Market Manifesto

Let’s talk about the trader’s neme­sis, iso­la­tion — the prob­lems it caus­es, and the ben­e­fits that come from it.

Iso­la­tion is a nec­es­sary cor­rel­a­tive of trad­ing.

I’m not refer­ring to phys­i­cal iso­la­tion, though that is some­times nec­es­sary and use­ful. I’m talk­ing of men­tal iso­la­tion, inde­pen­dence, and sep­a­rate­ness.

The essence of trad­ing is inde­pen­dence. A trad­er must make deci­sions that are inde­pen­dent of and out­side of the com­mon way of think­ing. He or she can­not afford to make the same deci­sions that every­one else makes.

It stands to rea­son, real­ly.

If we are aggres­sive and are play­ing the game to the fullest, we take posi­tions at the extremes, oppo­site of the crowd. When most peo­ple are scream­ing bulls, we step up and sell, pre­cise­ly at that point when the trend runs out of steam. When the world thinks the future is going to hell in a hand-bas­ket, we are will­ing buy­ers at the bot­tom, and look for things to turn and get bet­ter in short order.

Even if we are more con­ser­v­a­tive play­ers, and wait for oth­ers to break the path before we ven­ture into the trade, we need to be able to think for our­selves, inde­pen­dent­ly of oth­ers. Even if we wish to trade with­in the trend and look to stand in the midst of the crowd as it ener­gizes the trend and moves as one all in one direc­tion or anoth­er, we need to know what is hap­pen­ing to be able to take advan­tage of the move­ment. We need to be aware of what is hap­pen­ing at all times, and we can­not be aware if our thoughts and our actions are exact repli­cas of the con­sen­sus opin­ions sur­round­ing us.

This is hard­er than it might at first seem.

Many if not most peo­ple believe that they think for them­selves. They would be angry and offend­ed if the sug­ges­tion were made that they don’t. Most peo­ple believe they have free­dom of thought and action, and can decide things as they wish and take what­ev­er action they desire at any time. Indeed they hold these free­doms of thought and action as among their deep­est eth­i­cal and philo­soph­i­cal val­ues. They believe that they assess ratio­nal­ly and freely all infor­ma­tion offered up to them through the media and through con­ver­sa­tions with their peers and by their own obser­va­tions. They believe that after they care­ful­ly con­sid­er all the infor­ma­tion avail­able, they take action or with­hold from action, as they choose.

But for the vast major­i­ty of peo­ple on this plan­et – and this includes most if not all of the peo­ple that you are like­ly to encounter in nor­mal soci­ety — this belief in per­son­al inde­pen­dent think­ing is an illu­sion, plain and sim­ple.

The real­i­ty of the sit­u­a­tion is very dif­fer­ent. Instead of think­ing and assess­ing inde­pen­dent­ly, most peo­ple think by imi­ta­tion, if they think at all. They adopt opin­ions they have heard else­where, and they imi­tate peo­ple they respect, admire, regard as pow­er­ful or suc­cess­ful, or oth­er­wise look up to. Thoughts and opin­ions are not assessed inde­pen­dent­ly but float­ed as tri­al bal­loons to peer groups and oth­ers to see if the thoughts or opin­ions are accept­able. Opin­ions are adopt­ed as truth only if a suf­fi­cient num­ber of peo­ple with accept­able char­ac­ter­is­tics endorse the view. What pass­es for inde­pen­dent opin­ion is fre­quent­ly mere­ly the accept­ed opin­ion of a close sub­group of soci­ety, that is, our friends and asso­ciates and peo­ple who share sim­i­lar con­cerns as we do.

True inde­pen­dent think­ing is actu­al­ly rather rare.

The true inde­pen­dent thinker is con­stant­ly test­ing ideas, obser­va­tions and opin­ions again the oppo­site ideas and opin­ions. He or she engages in a dialec­tic that is con­stant­ly ask­ing ques­tions. When con­front­ed with an opin­ion the response is apt to be: “Oh? That’s inter­est­ing. And what is that based upon? And what does the oppo­site point of view say?”

The inde­pen­dent thinker is imme­di­ate­ly skep­ti­cal of all sources of infor­ma­tion that are fil­tered through anoth­er mind, and most espe­cial­ly of obser­va­tions and opin­ions fil­tered through the media. Why so? The elec­tron­ic media giants depend for their very exis­tence on the accept­abil­i­ty of their opin­ions and inter­pre­ta­tions of events to a large num­ber of peo­ple, i.e., to the crowd.

Yet it is to true inde­pen­dence of mind that the trad­er aspires. (We say aspires because we know that true inde­pen­dence is a trait which we can only approx­i­mate. As long as we are human we will seek com­mu­ni­ty and group mem­ber­ship and approval by those with whom we asso­ciate. These urges come with our mem­ber­ship in the human race, and they will inevitably reduce our abil­i­ty to think inde­pen­dent­ly. I like to believe I can think inde­pen­dent­ly and some of the time I can, but I am also very sus­cep­ti­ble to think­ing like oth­er mem­bers of my par­tic­u­lar herd. )

To make inde­pen­dent deci­sions, one has to have inde­pen­dence of mind. And this brings us back around to the idea of iso­la­tion. Inde­pen­dence of mind requires a cer­tain amount of men­tal iso­la­tion and some­times that means phys­i­cal iso­la­tion as well. Men­tal iso­la­tion means the will­ing­ness and abil­i­ty to cut your­self off from oth­er opin­ions and input so as to enhance your own inde­pen­dent think­ing.

This runs counter to most intu­itive efforts to gain inde­pen­dence. The com­mon approach to inde­pen­dence is to gath­er in more and more infor­ma­tion, facts, and data. The wel­ter of data is con­fus­ing and so we find our­selves read­ing more and more opin­ions, in the hope that some­how the cor­rect inter­pre­ta­tion opin­ion will emerge from the mass. While this seems log­i­cal, a moment’s reflec­tion will show that this is just an elab­o­rate effort to devel­op the con­sen­sus opin­ion of the crowd, and car­ries no guar­an­tee of truth, and is in fact mere­ly an effort to reduce the dis­com­fort of coex­ist­ing with con­flict­ing opin­ions. The thought process is, “if I read all of this then I am sure that I will be right because look at how many peo­ple think this to be so.”

Try­ing to devel­op the right opin­ion by read­ing a lot of oth­er opin­ions is not an easy route to men­tal inde­pen­dence. It is root­ed in the desire for com­fort and the test for cor­rect­ness is how many peo­ple think the same way as you do. This is not inde­pen­dent think­ing.

To those who prac­tice men­tal iso­la­tion, the com­fort­ing warmth of crowd opin­ion has far less influ­ence. Because the inde­pen­dent thinker has habit­u­at­ed him­self or her­self to being alone, there is a free­dom from the desire to be accept­ed that can dra­mat­i­cal­ly enhance one’s abil­i­ty to think inde­pen­dent­ly.

The inde­pen­dent thinker also prac­tices iso­la­tion from the most sub­tle and per­verse source of cor­rupt­ing influ­ence – and that is one’s own emo­tion-flow. We can­not elim­i­nate our emo­tions but we can learn to dis­tance our­selves from them. We can devel­op men­tal iso­la­tion and learn to observe that por­tion of our­selves from afar when trad­ing. This is dis­so­ci­a­tion, and is not nec­es­sar­i­ly the per­fect way to live at all times but it does have some ben­e­fits for the trad­er. The indi­vid­ual who has learned to observe his own emo­tion­al life as well as the emo­tion­al ebb and flow of those around him and those reflect­ed in the mass media has tak­en a big step for­ward towards aware­ness. And aware­ness is the name of the game in trad­ing.

Men­tal iso­la­tion is an acquired skill and comes with a price-tag attached, in addi­tion to the high ben­e­fits that one can derive from this con­di­tion. The indi­vid­ual who has devel­oped men­tal iso­la­tion and who is free from the need for approval from the crowd, will find that he or she often makes oth­er peo­ple uncom­fort­able. The sense of group mem­ber­ship is such a pow­er­ful touch­stone for most peo­ple that when it is removed or threat­ened, most feel uneasy, at sea, with­out direc­tion, and imme­di­ate­ly take steps to restore a sense of sol­id secu­ri­ty.

If iso­la­tion is help­ful for a trad­er, and can bring him or her con­sid­er­able rich­es, it does not come for free. Men­tal iso­la­tion has costs attached. Lone­li­ness can be one con­se­quence. (Though we has­ten to add that men­tal iso­la­tion does not mean iso­la­tion from inti­mate friend­ships and per­son­al rela­tion­ships, though there may be some effects on these rela­tion­ships. It helps to pick friends that are also inde­pen­dent thinkers, or who at least appre­ci­ate that qual­i­ty in you. )

Why is this so?

When we are cut off from the group we can­not par­tic­i­pate in the warmth, and the car­ing, and the secu­ri­ty of the pack. We have free­dom but it is not the free­dom with­out respon­si­bil­i­ty that can be found in the heart of the true crowd.

Men­tal iso­la­tion can be hard to devel­op. It has many ene­mies, most of which are root­ed in the need for approval. The trad­er who stands apart from the crowd may find him­self want­i­ng to preach to the mass­es, for exam­ple, or to be rec­og­nized as an expert or as a par­tic­u­lar­ly suc­cess­ful trad­er. This seek­ing of approval and applause from the crowd can be destruc­tive to one’s men­tal inde­pen­dence. A good trad­er will mon­i­tor this urge care­ful­ly.

Two of the more inter­est­ing ene­mies of iso­la­tion are cov­etous­ness and envy, clas­sic sins that raise their heads from time to time.

When we cov­et that which oth­ers have, we want their things, their rela­tion­ships, their sta­tus, and their sit­u­a­tion. We wish we could make them our own – not by earn­ing it but by mag­i­cal­ly trans­fer­ring the own­er­ship to our­selves, sort of as if it were already our own. The thought some­how is if we could only get this pos­ses­sion or that pos­ses­sion then we would also get with it the taste, stature, repute, secu­ri­ty and accep­tance that we imag­ine that the own­er has. In short, we want to be accept­ed.

But to cov­et is not to want to acquire a pos­ses­sion by work­ing hard, mak­ing a lot of good trades, earn­ing the mon­ey and going out and buy­ing a copy of the pos­ses­sion for our­selves. No, that is imi­ta­tion, which also is a dan­ger to inde­pen­dent think­ing, but is not the same as cov­etous­ness, where we wish to take the cov­et­ed object over and to have own­er­ship mag­i­cal­ly trans­ferred by wish alone. I see my neighbor’s new car and I want it! I see my neigh­bor dri­ving the car with his pret­ty new wife and I envy him, I want to be like him.

These emo­tions make iso­la­tion dif­fi­cult. They dri­ve us out of iso­la­tion and towards com­mu­ni­ty, by feed­ing our desire for imi­ta­tion and affil­i­a­tion.

Iso­la­tion can be a dif­fi­cult state to main­tain. Why do we both­er?

We both­er because men­tal iso­la­tion makes it much eas­i­er to see things clear­ly. We can do a much bet­ter job of ana­lyz­ing our own vision of the mar­ket if we do not hang on oth­ers opin­ions, do not pay atten­tion to the news or to finan­cial com­men­ta­tors, and do not let the pas­sive pro­pa­gan­da of tele­vi­sion take over our men­tal process­es. If we do, it will cre­ate in us the envy, and the cov­etous­ness, and the slav­ish adher­ence to group-think that is ram­pant in today’s soci­ety, and from the evi­dence, ram­pant in all record­ed human soci­eties.