Friday, March 23, 2012

Beating the market by trading like a sociopath (part 2)


Predators tend to see in black and white.  Scientists have suggested that contrast against background may be more helpful for predators in detecting potential prey than color, helping them to focus on crucial spatial relationships rather than extraneous details.  I’m color-blind to mass hysteria.  My lack of empathy means I don’t get caught up in other people’s panic, particularly mass panic.  It gives me an incredibly unique perspective.  And in the financial world, being able to think opposite the pack is all you need.

Traders laud the “contrarian” mentality.  Warren Buffett famously said “Be greedy when others are fearful and fearful when others are greedy.”  Easier said than done for the vast majority of stock traders.  And when I’m trading stocks, those are the people I am up against.  On every stock trade there is someone who wants to sell and someone who wants to buy, at least at a particular price.  Both tend to think the other is an idiot.  In simple terms, the person who is selling thinks that she is getting out just in time while the person buying thinks that they are about to make good money.

Because the actual transaction is faceless, I can’t practice my usual people-reading skills or manipulation, but I don’t need to.  I understand mass psychology.  And the truth is that the market doesn’t really reflect some magical perfect valuation of a stock under the efficient market hypothesis.  It reflects the mass consensus of how actual individual investors value the stock.  It is the sum total of everyone’s hopes and fears about what a company is capable of doing.  Preying on people’s hopes and fears is my métier, even en masse.  To my colorblind eyes, I see these features more starkly than anything else.

Given a choice of hopes and fears, preying on people’s fears is the better bet by far.  Hope is too ethereal.  People are too unpredictable when acting on hope.  I’d rather rely on their fear, but even that is tricky.  When the market spooks, it can be as senselessly destructive and difficult to exploit as a stampede.  When I trade stocks the main thing I am focused on is not people’s fear of losing what they have, but fear of losing out—of having missed an opportunity to make millions.  I look for stocks that have the visceral pull of get-rich-quick schemes.

22 comments:

  1. have you read the Psychology of Trading by Brett N. Steenbarger? Interesting book in terms of speculation, psychology, and psychopathy.

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  2. This reads like an old article out of Money.

    No names, dates, anything. If you don't have proof, it didn't happen.

    The credibility of this site just plummeted, unlike your picks.

    Some of us really are in this. Block out info and show the name of a trading firm.

    Home run after home run, yeah.

    Finance

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    1. Shut up Fool. ME is successful. You probably live in a appliance box somewhere he he

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    2. what would the name of a trading firm prove, anonymous?

      i did better than average too for a while when i had the time to follow the market. i would follow the market daily to see what was going on, get in late and invest in the winners, give it a few months, then ditch the losers, or steal from the winners and buy new stuff. and always spread the money all out. you won't get rich that way though. but the boredom of trying to actually understand all that stuff to really make money would probably kill me.

      or you can try to make money off fluctuations, bit by bit, like one of my elderly relatives if you have oodles of time on your hands and the thought of losing it all scares you to death. :-O

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  3. M.E. is playing a game within a game. And the game he is playing has less rules to abide by. I get this. Its like whenever I play Poker. I've never bothered to learn all the rules because I'm playing a different game entirely. And still managing to win 80% of the time.

    The difference is that hes fully informed, but is operating blindly with the trader. My situation is opposite. But in common, we are still playing the same hidden game.

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    1. what is this hidden game?

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    2. Just the human psychology prediction game. :)

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    3. can it really be a game if there is only one player?

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    4. There are all kinds of games. I think sociopaths play against their own egos most of the time. How would you classify it?

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    5. survival? i think we all have this hidden game, but we're not all aware of what drives us or that we can take control, and for those of us who aren't it's like consciousness is sitting in the back seat blaming the traffic while random impulses play behind the wheel.

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    6. the question then is how much time to devote to the game? is the game a means to an end or the end itself?

      to be always plotting and scheming as a way to ensure you always come out on top seems like a tedious and plodding way to live, with no time to enjoy life because there is always the next battle to be won. better to figure out which battles are needed to win the war, and fight only those.

      is that what you mean by playing against the ego, anonymous? the need to win at everything and anything no matter how trivial? are sociopaths then not much more than very clever narcissists, also weighed down by their egos that sit on top like some parasitic siamese head that's always hungry? where the more you feed it the larger and hungrier it gets, until every moment of your time is devoted to feeding it?

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    7. but you have to devote some time to the game.

      the alternative is to give up every battle and blame the enemy for never winning any war. that if they had just empathized, and understood you, they would have given in, because you were of course, as always, right, because your FEELINGS told you, those lil random impulses doing all the driving, ya know?

      or is that just the parasitic siamese head again, but wanting others to feed it?

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    8. OK.. First, thank you for the thoughtful response. I'm going to try and address all of this. Bare with me.

      I think survival has a lot to do with it. I think we evolved this mentality to ensure our genes pass on. Its basic, and primal and adaptable enough to be found in all types of situations. There are different levels of awareness. I can see you have introspection, but not everybody does. There may be medical reasons for that, or situational. I suspect its an individual thing, as most things are.
      As far as time devoted to the "game", how much control do we actually have when it comes to how much we play? Are we impulsive sociopaths, or are we non impulsive? I think the real control lies in what games we choose to play, not the time involved. If we are programmed for survival, why would our brain give us the option of quitting something so primal that protects us? Personally, I feel that parasitism can be pathetic. Sure, it has its advantages. But there's a lot of ego-masturbating parasites pretending they are hosts. If sociopaths are so logical, why haven't most of them realized its futile to invest the energy in self destructive time wasting projects that provide no long term benefits? It perpetuates a desperation. They cycle miserably and then comfort themselves with empty pride. And then, the jealousy that comes from watching others be happy, when its the individual's choices that make them miserable. They punish people for having something they've actually denied themselves. And it goes on and on. What I meant by playing against their ego was what I've just described. And where is the logic in that? When you break it down, sometimes empaths make more sense to me. But again, its all individual. At first, I did play trivial games. Sometimes, I still do, if they are fairly harmless. I realized when I was 17 how pathetic it was. I have tried to shut it down, but I cannot find the control switch that stops the intense observation and information sponging. :) But I do have enough control to redirect my games to something actually self serving. There is no strength in being dependent on others. The more independent I become, the more I can set my sights on new territories. As far as the last response you wrote, I cannot relate to that. I have no need for misplaced blame when I actively work to better myself. I have no need to punish others when I accept responsibility, and control the things I'm actually in control of. I'm trying to grow out of destruction and evolve. We'll see how I do.. At the very least, this is less boring than the same challenge-less tired games.

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    9. information sponging :)

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    10. nice reply, anonymous. the last response pertained to love frauders and their game.

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    11. But there's a lot of ego-masturbating parasites pretending they are hosts.

      :)

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  4. H aTE HAe hate ''''
    ''''
    ''''

    angry

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    Replies
    1. And apparently nobody gives a toss.

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