Deep Value Letter - Banner Ad / Email Capture

Wednesday, June 15, 2005

romance and markets

Found this in a forgotten collection of disks...forgot I had even written this few years ago after the first Spec Party I attended...never posted it but it seems worth sharing..and if not...hey thats what the delete key is for

Romance..the word itself carries a multitude of images and benevolent moon and dancing stares, discrete champagne rendezvous with lovers. The word is used to describe movies, individuals, couples, lifestyles, literature, music. It can be found in descriptions of Shakespearean sonnets and on lurid covers of cheap novels full of heaving bosoms and torn corsets, in movies filled with angst and heartbreak We think of the great romantic pairing, Tracey and hepburn, Napoleon and Josephine, Lancelot and guinvere, Humphrey and Ingrid, and of course harry and sally. Romance can mean adventure, exotic travel, a waterfront view.The term conjures different images from different people from the romance soaked dreams of the oprah watching frustrated housewives to the adventure travels of the jet set..ask a hundred different people,get a hundred different answers. Ask the same person on a different day and the answer can change...strolling hand in hand with the one you love on Monday, floating down a river with Huck and Tom on Tuesday, the tarmac with Rick and Renault wistfully watching the departing Lisbon plane on Friday..Romance is a basic ingredient of the well lived life. Romance conjures many things essential to the essence of life, the soaring words of a Shakespeare, the earth soaked love of yeats, the hedonistic joy of a wilde, the soaring tones of a Bach, a Beethoven, the sensual mutations of handels Water music, the longing in the first glance in anew loves eyes, the sensation of a first kiss, the world itself enveloped in a space that contains only two and yet somehow everything.many images, many thought, many identities.

The one that is the most striking and yet the most overlooked is one that has occurred to me several times and sees worth exploring.. the romance of the markets and those of us who dwell there. It is easy to see the knight so of old and James bond as romantic..but speculators?To explore the word and the connections more closely, first we must look at the words themselves. Turning to Miriam Webster and his revising associates we find many definition for each that are worth examining as they apply to the world those of use who dance with the market mistress each day.

Main Entry: 1ro.mance 1 a (1) : a medieval tale based on legend, chivalric love and adventure, or the supernatural (2) : a prose narrative treating imaginary characters involved in events remote in time or place and usually heroic, adventurous, or mysterious (3) : a love story b : a class of such literature 2 : something (as an extravagant story or account) that lacks basis in fact 3 : an emotional attraction or aura belonging to an especially heroic era, adventure, or activity 4 :

Main Entry:1 : consisting of or resembling a romance2 : having no basis in fact : IMAGINARY3 : impractical in conception or plan :
VISIONARY4 a : marked by the imaginative or emotional appeal of what is heroic, adventurous, remote, mysterious, or idealized b often capitalized : of, relating to, or having the characteristics of romanticism c : of or relating to music of the 19th century characterized by an emphasis on subjective emotional qualities and freedom of form; also : of or relating to a composer of this music 5 a : having an inclination for romance : responsive to the appeal of what is idealized, heroic, or adventurous b : marked by expressions of love or affection c : conducive to or suitable for lovemaking 6 : of, relating to, or constituting the part of the hero especially in a light comedy

Main Entry: 1 often capitalized a (1) : a literary, artistic, and philosophical movement originating in the 18th century, characterized chiefly by a reaction against neoclassicism and an emphasis on the imagination and emotions, and marked especially in English literature by sensibility and the use of autobiographical material, an exaltation of the primitive and the common man, an appreciation of external nature, an interest in the remote, a predilection for melancholy, and the use in poetry of older verse forms (2) : an aspect of romanticism b : adherence to a romantic attitude or style 2 : the quality or state of being romantic-

Again to our friends at websters:

Main Entry: spec.u.late 1 a : to meditate on or ponder a subject : REFLECT b: to review something idly or casually and often inconclusively 2 : to assume a business risk in hope of gain; especially : to buy or sell in expectation of profiting from market fluctuations transitive senses 1 : to take to be true on the basis of insufficient evidence : THEORIZE 2 : to be curious or doubtful about : WONDER synonym
Main Entry: an act or instance of speculating : as a : assumption of unusual business risk in hopes of obtaining commensurate gain b : a transaction involving such speculation Bottom of Form 0

Speculators are by nature and in being a strange and unusual breed of people. We have chosen a path that would seem predestined for failure. All the studies seem to agree, if on nothing else, that 90% of all speculators fail. Most of us are educated people with a good grasp on life and the concept of risk versus reward, and yet we eschew the normal life in favor of chasing dancing red and green blips across an electronic landscape full of dangers and dragons that would turn St George white with fear. Perhaps along with Joyce s Stephen hero, acutely feel the insidious dangers which conceal themselves under the guise of extravagance but are convinced also that a dull discharge of duties,neither understood or congenial,was far more dangerous and less satisfactory.Each day we assail the summit, charging in full view of the world aspiring to the mountain peaks of success while in constant danger of the ever present pit of Monday morning margin calls have all known the feeling of pride in a good trade that turns sour with a single utterance from a defense secretary starting with that contrarian killing word regrettably ( for an excellent description of this event from a specs point of view, see Victor Niederhoffers education of a speculator). The world and all the studies in history predict our failure before we click the mouse or call the floor to enter our first trade. We are universally vilified in the press. Blamed for the near collapse of the bank of England, the crash of 87 and the Asian meltdown of 1997( it is interesting that speculators are so hated by the mainstream, it was the champion of the downtrodden and exploited, author John Steinbeck who pointed out : I don t know where speculation got such a bad name since I know of no forward leap which was not fathered by speculation)..And yet, here we are, chasing the numbers across the screen, speculators speculating.

There is of course, something quixotesque about the average speculator.. I'm talking now of the individual risking his funds and his future primarily, not the slick young men and women trading the seemingly limitless funds of Goldman and Salomon but the individual trader or fund manager who stakes his all and own on his trading and analytical abilities. We tilt against the windmills of academic thought, of traditional beliefs and against the odds of the market mistress herself. Our quest is for knowledge, for gains, for independence, and of course for wealth. The original don was out of course to better the world and right wrongs..not the usual aim of a speculator although some, notable Soros and templeton have used enormous portions of their wealth to attempt to reshape society as the believe it should be and assist others in improving their lot,,,but these activities would seem to be secondary to, not the central point of, their speculations). Like the windmills on the plains of la mancha, all is not as we see it in our endless calculations and study, and we are battered and beaten for the mis seeing. But like the good Alonso, we pick up to live on and fight another day. There are those who would drag the Mad dons of the market back to the center.wives, in laws, friends and neighbors, back from our foolish tilting against the odds and the gods, but for some of us, the windmills of the market are preferable to the safety of the ordinary.Although most of the successful specs I know are above average in intellect, education, and life experience and could easily hold down high paying, lower risk corporate jobs, the vast majority choose not to. There seems to be a mindset among speculators, that since I share, I think I can attempt to describe.

It would seem to be something along these lines, taken from a letter to a friend in response to the question of why I was always out on the edge taking risks with my money,and my life.

All the mundane grinding of the day to day gathers into a long trail of nothing.. not remarkable, not remembered at all or recalled at any time. Yet so many live this way each day, cocooned in their safe little cabins of mundane averageness, they trudge the roadway of life, a dry, dusty road with only the occasional water stop where warm tepid water is passed out by bored looking minions and guardians of the path, dressed as bosses, as parents, priests and ministers, politicians and rabbis, murmuring promises of some strange unknown unexplainable reward down the road..they've never experienced it or been past their own little water stop but they promise if you keep moving, following the form in front of you, not stopping, no exploration, suck in the dust, eyes upon the dull brown of the path, somewhere, somehow down that road something better awaits all the while off to the side of the road those souls who recall the passion and spirit of adventure they were born with and refused to have it beat out of them by so called normalcy, have found that just off the side of the road, through the gray bleakness of the concrete walls on that dusty road, are beautiful glens and hollows, with spreading tress with shade and lush sensual green grass, and music plays soaring, Beethoven s 9th, handles water music, vivaldis 4 seasons, and james brown ,sinatra, its all their off to the side, and wine is sipped and food is plentiful,..its right there, just to the side of the can hear the music as you trudge along, but so many just keep walking, paying the mortgage, mowing the lawn, going to church, avoiding sinful sex, listening to top 40 and watching a very brady sequel and jerry springer. Or that girl reruns. Reading stephen king novels as literature and may angelou, when over in the glade they read Shakespeare, baudelaire, joseph conrad, ernest hemingway, they watch the old film noir movies and the great romantics, bogart, cary grant, talent and script not just half dressed bodies and violence impersonating art I mean as nice as half dressed bodies are what good is one on the screen without one in your arms?What is it that drives some of us over the wall, to recognize that life is not a dull dreary drudgery, that the intent of whatever benevolent deity created us did not intend this dreary, thirsty trudge, but that the road was only the path we took from glen to glen from quiet dell to raucous valley? There is risk in going over the wall..It is topped with the razor sharp wires of loss, heartbreak, poverty, pain..The water passers have seen to that. But isn t the risk of losing it all, betting it all on love, on lust, on poets and on poems better than this? Anything lost going over the wall can be regained,, I've proven that. I have been impaled on the wires many times, been rich, been broke, bet big, won big, lost big, been loved, been lost..but each time I find healing in the glade, healing for my body, healing for my mind, for my soul. There is peace in the arms of a lover, the words of a song, the ring of Shakespeare s words, the musings of joyce, the touch of a woman s lips and the sparkle of her eyes. To find the glades, the valleys, the love, the lust. The passion, the romance we must be willing to assume risk, to swallow it and let it dribble down our chins so what,; What are we risking? A lifetime of walking down that dusty road, living on the lukewarm spittle passed out by the water keepers of society. Fine, I will risk it. For me, it so ver the wall, risks be dammed. Play the music, fire up sinatra, lets dance to a little James brown, and lets drink, smoke,, drink the wine of life and spill on each other, winestains on our shirts and smiles on our lips..lets shoot craps in the alley, read Shakespeare by the pond,lie on the beach at dawn watching moonbeams skip the surf like scattered handfuls of diamonds leaping in the foam,lets get drunk and read EE cummings.lets kiss,make love..lets dance,lets sing,.lets savor the moments that make up this erotic, romantic, sensual incredible cornucopia of life that some wonderful god(dess)has laid before us sure we have to walk the dusty road one in while, me have to raise kids, pay for roofs and food .and it s the only way to the next valley so we walk a little ways, but always aware of the soft songs and delighted laughter to the side

I do not meant with my words to create an image of speculators as carefree sensualist who eschew work in favor o of play or looking to live on the quick score. For most, even those who have hit the big one a multitude of times, speculating in financial markets is a kind of love affair, We cannot imagine not doing it . And far from the image of the wild eyed Diamond Jim carefree amoral speculator created in literature and media, speculation is work. To develop the theories and approaches, the patience and the discipline necessary to successfully trade in the financial markets requires a work ethic that would make a 19th century new england Protestant green with sinful envy.If romance is as defined above in main (3), a love story, then speculation is romance. For you cannot do this for very long if you do not love it. The stress, the emotional swings, the long hours and tedious research would drive one quite mad without an underlying love of the gyrations of business and finance. I have known many super successful traders and investors. All worked long hours, were capable of losing all track of time while researching a new idea or theory,and truly love what they do.I believe it was Churchill who said that a mark of success to go from failure to failure without a noticeable lack of enthusiasm. This seems to be a trait of successful tradersLike any truly good love story, there are periods and times of heartbreak. Virtually all of us have danced with or fallen into the pit of the Monday morning margin call. The greatest among us, Soros, niederhoffer, robertson, Jones, have tasted the ash of the big fall. The misadventures of Michael Marcus, the reclusive currency mega trader described in the first edition of Schwagers market Wizards in his early trading adventures show an amazing resilience to failure, an uncanny ability to take blows that would shatter mere mortals. Like Ali in the foreman fight, successful speculators seem willing to suffer shattering blows and yet continue to learn,grow and pursue their chosen craft.

Perhaps along with the great violinist, Igor Stravinsky we have come to understand that we learn chiefly through our mistakes and pursuit of false assumptions, not by exposure to fonts of wisdom and knowledge.I suspect it is our love of the game and belief in ourselves and the romantic, wonderful nature of life and the universe possibilities and probabilities that starts us back on the path, unable to stop anymore than the Don could stop his mad search for Dulcieana. Or yeats Mad aegnus could stop searching holly land and hilly land for her, wherever she had gone.In fact our love affair with the markets often strains other love affairs in our life. It takes a rare breed of man or woman to be married to or committed to a speculator,esecially in the early days. It is perhaps easier after success and the park avenue apartment and long island estate but even then they live with the knowledge that it can disappear in a blink, and that often their companion will leap up from a romantic dinner with a eureka and run to the bloomberg and the spreadsheets as an idea comes to fruition.

Most of us would be better waiting until we find a spouse along the lines of a spec spouse who wrote the following during this during a particularly tumultuous time in the markets:Memo to All Spec Spouses:>>It has come to my attention that some of you are getting a bit nervous>over recent events in the market and inadvertently transmitting such anxiety to>your trading partners. CEASE IMMEDIATELY!!>As has been noted many times on these pages, emotions can play a >powerful role in trading decision-making. Terrible market declines >sorely test the strongest trader and can shake one's self-confidence. >This can be a recipe for disaster by prompting a trader to throw in the towel just before >the market turns in his favor.>>At this point the worst thing a loving spouse can do is further erode >your trader's confidence in himself (or herself). He needs a clear >head and calm surroundings to fully concentrate on the problem at hand and focus on >the proper direction forward. Suggestions of trades he could have made >on the close yesterday or queries about the amount of liquid capital >available to the household today are generally not helpful.>>Rather you should marshal all your resources to show your trader that >you have confidence in his ability to do the right thing. Remind him >of all the times in the past that he has snatched victory from the jaws of defeat >by doubling up at the bottom. It is sometimes helpful to let your >trader know that you love him no matter what and that material things have never >meant a lot to you (although this can backfire on traders who pride >themselves on being good providers). Intercept the phone calls of >worried friends calling to see if you are ok. Make sure the children play quietly and are >extra nice to Dad. Distract him after the market is closed and let him talk about >it without offering advice.>>And be sure to remind him that so long as he has enough chips to play >tomorrow he can always make it back...>>Respectfully submitted,Spec Spouse

Other qualities needed for a speculators spouse are found in the reply of Jennifer lackey, the wife of a wild eyed day trader and race car aficionado, James lackey of FloridaYour message sounds to be from the heart of an actual trader. As a traders wife, I have always been supportive, even when the times have been tough. And believe me, we have been through some tough times!!! I bite my tongue every time he has a bad day, and comes home saying the same thing he said 2 days before, " I'll NEVER hold overnites again!" And what do you think he does the very next day?....With a great excuse of course, "but honey, I know the whole world is me! So, last nite he holds overnites and at 2:30 A.M. he wakes up in a panic attack, because everything IS crashing, only nothing is in his favor. By 9:30A.M. he's got fever blisters forming from nerves because he's trying so hard not to blow up. The good thing about blowing up is knowing that once you recover (sometime in the next year) you have learned so much of what you should have done and what you should never do again. I trust him totally and let him know that if he comes home and says "Honey, I lost $50,000.00!", I just say " That's O.K. honey, you'll make it back tomorrow." And he does! Jennifer Lackey(AND ADDED NOTE>>LACK>>YOU LUCKY SOB>>TM 8/13/04)

Such individuals are of course , as rare as successful speculators themselves. However one has only to watch Yale Hirsch and his wife and they way they still look at each other to understand the possibilities.Most of the specs I have met tend to be passionate people, passionate about more than just markets, but life, people, theories,ideas, politics, short everything.

The majority that I have know are also somewhat sensual in their approach to life. History tends to bear this out with episodes and sexcapades of great traders being legend among industry insiders. Stories of the lecheries of the early robber barons traders and modern great alike abound. Even the grandfatherly renowned Ben graham ( call him the original value investor if you like. As near as I can tell from his writings and autobiography he may have taught careful analysis, but in practice he appears to have used his skills to speculate on liquidations and arbitrage type situations) was so well known as a ladies man that friends and associates were loathe to leave their wives in a room with him. The first fixed income derivative was apparently developed by Casanova, who was also know as a speculator, mathematician and gambler.The board of trade and merc alike are riff with reported and rumored sex scandals over the years.Amazingly, beyond the chapter on sex and speculation in victor book ( if you don t recall it, I highly suggest rereading is educational, enlightening and entertaining as hell. ), there is very little written on this topic. There are thousands of books on speculation, and thousands more on sexuality. no one it seems has et been brave enough to explore the correlation of the two. Anecdotal evidence supplied n the after hours sessions now known as spec list after dark tend to bear out the conclusions of the passionate and sensual nature of traders and speculators. Over Famous Grouse, makers mark( the bourbon drinkers in the room, tasteless heathens that they were are reminded to once again thank Susan for that generouscontribution) and a bottles of wine left from that days dinner, the conversations in a well rounded room including options traders, distressed securities speculators, futures traders, stock guys and at least one psychologist, from 6 states and at least 4 nations that I can recall expounded with fervor on their beliefs on everything under the sun. As the libation intake increased, the ribald and sensual views of several were expressed in no uncertain terms.

Although not thoroughly researched or studied, this small microcosm of the universe tend to support the theory of speculators as romantic and sensualists underneath the calculations and theorizing.It is in the definition of romanticism that I find the truest comparison to the life and motivations of speculators. The life of a speculator does seem to me to be a school of philosophic,artistic and literate one. Universally the specs I have met, the ones still around after the bust, the ones with the commitment drive and discipline to survive have adopted a view of the world and philosophy that serves them well Thomas Hampton in the PBS series, I hear America singing, defined the romanticist thusly:

Embracing the unknown and unafraid of the contraries of human existence, the Romantics overthrew the philosophical, artistic--even geographical--limitations of the Enlightenment. The quintessential Romantic figure was the Wanderer, literally and figuratively journeying in search of new lands, new places in the imagination, and new vistas for the soul. Exotic lands, the amorphous world of dreams, the dark terrors of the psyche as well as the dizzying heights of creativity and the dazzling beauties of Nature--these were all waystations along the Romantic quester's route.

The throw off of convention and the search for new ideas, new vistas in common theme among those who trade the markets. It takes enormous imagination, creativity and focus on self to make a living this way.It was George Bernard Shaw who observed that all progress is the unreasonable, therefore all advances are the result of the efforts of unreasonable men, Thomas huxley who postulated that all advances in natural knowledge have involved the absolute rejection of authority. Successful speculators set there own terms for how they choose to live, and they are outside the bounds of the normal corporate advancement, commuting, television watching norm.I am continually amazed by the output of specs away from the markets. Seemingly the intellectual curious nature of the average spec takes them down many fields and paths, the results being numerous books being written, paintings commissioned, artists sponsored, companies developed and life s enhanced. Many are accomplished musician finding a similarity between market patterns and musical ones. There have been psychological discoveries, scientific advancements in math, chemistry, biology developed by those whose intense intellectual curiosity takes them not just to the markets but done every possible path the human mind can explore.

Examining the parallels between romantic literature and the life of a speculator that the pure romanticism of speculating for a living,becomes, to me, the most apparent. N the world of finance and trading all of the great themes of romantic novels are played out daily, and the all the stereotypical heroes and villains are present. We have kings, would be kings,fallen kings and pretenders to the throne. For every Rockefeller and Soros, we have a Livermore, a Daniel Drew and a Boesky, giants for a short time felled by their own visions or corruption. We have alchemists attempting to spin gold from flax, would be wizards with complex formulae, characters of the unlikely names of gann, merriweather and citron are among the many who have declared that they and they alone knew the secrets of the market mistress only to find spray painted bars of lead in the vault at the end of the day. The grand wizards, those smart enough to know alchemy is a sham but still capable of issuing definitive statements of laboratory success that may or may not work in the real world, men such as fama, french, samuelson, sharp and malkiel, We have our prophets of doom and gloom, the witches of grant,abelson and feschback continually stirring the cauldron of falling prices and imminent collapse, knight errants such as lynch and bogle out to save the common man from his underinvested plight --hell we even have jesters ala cramer (okay the guy has a reputation as a good trader and astute observer but his maniac behavior and outrageous statements brand him jester) and glanville. All the lords and ladies of the grand court are present in the speculators world.One of the common themes of romantic literature is the seagoing man pirate and privateer, a them that transfer well to discussions of speculators and speculation. Not because speculation is an inherently evil practice or robs and pillages society as one might think ( in fact without speculators, the concept of democracy and free market has a life span of something like two days), but because the motivations are similiar.I suspect many of use who now speculate would have been adventurers ,privateers and pirates had we been born in a different time.

But as the troubadour of palm trees and south seas, jimmy the other buffet sings, the cannons don t thunder, theres nothing to plunder in a modern society. A desire to build wealth outside the norms of society to live as one chooses. Thomas Cochrane the inspiration for Horatio Hornblower and o Briens jack aubrey was know for his daring, his willingness to take a stand against the odds. There seems to be some credence to the story that he chose the sea after his along with his father s intellectual curiosity and experiments bankrupted the family estate. His curiosity led to develop numerous weapons of war over the years, and his boundless thirst for adventure cause his life to read as a heroic is this boundless quest for knowledge and spirit of independence and adventure is similar to securities traders today. Sir Walter Raleigh was trained in the law but his drive for success and adventure led him to become a privateer and explorere.captain jh callie was a retailer who grew board and joined the Navy to escape the everyday.Stede bonnet was a respectable merchant and planter who turned to piracy, some say out of an aversion to respectability, while others insinuate that it was to escape a nagging of earlier times took to the seas to seek fortune, or perhaps fame. It was a hard life replete with dangers and arduous tasks but allowed an escape from the ordinary and mundane and a chance for great riches. In days of yore they galloped the Spanish main and sailed the blue Caribbean under letters of marque, chasing galleons and sloops.

Today, men of adventurous commercial spirit and a romantic heart chase markets, dodging margin calls rather than cannonballs, tracking market movements in shades of red and green rather than skies of red at first light, sighting emerging patterns and trends rather than far off masts, but the spirit of fierce independence and desire for achievement outside the ordinary is similar.

Another of the common themes of romantic and adventure literature is that of the solitary man, the man standing outside the norms of society, making it on his own terms and in his own way. The works of Louis L amour, particularly the sackett series show this sprit of adventure , the tremendous self belief, a desire to explore new lands, build wealth and climb the summit of life on ones terms. Jack schaefers Monte Walsh is a masterpiece of the genre, exploring the themes of live lived as one desires,not as one is told. By developing a special skill set devoting the time and effort to become a master at his craft of cowboying and horse breaking, Monte lives as he chooses, not as others dictate. His fanatical devotion to his craft and to his close circle of friends are traits observable today in trading rooms from weston ct to san diego ca and all points in between.In literature, the solitary soul is often on the prairie, in the forest of the old west, or perhaps the middle eastern trade routes of the middle ages, seeking, learning,exploring the world and himself. Toady with the notable exception of Bo and those few like him, I think the solitary dreamers and seekers are found behind quotrons and bloombergs, living outside dictated societal terms, surrounded by close and devoted groups of friends and associates learning about the markets, about the world and most of all about themselves.

Perhaps I have reached too far describing the speculator as a romantic, the tradecraft practiced by them as a romantic one. Certainly the mathematical and studious nature of speculation would not seem to be the root of a romantic soul. However among those I have had the extreme pleasure to know and associate with over the years, the common traits seem to be a boundless optimism, well developed self belief. A vision of the world as a wonderful exciting place worth exploring and celebrating.They are willing to risk themselves, their capital, their mental and emotional security on the strength of their thought s and their ideas. They the develop discipline required to embrace risk and tend to see danger as opportunity.They cherish art, literature, music,science and seemingly all intellectual endeavors and practices. They refuse to be told how to live and eschew the mundane for the possible and celebrate live at every turn. And that, to my mind, is romantic.

No comments: