Wednesday, July 30, 2008

Greed and Fear

Sally Cairns


11. What the ancients called a clever fighter is one who not only wins, but excels in winning with ease.
12. Hence his victories bring him neither reputation for wisdom nor credit for courage.
13. He wins his battles by making no mistakes. Making no mistakes is what establishes the certainty of victory, for it means conquering an enemy that is already defeated.
14. Hence the skillful fighter puts himself into a position which makes defeat impossible, and does not miss the moment for defeating the enemy.
15. Thus it is that in war the victorious strategist only seeks battle after the victory has been won, whereas he who is destined to defeat first fights and afterwards looks for victory.
Our friend, 2nd writes: "leisa- i often wonder if we would be more successful traders in the absence of fear and greed (mental or chemical means may exist to blunt/extinguish these impulses)...somehow i think not.."

Had I not recently reacquainted myself with Musashi, Sun-Tzu and Menenori, I would have agreed. In these texts we have war--fighting between men and among men--at its most basic level: that of survival. (Of course perhaps the reasons for going to war are fear, greed and power mongering). YET, these books reduce it down to A, B, C and D in terms of how one faces the enemy. In truth, these are books on how one faces death.

The admonishment is first to know ourselves, for our victory or defeat lies within ourselves. Second, we must learn the "art" of war--those skills that are necessary to practice until we can do without thinking. And last, when we meet our enemy knowing ourselves and equipping ourselves with the requisite skills, we can meet the enemy without fear. If we are lacking in skill in any of these--not knowing ourselves, failing to acquire the requisite skills, or bring emotion into the decision making process then we are likely to kill our capital in the market.

For me, it is a useful mental model. I think that the market is oftentimes depicted as a benign venue where one can safely put there money and have it multiply manifold. If one believes that, then one doesn't need to heed any of this ancient advice. You just put your money in and it will grow without your doing a thing. There are times in the market's cycle where that is true. I don't think that this is one of those times.

And when we think about how much of the market stories play upon our emotions--fear, greed, trust, etc--to the extent that we can control these emotions, then we become the warrior that is well equipped emotionally and physcially: beyond manipulation, who sees the field clearly, controls his/her action in accord with unfolding events.

Naturally if trading is your vocation you have to make money---but I believe that if one is trading without a real passion for the art and skill of it, like most pursuits where one is ill-equipped and poorly motivated, success is not likely to come. I thought the Sun-Tzu quote above (I think I've used it before) is appropriate.


Anonymous said...

leisa- if an absence of fear and greed were desirable, then 'black boxes' would pretty much do the trick...i think it's necessary to allow yourself to experience those emotions as fully as possible, but WITHOUT giving in to them, in order to make the kill (as long as we're talking about war LOL) take advantage of the fear and greed in the markets, one needs to recognize sentiment, and i know of no better way to recognize it than to be aware of one's own emotions...


Leisa said...

2nd--You are absolutely right. I had no expectation that fear and greed will be eliminated from the market, merely through ourselves.

The discipline of either expunging or at the very least controlling our emotions is difficult.

I was reading Ray. Kurzweil's "Singularity is Near"--and was particularly struck by his discussion of tapping our brains into the Internet. I shouldn't say tapping, more like integrating. It would make stock research easier!