Prologue: This post puts together a few things that I have read (and in some cases written about) separately. I wanted to put them together in a post. Seasoned investors/traders know this, but my focus is always the beginning investor/trader. Pardon the length.
Justin Mamis wrote that we all find our particular way of becoming a victim in the market. That is true in life as well but without the stark price tag. Think of one of your friends or colleagues who is wonderfully interesting and engaging—who everyday has something new and exciting to share with you. Sometimes your friend buys you lunch or drinks; sometimes your friend freeloads on your nickel. At other times, your friend brings you an unexpected gift; but jilts you on your birthday. Such a friend! Except, sometimes your friend arrives late or sometimes not at all. And sometimes your friend meets you and sucker punches you.
You withstand these breaches because your friend is so exciting to be with, and the propensity for delight and surprise makes you willing to put up with a few indignities. Friends such as that, while fun and exciting, are unreliable. You might be hanging off the mountainside with a frayed rope, and your friend will be looking for a cold beer. Good luck with that! If you expect the market to be a friend to you, that is just the type of friend it will be.
The market was not created to keep your money safe in a happily hereinafter way. To be sure, there is an entire industry crafted around that very notion. However the laws of money dynamics (speculation!!) do not work that way. Not everyone can be a winner. While a rising tide lifts all boats, when the wind shifts, or worse, the tide goes out, your portfolio might feel like a dinghy traversing the Cape Horn passageway.
Approaching the market with the right mental model will go a long way toward keeping your feet planted on your road to discovering your inner market genius and keeping your eyes and ears tuned to speeding vehicles that might mow you down. That model conjures up visions of raccoons and skunks in search of pheromones and all they found was the tough, acrid love of speeding tire rubber (Looking for Mr. Goodyear). It is a vision worth keeping in your head.
We could take our mental model many rungs higher, and craft a great existentialist view of market life and our place in it. Here are a few bulleted points from the website, All About Philosophy regarding existentialism's basic tenets:
- Human free will
- Human nature is chosen through life choices
- A person is best when struggling against their individual nature, fighting for life
- Decisions are not without stress and consequences
- There are things that are not rational
- Personal responsibility and discipline is crucial
Let’s consider the third bullet: A person is best when struggling against their individual nature, fighting for life. That, my friend, is the essence of what I want to convey with great gravitas and import. That leaves us with a more concrete model of a great warrior. The warrior is the ultimate existentialist relying on his/her capabilities to face the rigors of the world–the rigors fo battle. We must first understand and conquer our own demons before moving to outward. Gerald Loeb wrote the investment classic, The Battle for Investment Survival—one of those timeless books that warrant your time and attention: and such a battle it is! You must learn to not be a victim in this battle.
- Think of what is right and true.
- Practice and cultivate the science.
- Become acquainted with the arts.
- Know the principles of the crafts.
- Understand the harm and benefit in everything.
- Learn to see everything accurately.
- Become aware of what is not obvious.
- Be careful even in small matters.
- Do not do anything useless.
The Book of Five Rings
Translated by Thomas Cleary, 1993; 1997 Barnes & Noble Books
It is a slim little book in a number of incarnations, and I highly recommend it. The importance of these items in everyday life is self explanatory. A rich and informed life is a mosaic of understanding arts, the crafts and science and more importantly developing skill. That integration provides balance and promotes understanding. To do battle you must have skill and confidence. To be a strategist you must have the proper perspective (seeing things accurately—and becoming aware of what is not obvious). Being careful even in small matters and resisting engaging in useless tasks are the foundation of discipline and efficacious undertakings.
To succeed as a warrior you must meld strategy with mental and physical preparedness. It is a practice–to inculcate these skills into life (thought and action). You might find this warrior metaphor a little odd. There is an aphorism, “there is nothing new under the sun”. That saying is true in market and non-market life. Using a warrior metaphor will help you remember that there are many skills that you need to bring to the battleground (market and non-market life). Failing to see the parallel between market and non-market life means that you will bring to the market the same potential for victimhood as you do in your non-market life. Two other passages from this wonderful book are instructive:
Two essential elements of ancient martial and strategic traditions:
- The first of these basic principles is keeping inwardly calm and clear even in the midst of violent chaos;
- The second is not forgetting about the possibility of disorder in times order.~~~~~
Harmony and disharmony in rhythm occur in every walk of life. It is imperative to distinguish carefully between the rhythms of flourishing and the rhythms of decline in every single thing.
The last item that I would leave you with is something that I have found very useful when I find myself in a rhythm that is akin to running the market gauntlet. This passage is from Yagyu Munenori. I often cite this passage when I see my on-line colleagues frustrated by market events or their own actions:
When fighting with enemies, if you get to feeling snarled up and are making no progress, you toss your mood away and think in your heart that you are starting everything anew. As you get the rhythm, you discern how to win. This is "becoming new."
The Book of Family Traditions on the Art of War Yagyu Munenori Translated by Thomas Cleary, 1993; 1997 Barnes & Noble Books
I hope this little post helps provide you with a model for crafting a mental model that works for you. I hope that you find your rythm and harmony as a trader, and indeed, in your own life.