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.

Thursday, March 22, 2012

Beating the market by trading like a sociopath (part 1)


I love money.  It’s so impersonal.  In a world where winning is the best thing, money is frequently how I keep score.  I don’t like spending it, necessarily.  Money doesn’t matter to me in itself.  I only like it because other people care about it a lot (more than almost anything else in the world).  Because they care about it so much, they will fight hard for it—against me or anybody else.  It makes the game very fun.  And although it is never high stakes on my part, it almost always is with whomever I am playing against.  I play because it’s a game.  Others play because it’s their life.  People are frequently ruined.

I have an incredibly green thumb for money.  I fully funded my retirement by the time I was 30 years old.  Since I started investing seriously in 2004, I have averaged a 9.5% return in the stock market—257% better than the average returns of the S&P 500 over the same period of 3.7%.  It’s sick how well I do trading stocks.  Beating the market this soundly and consistently is unheard of and many argue it is impossible (or due solely to luck).  In 2011, only 4 out of 5 mutual fund managers beat the market, and only a handful of individuals have managed to do so with any regularity. One Forbes article (“Why Smart People Fail to Beat the Market") put it this way “There are only two ways to beat the stock market in the long-term, net of expenses: one, trade on superior information; two, be lucky.” (Unfortunately, the efficient market hypothesis holds that all available information about a company’s future prospects are already widely known and reflected in the price of a stock,  so that just leaves one way to beat the market.  The one exception is so-called insider information, which is largely illegal to trade upon.).

But I am not trading on better knowledge.  I am a relatively unsophisticated investor.  Instead, I am trading on a special vision.

Tuesday, March 20, 2012

Disarming

I often tell my friends that I believe my smile to be preternaturally disarming.  It's distractingly perfect, but there is also a perfectly logical explanation for why it's there -- I am happy or pleased or charming or all three. It's effectiveness lies in its innocence, getting people to put their guard down and allowing me to have relatively free reign with them.  That is the point of any disarming.

I primarily practice psychological disarming, but I was sent this video by a reader.  Although it is directed at the physical disarming realm, I believe it is a good allegory for psychological disarming (distraction, plausible alternative explanation, timing, etc).



Reading the original comments on the YouTube page is also entertaining.  For instance:

"This is awful advice. Someone pointing a gun at you is either going to shoot you, or they are using it to rob you. If they are going to shoot you, they wont wait and stand around, they will shoot you as soon as they can. If they just want your stuff, hand over everything and be thankful that's all they wanted. This stuff could get someone killed."  

Just be thankful that's all they wanted?  This is sort of the advice I frequently give "victims" of sociopaths -- leave them alone.  I don't think I ever tell them to be "thankful that's all they wanted," though.  I find that sentiment to be rather depressing, or I should say indicative of a rather depressing existence.

Monday, March 19, 2012

Cat puppetmasters?

Thanks to @wordsmithatplay for giving me a heads up about the recent article in The Atlantic, "How Your Cat is Making You Crazy."  The gist is that a previously thought (relatively) benign cat parasite that infects as much as 50% of the population might change the infected personality to be either more introverted and risk seeking in male infectees, or more outgoing and social in female infectees.  There are fascinating implications for both free agency (cat puppetmasters? so argues a tongue in cheek "cat manifesto" from the NY Times), zombies, and (perhaps?) whether sociopaths can be made, at least in part?  The story is fascinating and alarming in a very exciting way.  Under the byline "Could tiny organisms carried by house cats be creeping into our brains, causing everything from car wrecks to schizophrenia?":

  • Starting in the early 1990s, he began to suspect that a single-celled parasite in the protozoan family was subtly manipulating his personality, causing him to behave in strange, often self-destructive ways. And if it was messing with his mind, he reasoned, it was probably doing the same to others.
  • The parasite, which is excreted by cats in their feces, is called Toxoplasma gondii (T. gondii or Toxo for short) and is the microbe that causes toxoplasmosis—the reason pregnant women are told to avoid cats’ litter boxes. Since the 1920s, doctors have recognized that a woman who becomes infected during pregnancy can transmit the disease to the fetus, in some cases resulting in severe brain damage or death. T. gondii is also a major threat to people with weakened immunity: in the early days of the AIDS epidemic, before good antiretroviral drugs were developed, it was to blame for the dementia that afflicted many patients at the disease’s end stage. Healthy children and adults, however, usually experience nothing worse than brief flu-like symptoms before quickly fighting off the protozoan, which thereafter lies dormant inside brain cells—or at least that’s the standard medical wisdom.
  • “There is strong psychological resistance to the possibility that human behavior can be influenced by some stupid parasite,” he says. “Nobody likes to feel like a puppet. Reviewers [of my scientific papers] may have been offended.”
  • What’s more, many experts think T. gondii may be far from the only microscopic puppeteer capable of pulling our strings. “My guess is that there are scads more examples of this going on in mammals, with parasites we’ve never even heard of,” says Sapolsky.
  • [Regarding his changed behavior]: he thought nothing of crossing the street in the middle of dense traffic, “and if cars honked at me, I didn’t jump out of the way.” He also made no effort to hide his scorn for the Communists who ruled Czechoslovakia for most of his early adulthood. “It was very risky to openly speak your mind at that time,” he says. “I was lucky I wasn’t imprisoned.” And during a research stint in eastern Turkey, when the strife-torn region frequently erupted in gunfire, he recalls being “very calm.” In contrast, he says, “my colleagues were terrified. I wondered what was wrong with myself.”
  • Flegr was especially surprised to learn, though, that the protozoan appeared to cause many sex-specific changes in personality. Compared with uninfected men, males who had the parasite were more introverted, suspicious, oblivious to other people’s opinions of them, and inclined to disregard rules. Infected women, on the other hand, presented in exactly the opposite way: they were more outgoing, trusting, image-conscious, and rule-abiding than uninfected wom

It's crazy how little we still know about human behavior and its roots.  But I guess some of our ignorance is intentional.  Who wants to admit that their identity is so ephemeral, vulnerable to a little cat parasite (just another reason that I am glad I have no fondness for animals).

Sunday, March 18, 2012

Mormon teen killer

A reader sent me this link to the recent sentencing of an 18 year old Mormon girl who as a 14 year old killed a nine year old neighbor.  At first I was a skeptic about her being a sociopath.  Maybe she is just a weird teenager who got caught up in the wrong crowd and started listening to Blood on the Dance Floor or something.  Ha.

But then I read the part about how she journaled about it:

During her two-day sentencing hearing, prosecutors referred repeatedly to an entry Bustamante wrote in her journal on Oct. 21, 2009 — the night of Elizabeth's death — in which she admitted to having just killed someone.

"I strangled them and slit their throat and stabbed them now they're dead," Bustamante wrote in her diary, which was read in court by a handwriting expert. "I don't know how to feel atm. It was ahmazing. As soon as you get over the 'ohmygawd I can't do this' feeling, it's pretty enjoyable. I'm kinda nervous and shaky though right now. Kay, I gotta go to church now...lol."

Bustamante then left for a youth dance at a Mormon church her family attended while hundreds of volunteers began a two-day hunt for the dead girl. Although she initially lied to authorities about Elizabeth's whereabouts, Bustamante eventually confessed to police and led them to Elizabeth's leaf-covered shallow grave.

"I gotta go to church now"?  Hm.  I'm so curious to hear her opinion on religion.  And she's female.  Such an interesting story.  

Happy sabbath Christians!
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