Six lessons flying a plane taught me about trading

In 2011, I left my cozy investment banking job at JPMorgan in London and moved to Hawaii to start a hedge fund and manage it from the island of Maui. At the time, I thought I had already found most of my life passions, things I love to do. But moving to a state made of six islands where air travel is often part of commuting changed everything… 

Fast forward to 2013, I found myself sitting in a single engine airplane — a Cessna 172 — with a German guy who sounded very much like Arnold Schwarzenegger. We flew from Kahului to Hana and as we soared over the waterfalls and the lush landscape, spotted a couple of whales breaching off the coastline of Maui, I knew I was hooked. 

So here I was a few days later on an intro flight lesson with Maui Aviators — the local flight school. I must have picked a wrong day because that second flight was so bumpy in winds gusting over thirty-five knots that I almost threw up as I stumbled out of the plane back on firm soil. I spent a few days thinking about my sanity and analyzing my own fears, but here I was again — lesson number two. 

The school owner introduced me to my instructor Collin: a twenty-two-year old kid still wearing braces. “Really? Are you sure about this?” But the worried voice inside my head didn’t stop me there.

Collin, as it turned out, was every bit as professional as a flight instructor should be. And so six week later and forty-one hours of flight time logged, I was handed my private pilot license by Bob, the old FAA-designated examiner who himself had 60,000 hours in the air in various airships, and who required Krispy Kreme donuts every time he was conducting someone’s check-ride. His words to me were: “This is only your license to learn,” and I think I haven’t fully grasped the meaning of these words until much later and a few close encounters with my own bad decisions in the air. 

Two months later I bought my own plane from a Honolulu-based Japanese tour company: a 1980 Piper Archer II. And so my love affair with private aviation started. Island hopping for a weekend to play golf on a neighboring island, flying to Honolulu for dinner and Opera, I discovered what it means to travel without security lines, on your own schedule, with as many liquids or golf clubs, or whatever the hell you want to load onto you own plane. Sure, it’s still just a four-seat, single engine plane, almost as old as I am. But flying in Hawaii rarely gets boring.

A year later or so, I did finally realize my own shortcomings as a pilot and my lack of experience. See, as a private pilot, you are limited to only flying in good weather, you can’t go into clouds (not that it matters so much in Hawaii), but generally speaking you are just a baby-pilot. And so in short order and over the following six months, I earned my instrument rating, allowing me to fly into clouds using only my instruments as a reference, as well as my commercial rating and then a flight instructor certificate. I was now allowed to not only get paid to fly but also to teach others to fly. Whoa! 

Learning to fly a plane and getting better at it as time went by made me draw the parallels with my professional life and my love for trading the foreign exchange markets. Because each step of a trade can really be linked to each step of a flight. And so as I pondered the similarities between trading and flying, here are the six points flying has taught me about trading:

1. Preflight = Trade analysis

Plane are not like cars. Sounds obvious, but really, you can’t stop a plane on the side of the road if you hear a strange noise or the engine quits. And since we’re talking about SINGLE engine airplanes, if your engine ever quits in the air, you’re still flying — the physics don’t change here — but you just became a glider. Good luck landing it when you are midway between two islands over water!

And so before each flight, a thorough preflight is crucial. Checking the fuel quantity and quality (for water or debris), the oil level, all those little bolts and screws that hold the flaps, the ailerons and rudder together… all of this needs to be checked. 

Just like every trade needs a thorough analysis — the risk/reward ratio, the fundamental or technical reasons for a trade, the risks posed by unexpected announcements from the central banks or the inadvertent presidential tweet.

2. Lack of attention to detail will lose your investors money, or kill you.

To be a great pilot or a trader, one needs to pay attention to detail. Because in the air, if your scan for other traffic sucks, you will hit someone. Or if you don’t communicate with the controllers properly, you’ll eventually lose your license for breaching the air traffic rules. Ultimately, you might kill yourself, your family, and people on the ground if you fail to recognize and troubleshoot issues that you would have spotted if you paid better attention. 

And it’s the same when it comes to trading the markets. Of course that you can’t read every single research paper out there and be up 24 hours a day to follow the markets. But ultimately, not paying attention to details, however small, will cost you and your investors money. 

3. Mitigating the risks

In flying and in trading, you analyze the risks and try to make them smaller or at least manageable. In the air, do you really want to fly this close to a thunderstorm? Do you really have to get home tonight, considering heavy rains, snow, or low ceilings with poor visibility? Do you have all the information you need for your flight? Do you have enough fuel to make an alternate airport if your destination airport closes down for an unexpected reason?

In trading, it comes down to your stop-loss management. With each trade, one should know the exit point. Especially when it comes to a trade that is losing money. Is your trade size appropriate? Does your stop loss make sense? Are you disciplined enough to take the loss, instead of moving it further and further away as you keep losing more money?

4. Responsibility for others

This one is pretty obvious when it comes to flying, and yet so often ignored by many. Every year, there are multiple air accidents where you just shake your head. Why take your family, your children, on a flight when the conditions are just so bad?? Recently a six-passenger single engine plane went down in Nevada because a family of five really wanted to make that Thanksgiving dinner, despite heavy fog and poor visibility… The statistics are depressing, and sadly most of these accidents are due to poor decisions by the pilot in command. 

When it comes to money management, though, I never realized how much harder it would be to lose other people’s money that it is to lose my own. It just is. When it comes to money, the burden of responsibility for others is much heavier than it is for your own.

And so ultimately it made me think about the due diligence investors undertake before they let me manage their money. See, in flying, it’s astounding and almost shocking how much confidence people have just because you tell them that you are a flight instructor. Do they not know that instructors have crashed with their students before? In finance, you’d think that investors conduct a little more analysis before committing money to a fund to manage for them. But do they really?

As a flight instructor, you learn very quickly to see things happen a mile away and in slow motion. Unlike for a driving instructor, we can’t just hit the breaks and save the day. We still have to be able to recognize when things are happening off script and react to the situation. Gerhard, an old flight instructor from Austria who sadly passed away from cancer a year ago, once told me: “Expect every student will try to kill you.” And I took that to work every time I flew, and every time I put a trade on. Expect every trade to go against you, and be ready for it.

5. Humility 

Flying in Hawaii can be a lot more dangerous than one might think. Over the last three years, there have been numerous crashes both into the mountains and in the ocean — a result of sometimes poor decisions but very often a lack of skills, leading to vertigo and disorientation in poor visibility. Night time in particular is a canny killer. Flying over NY or LA at night is a lot easier than flying at night between two islands. Unless it’s full moon, you are in the darkness with no references to the horizon. That’s how for example JFK Junior died off the coast of Martha’s Vineyard, unfortunately. 

Teaching to fly other people meant I had to take a course on teaching. But that was nothing compared to the real experience. Because this is not like playing chess. Flying, though statistically safer than driving, can still kill you. Human fear, emotions, panic often can come into play and dealing with these and those of other people brings a great deal of humility out of me. 

Dealing with other people’s egos too. Because flying in Hawaii means flying in strong cross-winds almost all the time. And many pilots will think that they have the skills to deal with those, when they really do not. 

When it comes to trading, I was humbled too many times to count over the years. And it’s this sense of humility that I bring to work every single day. Because I know that I am still learning. Both in the cockpit, and in the market. 

6. Saying NO

Let me paint a picture here… It’s a beautiful June day, the spring in full swing. My dad is turning seventy next Sunday and we have tickets to a pro-Am at the U.S. Open at Pebble Beach. My company is the tournament sponsor and we’re going to play with Tiger Woods — my dad and I. We are spending a few days in Vegas with my brothers and we decided we were all going to fly there in a Piper Arrow we rented for the week. But the day we’re leaving Vegas to return to California, the weather is bad. The whole coastline in California is experiencing one of those spring days — cold, foggy, bad weather all over. “But we’re playing with Tiger,” my dad says… 

Saying no to a departure, however important the destination, is the hardest decision a pilot must make. But it’s a decision that she or he has the obligation to make if the conditions are not right, regardless of the pressure by one’s own family, friends, or work colleagues. Because all it takes is one really bad decision to lose it all. 

When it comes to trading, the temptation to put on a position, “just to see how it goes,” is always there. And it takes a lot of guts to say no. Just like a good poker player, folding most of the time and waiting for the right odds to be on your side ultimately leads to better results. And flying is no different. In my early flying days, I remember taking off from Maui because I really needed to be back in Honolulu. The winds were gusting at 42 knots. The winds were so strong that I got airborne within two-hundred feet of rolling down the runway. Five minutes later I recognized how stupid that was and I turned around and landed back on Maui. I realized then where my personal limits stood. 

There is an old aviation proverb that says, “I’d rather be on the ground and wish I was flying, than being in the air wishing I was on the ground.” And so it is with trading: “I’d rather regret a profitable trade I didn’t put on, than wish I didn’t enter that position at all.” Because ultimately, there will be other beautiful days to fly. Just as there will be other profitable trades to enter.