with Jim Roppel. I saw you help him launch his premium service. I've seen you work with Tom Cannfield. You know, you are someone who I consider a superhero, using your powers for good. And so I just want you to know that it is noticed and appreciated by the trading community. And I want to thank you for all the stuff that you put out to help investors no matter how much money they have under management.

Adam Sarhan  
Yeah, thank you, Scott. I appreciate that. It's all biggest I wish this was there. When I got started right. So Jim came on my show and we hit it off instantly. We're both CANSLIM/O'neil guys. Growth Investors. And I just said to him, it took me six months to convince him but he was able to he's another hero, great guy. I love the guy like a brother kind of thing. Tom Cannfield, same thing, love the guy like a brother. He was able to put himself through and four kids through college, as a not put us off in college. He put four kids through college, working full time with only one income and that's Stock Market, no other income for decades. Now if that guy can do that, my goodness, I got Marty Chargin also, if you're familiar with him, he's a phenomenal guy, former principal of a school. Now he trades full time. That's MCstockcharts.com. I love finding these undervalued guys and gals, by the way, that have knowledge, they have expertise, and then packaging and selling, helping them sell it, but helping them really give value to the audience because they they're doing what they're doing, right. They're doing the routine. They're like you're journaling. They're writing the reports about the market. They're doing all this, but they're keeping it inside, like me, for years. And then I realized, Oh, my God, I can benefit... many people can benefit from this, so why not share it? And then there's, there's a business element to it, but that's normal. Elon Musk, richest guy in the world, right? He charges for Tesla's, internet... 

Scott McGregor  
Haha, he's not giving away the cars. 

Adam Sarhan  
Yeah, seriously. So the business element you could like hate it, love it. That's a whole nother story. But it's just it's a part of life, right? The business side of it. So it's got to be there. Otherwise, the world wouldn't go round. So I look at it instead of as a bad thing I look at as a good thing. And then because it might my old days I used to look at as a bad thing. But now as "a W"... Oh, okay, I get it. It's actually good. It's helpful because business helps society. And then I realized oh, okay, other people can help and benefit from these services. So if you go to Truemarketleaders.com That's my team right now of different people that I have on the platform that I'm growing and if you know anybody that has the skills because a lot of people come up to me and I'm I want to join the platform. I want to sell a service. No, no, no, just master the art of saying No, but the right person who's got the right skills, that's true, authentic and legit, and gets it an honest integrity, all that stuff. It's a pleasure of mine to help give them the microphone and I just sit back and I watch them in awe. I love it.

Scott McGregor  
Very cool, man. Be sure to check out Adam's YouTube show The Smart Money Circle show. Links for everything Adam Sarhan, in the description. Thank you so much for your time today. 

Adam Sarhan  
Thank you Scott. It was a pleasure.