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Thursday, February 02, 2006

shakespeare in the pits

Mr. Ryans eloquent words on the bard got the brain cells tumbling around a bit as I have long had an enjoyment of Shakespeare’s writings and beautiful weaving of the English language. I have always thought there was much to learn from old Willie and I gave some though to just what life and market lessons we might learn from the eloquent Englishman.

To be or not to be

Far more just the tongue in cheek to buy or not to buy..although that is of course the central question we all deal with day in and day out. Both our own Dr. Brett and Ari Kiev both touched on the central to be or not to be in their highly suggested books on trading and psychology. To define yourself as a trader is not enough. What type of trader should you based on your own personality and psychological traits? Long term, short term, trend, counter trend. Each of us is wired a different way but genetics, life experience and belief systems. I can’t trade like lackey and he considers what I do the equivalent of watching paint dry. To trade or not is an important question; perhaps how do I trade is even more so.

Suggested reading:

The Psychology of Trading: Tools and Techniques for Minding the Markets (Hardcover)
by Brett Steenbarger

Trading to Win : The Psychology of Mastering the Markets (Wiley Trading) (Hardcover)by Ari Kiev

Oh, I am fortunes fool.

Romeo utters these words of dismay after killing Tybalt in angry vengeance for slaying mercutio. They apply equally to those who daily toil in the markets. There will be times when fortune in the form of the alluring mistress shall make fools of us all. No matter how much we run the numbers, count it out, study the Qs and Ks, read the charts and tea leaves, there will be some times when the fair lady just slaps the pure hell out of us. Unlike Romeos case this does not need to mean the end of everything and a poison kiss. If we are mentally prepared for the fact that dealing in probabilities means that at times we will be wrong and we will lose, we are able to deal with the inevitable setbacks that come our way. If we are truly studious and a little lucky we can learn to detect dame fortunes changing moods and lean back far enough to only be struck a glancing blow.

We are such stuff as dreams are made on.

Not to sound like a Pollyanna positive thinking guru, these words apply to traders more than many written by many of the so-called experts. What is it you dream about, that your are passionate about? Whatever it is if you learn to focus on the making the dreams a reality and are willing to learn the tools and take the risks, you can achieve it. Don’t think so? consider:

The son of a Brooklyn policeman grew to become our own Chair, a trader and businessman of extraordinary accomplishment. Others on the list grew up in housing projects, were high school dropouts, deep woods Virginia hillbillies, tank drivers,horse gamblers and poker players. Yet here they gather on the list having attained some measure of personal and intellectual success.

The fault, dear Brutus, is not in our stars,But in ourselves

I have taken this slightly out of context,but only slightly and the bard is far too dead for too long to quibble with my doing do. But truly the fault is ALWAYS within ourselves. It’s not the market makers fault, the counter parties fault, our girlfriend/wife/parents partners fault. It’s not even the bartender’s fault. The blame rests not on the planetary alignment, the fibbonacci count, the super cycle or the failed head and shoulders. It is our own. We made a bad trade, a bad choice, a mistake, an error in judgment. Those who endlessly blame others for their shortcomings are doomed to worsen those very negative attributes that caused them harm. It is important to recognize our weaknesses and lapses and LEARN from them

All that glisters is not gold; / Often have you heard that told. / Many a man his life hath sold / But my outside to behold. / Gilded tombs do worms enfold."

It is these words in the golden casket that since the Prince of Morocco from the side of a relieved Portia in the Merchant of Venice. They are ever more true with the passage of time. They ring I suspect truest in the financial markets. Guaranteed returns. Sure thing stock tips. Infallible chart patterns. Nothing down real estate riches. Hers a few off just ONE of the popular trading websites

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Nothing can come of nothing: speak again."

There will no success if you don’t work for it. Learn,study,absorb,express and act. Do nothing, learn nothing, and achieve nothing. Even a lottery ticket costs a dollar.

Cowards die many times before their deaths,The valiant never taste of death but once

I have a very good friend who runs a good size value oriented hedge fund. He is wicked, wicked smart. In the early days he rang up mind-blowing numbers as we aggressive and independent. Now, overly influenced by the sage of Omaha he has become fearful and reluctant to take any risk less he lose his fund. He’s losing it anyway as investors leave unhappy with paying 20% of t-bill returns in fees. The whole concept of risk adjusted returns and high Sharpe ratios combined with single digit returns are absurd memes that constrain profits. One of the most important concepts I have learned on the list is to embrace risk and make it work for me in the markets as well as I have in life. Intelligent thoughtful risk taking is at the base of every great fortune and every grand achievement in the history of mankind. To be risk adverse is to miss the most important aspects of life.

There are more things in heaven and earth, Horatio, Than are dreamt of in your philosophy."

I speak here not of the ghost of the late, lamented King of Denmark but of thoughts and ideas that are not your own. Here is a news flash, dear reader. You don’t know it all. Yours is not the only methodology that works, yours are not the only values with merit. To continue to learn and grow as a trader and person one must be willing to be exposed to different schools of thought. You don’t have to accept them of course, but it is wise to consider them before dismissal. There are a lot of truly bad ideas out there. There a few good ones. I am a value guy as everyone knows. I have learned more from the growth guys, short term traders and options junkies I vet met on the list than I ever could if I joined my close-minded value brethren and dismissed them before contemplating conflicting ideas and philosophies. I have learned more form his conversation and writings from the chair than anyone I ve ever met in my life and we all know his feeling on value. Read, discuss,study.Daily spec shows us that there are lessons ion ecology, crocodiles, the growth of trees, baseball and music that will add to our trading and our lives. You don’t know it all. Celebrate that fact.

The course of true love never did run smooth

Not love nor life nor markets runs smooth. There will be bumps and bruises along the way. (See, Melvin, marital history thereof for further proof of the statement) It will not always go our way. How we react to the upsets determines our eventual destination.

Oft expectation fails, and most oft there, where most it promises; and oft it hitsWhere hope is coldest, and despair most fits

Can you say reversion to the mean? When the crowd is the most excited, ala 1999, we are most likely set for a fall. In the depths of depression like 2002 it is probably time to bring out the canes. There are books written on this including two by the chair and others including list members so I ll expound no further.

Reading suggestions

The Education of a Speculator
Victor Niederhoffer
Practical Specualtion
Victor Niederhoffer and Laurel Kenner
Paving Wall Street
Ross Miller
The Winners Curse
Richard Thaler

This above all: to thine own self be true".

Be true to your beliefs, your values. Life live in such a fashion that at the end, you would consider it a work of art worthy of leaving to others. Sculpt you life as what you would have it be and life by your core beliefs and values.

Delays have dangerous ends.

Procrastination kills, especially in the markets. The ability to act and act quickly is crucial to success. Continual delay to rethink and study further leads to inertia and inactivity leads to failure

Small things make base men proud".

Take your joys in grand fashion. Leave reality television for the unwashed masses. Great music, great books and fine wines are the things that inspire us. To embrace the cheap and tawdry lessens us and does not teach nor inspire.

What 's gone and what 's past help should be past grief

Dwelling on past mistakes and failures is a fruitless pursuit. Study them learn from them and dismiss them. I once read of a study of elderly nursing home patients who were asked what they regretted out of their past. The vast majority regretted not their mistakes or errors but the things they had not tried. There is no shame in falling, nor in trying and failing. There is only shame in not rising again.

It occurs to be that I could do this for hours and end up with a book rather than a post. Perhaps at some point I shall do exactly that. In a most unlikely segue I ll close with a quote from Charles Bukowski that’s seems apropos for the traders life well lived

We are here to constantly defy the odds and live in such a way the gods tremble to take us.

There is much in the words of the bard to benefit our trading as well as our living. Thanks to Tom for kicking the brain into gear as well as suggesting the saccio lectures. I am ordering them posthaste

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