Brilliant Essay by Van Tharp on Beliefs

What Most of Us Believe Is Probably Not Very Useful

by Van K. Tharp Ph.D.

How human beings work has always fascinated me. I received my bachelor’s degree in psychology in the 1960s when the field of psychology was dominated by behaviorism. The mantra was "Understand the stimulation one receives and you can figure out the responses you'll get." I, however, found this idea limiting; I didn’t believe it showed how we really work.

I pursued a doctorate in biological psychology to go beyond behaviorism, but I found out that behaviorism dominated that field also: “Stimulate this part of the brain and notice the responses you get.” “Cut out another part and notice the differences.” It was more of the same! I wanted something more.

Upon graduating with my Ph.D., I discovered it’s easy to get published if you write a paper that agrees with the scientific community, with perhaps a slightly different take. But if your ideas are too different, then getting published is very difficult. I remember reading, The Structure of Scientific Revolutions, which helped me make sense of this phenomenon. It detailed progress in science and how that usually comes from someone outside of the primary area of research, usually with great resistance.

While working as a researcher, I came across Neurolinguistic Programming (NLP). How people thought and acted finally made a lot more sense to me after that. As I had suspected, thinking and behavior had nothing to do with stimulus-response relationships. I discovered that that anyone could learn to do what others did through the process of modeling. Modeling requires that you find successful people in a particular area and learn how they think and what they do. By finding the three common elements in these people's tasks, an NLP practitioner can model and teach the same process to other people. The ingredients (i.e., the sequence of our thinking), for those of you who have not read The Peak Performance Course, are beliefs, mental states, and mental strategies.

Over time, I've modeled trading, wealth accumulation, system development, position sizing™ strategies, and even how top brokers perform. And I came to the conclusion that most people believe the opposite of what is necessary for success.

As an example, let's look at a few of the beliefs of mainstream versus successful traders.

Old Belief/Mainstream	New Belief/Success Modeling	Area Modeled
Learn how to pick stocks well.	Understand reward-to-risk ratios.	Trading
Asset allocation and diversification are critical.	You achieve your objectives through position sizing strategies.	Position Sizing Strategies
There is a magic system.	You need trading systems that fit you and the current market type.	System Development
Winning the money game amounts to having a lot of money.	When your passive income is greater than your expenses, you are infinitely wealthy.	Wealth
Analyze the markets well.	Analyze yourself well.	Trading
Risk it all under the right conditions.	Find a position sizing strategy that fits your objectives.	Position Sizing Strategies
Find high probability entries and setups.	You make money through your exits.	System Development
You can afford it if the down payment and the monthly payments are small.	What you own tends to eat you financially.	Wealth

I could go on and on, but you get the idea. Remember: you don’t trade the markets, you trade your beliefs about the markets.

After many years of study, it’s obvious to me that beliefs create your reality. It's as if the movie, The Matrix, has come true. Society tends to program you with certain beliefs, most of which are not true, at least as measured by their impact on success. Thus, taking the "red pill" amounts to determining how you shape your reality with your beliefs, which allows you to discover beliefs that are not useful and then reprogram yourself to have more useful beliefs.

As I began to understand the impact of beliefs, I also learned about belief hierarchies, which indicate that certain types of beliefs carry significantly more weight than others. Beliefs about yourself tend to be very influential as they determine your sense of "who you are." Beliefs about the universe tend to be even more important because they shape your reality. For example, if you believe the universe is a friendly place, you are open to everything because you are not afraid. If you believe that the universe is a dangerous place, you'll isolate yourself and build defenses to protect yourself.

When I studied psychology as an undergraduate, psychology was trying to be a science. In fact, it was modeling itself after Newtonian physics even though quantum physics as a general model had already displaced Newtonian physics. I pursued my Ph.D. 40 years ago so I recently spoke to a new psychology graduate to determine if the study of psychology had changed much since then. My first question was "Is psychology still trying to prove itself to be a science?" Her response: "Oh, we are a science." That response prompted me to check some of their assumptions, so I asked, "Are you taught that our beliefs shape our reality?" She responded, “Oh, I don’t believe that.” I didn’t bother to ask any more questions; nothing has changed.

The Belief Examination Paradigm

Since beliefs create our reality, I have a general set of questions you should ask yourself when examining your beliefs that I call the Belief Examination Paradigm.

1.    “Where did the belief come from?” It’s often useful to know how you came to have a particular belief.

2.    “What does that belief get me into?” And you should be able to list about 10 things that happen when you have the belief.

3.    “What does that belief get me out of?” Most people have trouble with this because they are stuck in the belief. Another way of saying it might be, “Who would I be without this belief?”

4.    “Is the belief useful?” and “Does it have charge?” If it’s not useful and doesn’t have charge, it is easy to change the belief. If, however, the belief does have charge, you must release the charge before you can change the belief.

It used to be hard for many people to change their beliefs. But people’s level of awareness has increased dramatically over the last 20 years and now most people can understand, for example, how some of the old trading beliefs in the above table are not nearly as useful as the new beliefs.

Let’s go a little deeper. What happens to you when you wear a belief? Here is an example of a belief that a trader might have:

“I’d be a great investor if I could just pick stocks like Warren Buffet.”

Let's run it through the Belief Examination Paradigm.

Belief Examination Paradigm

1. Who gave it to me?

a. Probably the media or the titles of various books. It’s what’s taught generally about investing: Warren Buffet is the world’s greatest investor. He’s a stock picker, so in order to be great, I need to pick great stocks, too.

Is there evidence for it?

b. Well, there are a lot of books promoting this concept. And Warren Buffet is a great stock picker… according to these books.

2. What does it get me into?

a. It gets me into trying to pick stocks.
b. It gets me into reading books about how to pick stocks.
c. It gets me into finding good criteria to pick stocks.
d. It gets me into wanting to be like Warren Buffet.
e. It gets me into buying Berkshire Hathaway stock so I can go to the annual meeting and hear Warren Buffet speak.
f. It gets me into thinking there is a magic formula for picking stocks.
g. It gets me into watching “stock picking” shows on the financial news media network.
h. It gets me into thinking that when someone’s picks don’t work out that he is a poor stock picker.
i. It gets me into thinking that I’m a poor stock picker because most of mine don’t work out.

I could go on and on, but you get the picture. Now let’s look at the third question.

3. What does it get me out of?

a. It gets me out of looking at what else might be important to trading:

i. me
ii. exits
iii. position sizing strategies
iv. reward-to-risk ratios

b. It gets me into thinking that Warren Buffet is a total genius and out of looking at his failures.
c. It gets me out of thinking short term.
d. It gets me out of thinking, “How would I know if I were wrong about this position?”
e. It gets me out of critical thinking.

Again, I could keep going. Most people have a lot of trouble with this question because they have trouble stepping out of themselves and seeing what life might be like without the belief.

At this point, you would answer the last question one of two ways: ”Yes, it is useful,” if you think that stock picking has something to offer to success or “No, it’s not useful,” if you really realize that other factors are more important.

I’ve seen people take beliefs, that almost everyone else would recognize as limiting, and defend them with every ounce of energy that they have. It is that important for them to be right. So when I say one of my criteria for a good trader is the willingness to work themselves, what I’m looking for is an openness to examine everything, including rigid beliefs at the identity and spiritual level. And this doesn’t mean that they accept my beliefs, it simply means that they are open.

Personal Responsibility and the Belief Examination Paradigm

I’ve always said that personal responsibility is the most important trait any trader can have because personal responsibility gives you the power to improve. However, there are many levels to this.

At the first level, personal responsibility means that you are responsible for your reactions to whatever happens to you. For example, you might notice that you get angry when the market does X. Well, not every trader gets angry when the market does X and that probably isn’t a useful response. When you are able to accept this, you can use the techniques we teach to change your beliefs and mental states.

At the second level, personal responsibility means that you create your reality through your beliefs and emotions. This idea has been around throughout history and it’s been recently popularized through Rhonda Byrne’s The Secret. If you take personal responsibility to this level, you literally believe you create your own reality. And obviously, if you realize this (and believe it), then you can create an amazing reality. And if you believe that you don’t, then you won’t, which means that you did. (That, by the way, is a paraphrase of one of my favorite quotes from Harry Palmer and it really fits here). Can you notice how important the word "belief" becomes in this context?

At the next level, if you believe that we do create our own reality through our beliefs and thoughts and emotions, then also we do this collectively in our cultures and societies. The reality we create is a collective illusion—one that is full of separateness and judgment. At their core, every spiritual path recognizes this illusory world.

Quantum physics offers an intriguing idea for this level—there is no difference between matter and energy (i.e., E = MC2). The universe is an unlimited field of pure potential through which creation happens. Neo came to understand the possibilities of this idea at the end of The Matrix when he suddenly realized that he could go “beyond the Matrix.”

When you begin to take personal responsibility to this level, all sorts of changes happen. You take trading to another level and at the same time trading itself does not even matter. But that’s another story.

I’d like to conclude with an excerpt from a beautiful PowerPoint full of quotes from A Course in Miracles. It’s called Jewels: http://www.youtube.com/watch?v=vzGFvb-IjuY

Part if of it goes as follows:

The oneness of the Creator and creation is your wholeness, your sanity, and your limitless power. This limitless power is God’s gift to you because IT IS what you are. If you dissociate your mind from it, you are perceiving the most powerful force in the universe as weak, because you do not believe you are a part of it.

If you have trouble taking personal responsibility to this level, then “you are perceiving the most powerful force in the universe as weak, because you do not believe you are a part of it.” And you don’t even have to believe that, at least for now. You just need to be open to the possibility.

About the Author: Trading coach, and author, Dr. Van K. Tharp is widely recognized for his best-selling books and his outstanding Peak Performance Home Study program—a highly regarded classic that is suitable for all levels of traders and investors. You can learn more about Van Tharp at www.iitm.com.  

 

ONE of MY GURUS

I have been following Dr Van Tharp for years, he is one of my gurus, and I was lucky enough to do one of his workshops, one of the most spiritual insightful courses I have ever been on. Talk about getting emotionally exposed in a group environment like none other I have been on, hey and I am an open guy.

 

What Most of Us Believe Is Probably Not Very Useful

by Van K. Tharp Ph.D.

How human beings work has always fascinated me. I received my bachelor’s degree in psychology in the 1960s when the field of psychology was dominated by behaviorism. The mantra was "Understand the stimulation one receives and you can figure out the responses you'll get." I, however, found this idea limiting; I didn’t believe it showed how we really work.

I pursued a doctorate in biological psychology to go beyond behaviorism, but I found out that behaviorism dominated that field also: “Stimulate this part of the brain and notice the responses you get.” “Cut out another part and notice the differences.” It was more of the same! I wanted something more.

Upon graduating with my Ph.D., I discovered it’s easy to get published if you write a paper that agrees with the scientific community, with perhaps a slightly different take. But if your ideas are too different, then getting published is very difficult. I remember reading, The Structure of Scientific Revolutions, which helped me make sense of this phenomenon. It detailed progress in science and how that usually comes from someone outside of the primary area of research, usually with great resistance.

While working as a researcher, I came across Neurolinguistic Programming (NLP). How people thought and acted finally made a lot more sense to me after that. As I had suspected, thinking and behavior had nothing to do with stimulus-response relationships. I discovered that that anyone could learn to do what others did through the process of modeling. Modeling requires that you find successful people in a particular area and learn how they think and what they do. By finding the three common elements in these people's tasks, an NLP practitioner can model and teach the same process to other people. The ingredients (i.e., the sequence of our thinking), for those of you who have not read The Peak Performance Course, are beliefs, mental states, and mental strategies.

Over time, I've modeled trading, wealth accumulation, system development, position sizing™ strategies, and even how top brokers perform. And I came to the conclusion that most people believe the opposite of what is necessary for success.

As an example, let's look at a few of the beliefs of mainstream versus successful traders.

Old Belief/Mainstream	New Belief/Success Modeling	Area Modeled
Learn how to pick stocks well.	Understand reward-to-risk ratios.	Trading
Asset allocation and diversification are critical.	You achieve your objectives through position sizing strategies.	Position Sizing Strategies
There is a magic system.	You need trading systems that fit you and the current market type.	System Development
Winning the money game amounts to having a lot of money.	When your passive income is greater than your expenses, you are infinitely wealthy.	Wealth
Analyze the markets well.	Analyze yourself well.	Trading
Risk it all under the right conditions.	Find a position sizing strategy that fits your objectives.	Position Sizing Strategies
Find high probability entries and setups.	You make money through your exits.	System Development
You can afford it if the down payment and the monthly payments are small.	What you own tends to eat you financially.	Wealth

I could go on and on, but you get the idea. Remember: you don’t trade the markets, you trade your beliefs about the markets.

After many years of study, it’s obvious to me that beliefs create your reality. It's as if the movie, The Matrix, has come true. Society tends to program you with certain beliefs, most of which are not true, at least as measured by their impact on success. Thus, taking the "red pill" amounts to determining how you shape your reality with your beliefs, which allows you to discover beliefs that are not useful and then reprogram yourself to have more useful beliefs.

As I began to understand the impact of beliefs, I also learned about belief hierarchies, which indicate that certain types of beliefs carry significantly more weight than others. Beliefs about yourself tend to be very influential as they determine your sense of "who you are." Beliefs about the universe tend to be even more important because they shape your reality. For example, if you believe the universe is a friendly place, you are open to everything because you are not afraid. If you believe that the universe is a dangerous place, you'll isolate yourself and build defenses to protect yourself.

When I studied psychology as an undergraduate, psychology was trying to be a science. In fact, it was modeling itself after Newtonian physics even though quantum physics as a general model had already displaced Newtonian physics. I pursued my Ph.D. 40 years ago so I recently spoke to a new psychology graduate to determine if the study of psychology had changed much since then. My first question was "Is psychology still trying to prove itself to be a science?" Her response: "Oh, we are a science." That response prompted me to check some of their assumptions, so I asked, "Are you taught that our beliefs shape our reality?" She responded, “Oh, I don’t believe that.” I didn’t bother to ask any more questions; nothing has changed.

The Belief Examination Paradigm

Since beliefs create our reality, I have a general set of questions you should ask yourself when examining your beliefs that I call the Belief Examination Paradigm.

1.    “Where did the belief come from?” It’s often useful to know how you came to have a particular belief.

2.    “What does that belief get me into?” And you should be able to list about 10 things that happen when you have the belief.

3.    “What does that belief get me out of?” Most people have trouble with this because they are stuck in the belief. Another way of saying it might be, “Who would I be without this belief?”

4.    “Is the belief useful?” and “Does it have charge?” If it’s not useful and doesn’t have charge, it is easy to change the belief. If, however, the belief does have charge, you must release the charge before you can change the belief.

It used to be hard for many people to change their beliefs. But people’s level of awareness has increased dramatically over the last 20 years and now most people can understand, for example, how some of the old trading beliefs in the above table are not nearly as useful as the new beliefs.

Let’s go a little deeper. What happens to you when you wear a belief? Here is an example of a belief that a trader might have:

“I’d be a great investor if I could just pick stocks like Warren Buffet.”

Let's run it through the Belief Examination Paradigm.

Belief Examination Paradigm

1. Who gave it to me?

a. Probably the media or the titles of various books. It’s what’s taught generally about investing: Warren Buffet is the world’s greatest investor. He’s a stock picker, so in order to be great, I need to pick great stocks, too.

Is there evidence for it?

b. Well, there are a lot of books promoting this concept. And Warren Buffet is a great stock picker… according to these books.

2. What does it get me into?

a. It gets me into trying to pick stocks.
b. It gets me into reading books about how to pick stocks.
c. It gets me into finding good criteria to pick stocks.
d. It gets me into wanting to be like Warren Buffet.
e. It gets me into buying Berkshire Hathaway stock so I can go to the annual meeting and hear Warren Buffet speak.
f. It gets me into thinking there is a magic formula for picking stocks.
g. It gets me into watching “stock picking” shows on the financial news media network.
h. It gets me into thinking that when someone’s picks don’t work out that he is a poor stock picker.
i. It gets me into thinking that I’m a poor stock picker because most of mine don’t work out.

I could go on and on, but you get the picture. Now let’s look at the third question.

3. What does it get me out of?

a. It gets me out of looking at what else might be important to trading:

i. me
ii. exits
iii. position sizing strategies
iv. reward-to-risk ratios

b. It gets me into thinking that Warren Buffet is a total genius and out of looking at his failures.
c. It gets me out of thinking short term.
d. It gets me out of thinking, “How would I know if I were wrong about this position?”
e. It gets me out of critical thinking.

Again, I could keep going. Most people have a lot of trouble with this question because they have trouble stepping out of themselves and seeing what life might be like without the belief.

At this point, you would answer the last question one of two ways: ”Yes, it is useful,” if you think that stock picking has something to offer to success or “No, it’s not useful,” if you really realize that other factors are more important.

I’ve seen people take beliefs, that almost everyone else would recognize as limiting, and defend them with every ounce of energy that they have. It is that important for them to be right. So when I say one of my criteria for a good trader is the willingness to work themselves, what I’m looking for is an openness to examine everything, including rigid beliefs at the identity and spiritual level. And this doesn’t mean that they accept my beliefs, it simply means that they are open.

Personal Responsibility and the Belief Examination Paradigm

I’ve always said that personal responsibility is the most important trait any trader can have because personal responsibility gives you the power to improve. However, there are many levels to this.

At the first level, personal responsibility means that you are responsible for your reactions to whatever happens to you. For example, you might notice that you get angry when the market does X. Well, not every trader gets angry when the market does X and that probably isn’t a useful response. When you are able to accept this, you can use the techniques we teach to change your beliefs and mental states.

At the second level, personal responsibility means that you create your reality through your beliefs and emotions. This idea has been around throughout history and it’s been recently popularized through Rhonda Byrne’s The Secret. If you take personal responsibility to this level, you literally believe you create your own reality. And obviously, if you realize this (and believe it), then you can create an amazing reality. And if you believe that you don’t, then you won’t, which means that you did. (That, by the way, is a paraphrase of one of my favorite quotes from Harry Palmer and it really fits here). Can you notice how important the word "belief" becomes in this context?

At the next level, if you believe that we do create our own reality through our beliefs and thoughts and emotions, then also we do this collectively in our cultures and societies. The reality we create is a collective illusion—one that is full of separateness and judgment. At their core, every spiritual path recognizes this illusory world.

Quantum physics offers an intriguing idea for this level—there is no difference between matter and energy (i.e., E = MC2). The universe is an unlimited field of pure potential through which creation happens. Neo came to understand the possibilities of this idea at the end of The Matrix when he suddenly realized that he could go “beyond the Matrix.”

When you begin to take personal responsibility to this level, all sorts of changes happen. You take trading to another level and at the same time trading itself does not even matter. But that’s another story.

I’d like to conclude with an excerpt from a beautiful PowerPoint full of quotes from A Course in Miracles. It’s called Jewels: http://www.youtube.com/watch?v=vzGFvb-IjuY

Part if of it goes as follows:

The oneness of the Creator and creation is your wholeness, your sanity, and your limitless power. This limitless power is God’s gift to you because IT IS what you are. If you dissociate your mind from it, you are perceiving the most powerful force in the universe as weak, because you do not believe you are a part of it.

If you have trouble taking personal responsibility to this level, then “you are perceiving the most powerful force in the universe as weak, because you do not believe you are a part of it.” And you don’t even have to believe that, at least for now. You just need to be open to the possibility.

About the Author: Trading coach, and author, Dr. Van K. Tharp is widely recognized for his best-selling books and his outstanding Peak Performance Home Study program—a highly regarded classic that is suitable for all levels of traders and investors. You can learn more about Van Tharp at www.iitm.com.  

 

WE R SO VERY CLOSE

http://1.bp.blogspot.com/_TwUS3GyHKsQ/TRE9141YW4I/AAAAAAAAITU/oEHQq7IqSoc/s1600/spxdaily.png

 

TRADING THE BIG ONE

“Do you have the mental fortitude to accept huge gains?”

“This comment usually gets a hearty laugh, which merely goes to show how little most people have determined it

actually to be a problem. But consider how many times has the following sequence of events occurred? For a full year,

you trade futures contracts, making $1000 here, losing $1500 there, making $3000 here and losing $2000 there. Once

again, you enter a trade because your (trading) method told you to do so. Within a week, you’re up $4000. Your

friend/partner/acquaintance/broker/advisor calls you and, looking out only for your welfare, tells you to take your

profit. You have guts, though, and you wait. The following week, your position is up $8000, the best gain you have

ever experienced. ‘Get out!’ says your friend. You sweat, still hoping for further gains. The next Monday, your

contract opens limit (down) against you. Your friend calls and says, ‘I told you so. You got greedy. But hey, you’re still

way up on the trade. Get out tomorrow.’ The next day, on the opening, you exit the trade, taking a $5000 profit. It’s

your biggest profit of the year, and you click your heels, smiling gratefully, proud of yourself. Then, day after day for

the next six months, you watch the market continue to go in the direction of your original trade. You try to find

another entry point and continue to miss. At the end of six months, your method finally, quietly, calmly says, ‘Get out.’

You check the figures and realize that your initial entry, if held, would have netted $450,000.”

“So what was your problem? Simply that you had allowed yourself, unconsciously, to define your ‘normal’ range of

profit and loss. When the big trade finally came along, you lacked the self esteem to take all it promised . . . who were

you to shoot for such huge gains? Why should you deserve more than your best trade of the year? Then you

abandoned both (trading) method and discipline. To win the game, make sure that you understand why you’re in it.

The big moves in markets only come once or twice a year. Those are the ones which will pay you for all the work, fear,

sweat, and aggravation of the previous years. Don’t miss them for reasons other than those required by your

objectively defined method. The IRS categorizes capital gains as ‘unearned income,’ that’s baloney. It’s hard to make

money in the market. Every time you make, you richly deserve. Don’t ever forget that.”

. . . Robert Prechter – the Elliott Wave Theorist (1992)

QUOTE OF THE DECADE GOES TO ..

Ben Bernanke back on October 31, 2007 (when the housing and subprime crisis were going to be “contained” — remember that one?):

“It is not the responsibility of the Federal Reserve - nor would it be appropriate — to protect lenders and investors from the consequences of their financial decisions.”

FED WATCHING

I think Bob Prechter says it best

The latest book everyone is raving about.

Absolutely loved this account, memo to self by this book.

 

A Day In The Life

Hedge funds are an emotional experience

EXTRACTED FROM MONEY MAVERICKS: CONFESSIONS OF A HEDGE FUND MANAGER BY LARS KROIJER

October 2010

The following represents my experience of a typical day as a hedge fund manager.

6.15am
Wake up. I am using my mobile as alarm clock and since it is in the charger 10 feet away, the snooze button is out of reach. Swiped alarm clock off the night table a while back and broke it. Those who say you get used to the early mornings are filthy liars.

6.35am
Leave home for a brisk walk from Notting Hill to Mayfair through the park. Often hope for rain so that in good conscience I can take an eight-minute £7 taxi ride to South Molton Street coffee shop for my espresso fix instead of walking, before heading to office.

7.10am
Arrive at Holte Capital. Turn on my three computer screens and the world of finance springs into life. All the news sources are set up on my screens so I know within seconds what’s happening in the world and in the markets. Our stocks have tickers entered so flashes will appear if there is any news on them. Within a few minutes I will have an idea of what is going on including checking subject lines of emails from brokers. Nothing. So could have stayed in bed longer. Good joke from friend with link to YouTube which I check out when nobody sees me doing it.

7.50am
Contact our trader to send orders that we want to work today in case they reach the prices we are looking for. Settle down to read a large industry report on oil rigs that I have been looking forward to.

7.52am
Another phone call from broker to go over daily news, which I know already. I don’t need this, and tell him so.

8.00am
Opening auctions for most European markets.

8.07am
Trader tells me one of our stocks is acting funny. Up a lot on heavy volume. Both she and I start calling around to hear what is going on.

8.12am
Excellent. Up $1.2 million. Nice – at that rate I will be Bill Gates by the afternoon even if the profit is less than 0.5 per cent of our current AUM.

8.27am
Company that was up a lot denies local radio rumours that they will be taken over; they want to stay independent. Stock in freefall and I am pissed off that I missed an opportunity to sell some shares.

8.32am
Down $500K on the day now. Nothing good lasts forever – or in this case, more than 20 minutes. I try to go back to reading rig report in slight annoyed state, but phone keeps ringing with people trying to tell us that rumours of takeover are not true. Make a call to my contact at the company to hear if their tone has changed over being open for a takeover, but end up leaving a voicemail. He always told me that some of the other senior people seemed keen to cash out and I want to know if that has changed.

9.00am
Potential recruit John is here on time. We are trying to hire an analyst and this one has a decent résumé. I like him, especially his story about climbing Mount McKinley in Alaska, something I always wanted to do. Ask why he left his previous hedge fund and John tells me that although his performance was excellent, he quit because he and the portfolio manager wanted to focus on different things. Why does nobody ever admit to losing money or getting fired? I don’t catch him out on the bullshit story because he has some interesting trades he is talking about. Besides, I know John’s former boss and can get the real story if we move down the road with him. Doriana knocks on the glass walls of the conference room to gesture that I should take a call. I bid John goodbye and call in Alberto. Alberto is our pit bull who loves digging into the analytical skills of recruits. I get to play the nice guy and have Alberto find out if they can add and subtract or know how to do a cash flow analysis.

10.20am
Was I in there for over an hour? Must get more focused. I start going through the 15 emails that made it through the filter since I went into meeting and print out three reports to read later. Our trader Sarah asks if I want to change the limit on one of our trades since it is so close but we are getting nothing done. I tell her to use her best judgement. Also return call to our lawyer. He wanted to tell me about the latest tax planning scheme. I hear too many of those and thankfully have Brian to sort through them.

11.00am
We are just about flat for the day so every couple of seconds P&L is blinking with a small black number to say we are up, then with red numbers to say we are losing money. Black – red – red – black – black. It can become hypnotic. I turn off the automatic update function on my computer and now it will only recalculate the P&L when I hit F9. I still hit F9 much too often. Only on page seven of the rig report which is 42 pages long, but now I am making progress.

11.30am
Leave for noon lunch in the City with company management for Dutch IT provider. I am heading there with Andy, a friend who works at a large US fund in Mayfair. We chat about trades in the taxi and discuss the crazy housing bubble in London. Something is going to have to give and I would not want to own a mortgage bank when it does. Lunch is near the top floor of Tower 42, one of the tallest buildings in London. It has a beautiful view south across the River Thames and all the way to green hills where the world of finance does not dominate every second of the day. I recognise a couple of faces and we nod acknowledgement. The CEO basically reads from the presentation and some of the guests have a hard time staying awake, including me. I should have had them come to our offices, but I sometimes like going to the group lunches so I can hear the questions from other managers and see how management presents.

1.30pm
Back in the office. P&L now up $500K which is better, but does not rock my world.

1.35pm
Call Puk to tell her that I will not be home for dinner. She told me I had promised to have dinner with her and her mum who is visiting town. I say sorry and promise to make it up. ‘You always say that,’ she says.

2.10pm
Resume my rig report, but Oliver wants to talk about a new banking trade. If you eliminate the listed US and Polish units from Bank of Ireland, the remaining Irish domestic businesses trade much higher than their local competitors despite a very similar business profile. We could short Bank of Ireland, go long the two subsidiaries and the cheaper Irish competitors to lock in the spread. Sounds interesting, but Oliver has been on a bad run of losing trades and I need to look at this more closely before committing. ‘But it is at such good levels now,’ he says, still standing by my desk. I stall him again, then wonder whether I should go through Oliver’s analysis before finishing my rig report. I don’t want him to think I’m ignoring him.

2.46pm
I have a headache and try to kill it with my fifth coffee of the day. I can’t focus on my report and keep getting my semi-submersible oil rigs confused so I take a ten minute Internet ‘break’ and check out CNN and an interesting article in NY Times magazine. Bloomberg is great for that. Even if you are reading a Bloomberg article on football, the screen setup looks exactly the same as if you were reading work stuff and nobody can tell you are not working.

3.15pm
Analyst for one of our bigger investors calls for a quick update. Just wants to know what made and lost money last month so he can put it in his internal report. I worry slightly when he tells me that a lot of other funds did similarly to us last month. ‘We don’t want to correlate,’ I think. He tells us again that they would be keen for us to take more risk.

4.05pm
Zach, another of our analysts, tells me he is ‘200% certain’ that a German company will dividend out their large cash holding and that the resulting entity will be bought by Deutsche Telecom and that we should act now. A couple of days ago he was only 110% sure of something that did not happen, so 200% is clearly better. I once told him that I considered something 90–95% likely and he clearly understood that to mean a 50/50 chance. I enjoy making fun of each other over the way we express things, but get annoyed when it leads to misunderstandings in real probability calculations.

4.25pm
Closing auctions start. Quiet day, but we ended with a small $250K profit. Not quite a rounding error but close. There won’t be many trades for Doriana to book into the system, which is just as well as we have a cake surprise ready for her birthday. I doubt it will be a real surprise as she is normally the one to get the cake when it is somebody else’s birthday. Means I will have to skip my closing bell Starbucks run.

4.47pm
Sit down with one of the guys to discuss insurance trade. We have kept track of the portfolio of a UK insurance company and notice that the value of their investment portfolio has fallen far more than the value of the company. We study in detail the duration of their bond portfolio as we think there is a mismatch with the company’s longer-term insurance liabilities. We also note that they are involved with all sorts of default swaps that they have no business being involved in – typically a bad sign. We agree that there is a trade here at some point.

5.55pm
Brian asks me to sit in on a call with Morgan. Someone there says he has a philosophical issue with reducing a certain fee even if it is easy in practical terms. I tell him that I doubt Credit Suisse has philosophical or other issues with it and he reluctantly concedes the point. Probably a good thing we now have two competing prime brokers, even if it means our relationship will be less close.

6.30pm
Leaving the office to have drinks with a friend before dinner with a broker. I managed to read 32 pages of my rig report, which is better than some days. My friend is thinking about starting a hedge fund and tells me how he plans to raise $50 million through friends and family and then build a track record before going to $400 million and up from there. I am irritated by the implication that, ‘If you could do it then surely anyone can.’ If I had a dollar for every time someone has told me that exact plan...

7.45pm
I go back to the office to pick up the other guys and we go to dinner at a nice French restaurant with a Swiss broker who turns up 10 minutes after us. Why do these dinners always have to start at 8pm when most of us finish our work day at 6.30 or 7pm and are keen to get home on the early side? It’s almost as if the broker does not think we can have a good time unless we leave the restaurant around 11pm having drunk too much. Really nice guy though – knows how to keep conversation flowing easily. Brought along a couple of younger guys who are clearly being trained in client entertainment. Main guy talks about a couple of trades, but those we are interested in we already know much better than the 30-second spin he gives us, and the rest are not really what we are looking for. Worth a try though.

11.30pm
Home in bed. Fall asleep before I hit the pillow.

The above account represents a hypothetical composite day, drawn from real experiences. While it gives, I believe, a realistic flavour of the daily Holte Capital routine, it fails to convey that one of the great things about running a hedge fund was enjoying the diversity of challenges that each day brought. And it only hints at the higher personal costs. When my wife Puk gave birth to our twin girls, Anna and Sofia, in December 2004, I was back at my desk within 48 hours and for the first three years of their lives I rarely saw them between the time we tucked them in on Sunday night and the moment we woke them the following Saturday morning. I left the house before they got up, and returned in the evening after they had gone to bed. Some Saturday mornings in the early days, my daughters would give me the puzzled look they would normally reserve for strangers, whereas friends of mine would proudly describe how close they were to their kids. Running a hedge fund was obviously a 24/7 proposition, but I was also guilty of being unable to disconnect. When we took our rare holidays I would constantly be on the computer to deal with some real or perceived crisis at the office. I would frequently find excuses to call in to hear what the daily P&L looked like. Eventually I decided that the best way to save me from myself was to go west for family holidays. In the Caribbean, the London trading day would be half done by the time we got out of bed in the morning and despite my best efforts to ruin my own holiday there were only so many hours left in the day to do so before the markets closed for the day. By contrast, if we were in Egypt or Dubai, Puk would comment on how I seemed absent-minded as we sat down to dinner – while I was thinking about the closing market auctions that would be going on right then.

Although the stress of running a hedge fund was unusually high during the week, the working hours were no longer than those of my peers from business school and I would rarely work weekends. Comparing this with my investment banker or consulting friends, the whole thing was really a bit of a breeze...right!

Despite the predictable sacrifices, I loved the freedom my job offered, and considered myself incredibly lucky. I did what I found interesting instead of being a cog in a corporate wheel where my time would effectively be allocated by others. I remember often laughing to myself at the stark contrast between my time at Holte Capital and my early days as an analyst in the dungeons of Lazard Frères when my typical day would go something like this:

8.30am
Turn up in your sharpest suit ready to be one of this generation’s masters of the universe. You hope nobody notices you are wearing the suit for the fifth day running.

If busy or caught not looking busy:

9am–11pm or later
Get screamed at by sadist superiors often out for revenge for the torture they endured while they were in your lowly position a couple of years ago. Make small formatting adjustments in the endless spreadsheets you produce at their pleasure. If I never see another 50-page Excel model with thousands of numbers in varying colours and shades again it will be too soon. Pressure slows when your immediate boss checks out around 10pm, his boss having checked out at 9.30pm, leaving you to complete ‘something we need for tomorrow’.

One night around midnight after about eight months at Lazard I was frantically trying to complete a spreadsheet. I knew the partner on the deal was waiting impatiently in his office. Twice already my phone had rung with the phone display screaming: ‘BRAD EVANS’. What it should really have said was ‘BRAD EVANS. ANGRY PARTNER. EATS BABIES FOR FUN’. He was not happy being kept in the office by a young analyst when he should have had an associate and vice-president buffering his exposure to my youth and inexperience. I finished the last part of the analysis, did a quick double-check and ran downstairs to present my work with the printout still warm in my hand. Brad took the analysis from me without uttering a word. He seemed content as he went over the numbers. Suddenly his demeanour changed to a dour expression and he pulled out his calculator. ‘Oh no,’ I thought, knowing what would come next. He circled a number with a fat blue pen and in pre-rage mode said between gritted teeth: ‘This number is wrong. You’ll need to do it again.’ ‘Sorry,’ I said. ‘There must be a bad link in my spreadsheet.’ ‘SORRY!?’ he yelled contemptuously, before screaming, ‘DON’T BE SORRY. BE RIGHT FOR FUCK’S SAKE. IF THAT NUMBER IS WRONG HOW DO I KNOW THAT ANY NUMBERS ARE RIGHT? THIS IS USELESS SHIT, LARS. BAD, BAD, BAD.’

At this point I was already leaving his office half-expecting him to hurl something at me. Ten feet from his office was where the night-shift word processing staff was sitting. Most of them were aspiring actors or musicians who took the job to pay the bills. A couple of them had been working on the supporting slides for our presentation. They all looked at me as I approached them after my verbal beating and the first guy I approached said, ‘Dude. Nothing can be worth that. He talked to you like you were a dog.’

Note to self: despite putting needles in voodoo dolls of my immediate bosses at the time, I can’t believe that some of those slave masters from the dark side are friends today . . .

If not busy:

Rule number 1: look busy

9am–6pm
Same shit. We did not yet have Internet access in 1994 so we could not surf the net. Bummer. One guy read War and Peace inside a research report.

6pm–7:30pm
Go to the gym. Leave your jacket on the chair so it looks like you have just stepped away for a moment and make sure your screensaver is deactivated. These were the premobile phone days so once you escaped the building you were safe.

7.30pm
Order food. Make sure you order with people who will be too busy to eat so you can use their dinner allowance and get yourself some nice sushi and the miniscule pyrrhic victory that comes with eating well alone in a dull conference room.

9pm
Order car. Take the fire escape stairs down a couple of floors so nobody sees you leaving the office early and thus avoid the 5pm call from the staffing person on Friday telling you that you have been put on a new project.

Lars Kroijer is the author of Money Mavericks: Confessions of a Hedge Fund Manager, published by Financial Times Prentice Hall

1.      

 

WHAT A RUN

From March 13, 1930 to the final high on April 17, 1930, the market was up on 21 of 26 straight days and never on two consecutives days. Over the last 38 sessions, the Dow has experienced consecutive daily declines just three times.

RE: [Dr Mickson] STOCKS FINALLY FEEL LIKE THEY ARE TOPPING OUT

 

RE: [Dr Mickson] STOCKS FINALLY FEEL LIKE THEY ARE TOPPING OUT

 

 

STOCKS FINALLY FEEL LIKE THEY ARE TOPPING OUT

Wow, has this been a tough market to be short. Every time we get some movement to the downside, it appears like this is it. Only to be bought and take out the false highs. This process can only go on for so long before the market tires. To add to this the macro front is looking ever vulnerable to a double dip so I stick to my knitting and say that I think this is it. We should see some property follow through in the weeks and months to come.

 

 

DAVID ROSENBERG COMMENT ON Q2 GDP NUMBERS

One more comment on Q2 — just to put 1.6% into context. Historically, four quarters following a bottom in GDP, growth is running over a 6% annual rate. Rejoicing over 1.6% because it wasn’t 1.4%, particularly in the context of the most radical bailout, monetary and fiscal stimulus in U.S. history, totally misses the point that we are operating in a totally abnormal and fragile economic environment.

FW: Seth Klarman ~ Quote of the Week

From Market Folly's blog site:

 

For Market Folly's quote of the week this time around, we turn again to legendary investor Seth Klarman. To put this quotation in context, keep in mind that Klarman often holds a large amount of cash on hand for when opportunities arise. Below, he touches on the battle between human emotion and rational thinking: "The overwhelming majority of people are comfortable with consensus, but successful investors tend to have a contrarian bent. Successful investors like stocks better when they're going down. When you go to a department store or a supermarket, you like to buy merchandise on sale, but it doesn't work that way in the stock market. In the stock market, people panic when stocks are going down, so they like them less when they should like them more. When prices go down, you shouldn't panic, but it's hard to control your emotions when you're overextended, when you see your net worth drop in half and you worry that you won't have enough money to pay for your kids' college." ~ Seth Klarman Since he brings up the notion of consensus views and so we want to make sure everyone had a chance to read this great piece outlining consensus versus variant perceptions in today's market. For more from the Baupost Group manager, check out Seth Klarman's recommended reading list as well as an in-depth profile of Klarman.

View article...

ALL HELL IS ABOUT TO BREAK LOOSE

It may not be today but the way the Elliott Waves are lined up at present we are about to enter a serious down phase. This is going to knock the wind out of the majority even though so many people are nervous about the markets.

MARKET TOP KIND OF NEWS

British Land and Blackstone sign deal to build UBS City headquarters
posted on Tuesday 3 Aug 2010 09:28 GMT From The Guardian - see full story
The Guardian reports: British Land and Blackstone are set to build a new office tower in the City to house the European headquarters of Swiss bank UBS. It will be one of the biggest buildings in London's financial district.

 

US REITs

It has been a long grind, but I believe the market is running out of momentum keeping things afloat.

Independent Trading: Pros & Cons

I think this is the best summary of what I do for a living.

 

Independent Trading: Pros & Cons

Sunday was "Independence Day" in the United States where we celebrate the birth of our country and declaring independence from Britain. It also got me to thinking, as I usually do on market holidays, how fortunate I am to be doing what I do for a living in this country. While America faces many, many challenges and uncertainties, I'm proud and happy I live here and thankful for the opportunities this country has provided me and my family!

In fact, there's probably no better time than the present to talk briefly about the pros and cons of being an "independent trader."

As someone who has worked independently for most of my professional career, you can say I place a tremendous value on "doing my own thing." As I've often said, at least for me it has been a combination of personal choice (what I want in both life and career) and also necessity (as I don't play well with others). Indeed, there are some tremendous positives for trading independently. After all, I wouldn't be doing this if there were not some significant advantages from doing so!

Here are a few things that first come to mind:

• As an independent trader, I set my goals and I'm in charge of my own destiny. I don't rely on any other person for how much money I make or how I make it. Other people's opinions of me are irrelevant to my own destiny. At the end of the day, bottom line trading results (not office politics) are all that matters.
• Most people in "normal jobs" don't have the opportunity to set out on their own and do something they really want and love to do and also make plenty of money doing it.
• I spend most of my time every day doing things I really like to do (trading, reading, researching, running screens & mentoring others). These are things I would do even if I were not paid to do them because it is what I like to do the most! Every day I plan my work on things I want to work on, not what others want me to work on. That level of professional autonomy is rare.
• The sense of accomplishment when you achieve success in the markets independently is unparalleled. There's nothing like finding and taking a good trade that produces lots of upside gain. This is especially true when that trade is unpopular and unforeseen by the herd.
• Through my research I've been able to learn about many things, many industries, many countries, and many people. At this point, I can have a conversation with just about anyone no matter what they do for a living or where they live because I know something we can probably talk about based on what I've learned and know about others.
• It is always interesting and I'm NEVER bored. It is so true there is no better drama on Earth than following and being a participant in the markets daily.
• There are no meetings. People, often in corporate America but in many walks of professional life, waste so much time on so many irrelevant things like business meetings. At least if I'm going to waste time, it will be something worth wasting it on!
• There is no commute or dress code. I fall out of bed at 5AM and go to work in shorts and a tee shirt. I don't have to dress up or even take a shower. In fact, I only own one dress suit and that's because I may have to go to an occasional funeral or wedding. Finally, I don't have to spend an hour or more in the car every day just going to and from work. That's a good way to live and work!
• I can live and trade from just about anywhere in the world. Although we have found a little slice of heaven living here in Southern Utah (Cedar City) where the people are nice, the weather is great, housing costs are low, plenty of excellent golf courses nearby, we have dozens of national parks for hiking within a day's drive, Vegas is not too far away, and so on - if and when we tire of it, we can move anywhere we want to and I can still earn a good living.
• Trading independently offers level of personal freedom that isn't present in most jobs. If I want a day off to play golf, help a friend, visit with family, I do it. I don't have to ask anyone for permission! However, offering a paid members-only website places some severe limitations on that freedom!

So, now I've talked about the positives, what are the downsides to trading independently?

While many people think I have a dream job and, in many ways I do, there's no career choice that doesn't also have its own set of unique negatives. Frankly, if most of you actually had to do what I do every day to reach your financial and career goals, I think quite a few of you would begin to question whether "trading for a living" is really the right way to go.

There are many misconceptions about trading out there primarily due to shady marketing practices by those who sell investment services and trading products. Many in this business unfortunately propagate to their own benefit the view that trading for a living is an easy way to get rich without any time or effort. The truth is that it can often be, and has been, a challenging career choice and one frankly that is less than ideal for many people I encounter.

As for the downsides, here are a few you should be familiar with if trading for a living is a career you seek:

• You've got to bring your A game to the table each and every day. There is no sitting in a cubicle playing solitaire, visiting with facebook friends, talking with others in the break room about fantasy football, etc. that is going to get the job done for you. Your efforts, whatever they may be, will be directly related to your bottom line returns!
• Past success means absolutely nothing. You are only as good as your next trade, your next week, your next quarter, etc. In addition, what you do next always has the potential to unravel whatever success you've acquired previously. Few careers offer you the potential for self-destruction so quickly the way trading for a living provides.
• The pressure to perform will create unbelievable amounts of negative stress and energy you'll have to deal with daily. Most people don't have to worry or fear that being wrong will cost them their paycheck. After all, just look at economists, bankers, and politicians!
• There will be little to no respect or understanding for what you do for a living. People will assume you're a "day trading gambler." Or, in my view, which is even worse, many idiots will express the view that they could also "trade for a living" if they decided to. This is true even in by those who've shown no consistent success in the markets on a "part-time basis."
• Working in isolation you'll often miss close human interaction and the lack of a competitive "team" like atmosphere. Also, building and holding outside friendships, especially for men later on in life, are often very difficult for those who don't meet a lot of people through their jobs.
• Sitting 12 hours a day every day at the computer will wreak havoc on your overall health and fitness. Many traders are overweight, have back issues, eyesight problems, etc.
• Like many highly skilled professions it requires constant education & learning. In many, but not all careers, once you've acquired a certain amount of skills and knowledge, little more is expected of you. In trading, you've got to always be in learning mode. In addition, what you think you know right now and what is working for you, will not someday in the future. That's the way of constant evolutionary state of the marketplace.
• You've got to be a jack of all trades. I've often said that if trading was the only thing I had to do, my life would be a whole lot easier. Instead, independent traders must spend time serving as their very own tax accountant and tech support guru. In my view, there's nothing worse than a hardware or software issue that takes you away from concentrating on the markets.
• There will be very long work days and work weeks. Those who say you can trade successfully in 10 minutes a week are liars and charlatans. Most independent traders put in between 50 to 60 hour work weeks and are considered "grinders" rather than trading "wizards." Remember, there are no holidays or weekends for professional independent traders - only more time to devote to charts, scans, research, and strategies!
• You've got to have money to make money. There are very high capital requirements involved in being an independent trader as it takes a lot of money set aside from your personal assets to produce a living wage for yourself and your family.
• Your "salary" will vary considerably based on things outside of your control like overall market conditions and how your strategy is in sync with the market. It is true, you'll make 90% of your income in 10% of your time. However, overhead costs will remain constant and there's nothing worse than having to grind out trades in an unreceptive market to "make the mortgage."
• Even when you make a lot of money and have experienced tremendous success, you've got to still live like a pauper. There are no golden parachutes, annual bonuses, etc. that are going to save you when you screw up in the future. And, trust me, you will screw up. You will make bad decisions. You will be on the wrong side of a trending market. It happens to everyone and it is never fun or profitable! Which is why when the sun is shining, we've got to always prepare for those future rainy days.
• Personal, family relationships can be difficult. Like most people, when things aren't going well, many will look for others to blame and take it out on their spouses and family members. Divorce rates are high among independent traders. The only way around that is to find endeavors that release this negative energy (like golf, hiking & daily exercise). In addition, I seldom see successful independent traders who don't also have a very strong family support structure in place. If your life is a mess, your trading will often be as well.
• Distractions at home will be both numerous and frequent. As independent traders who work from home, everyone else will think you can spare time for doing other things during the normal work day (i.e. like going to the grocery store, getting the house worked on, taking the cars in for repair, mowing the grass, taking kids to the doctor, doing laundry, etc.) In addition, there are things you'll want to do as well (like playing golf) when you should be looking through charts that are going to distract you constantly from achieving the results you desire.
• As an independent trader working a "zero sum game," nothing you do every day as a trader other than making money will be a benefit to others or society in general. While you will have plenty of opportunities to donate to charity in order to give back something, independent traders must work really hard at finding good and effective ways to make a "real difference" for other people. My late father once said to me that "when you die, the good Lord will ask you who on Earth you really helped freely and without personal gain. You better have a lot of names to give to him or you're going to be in big trouble son!" It is true - we all get caught up in our crazy game of beating the markets that we forget how others have to really struggle to "work for a living." Also, even the best of us fail to do enough to make a true, positive AND lasting difference in other people's lives beyond just donating some of our profits to charity.

While I know I've missed a few of the negatives and positives, I think this at least offers some perspective on what it means to trade independently as I have all of these years.

All in all, I have no regrets and I'm happy today as I've been in the past to do what I do for a living. Whatever you do, I hope you feel the exact same way and, if you don't - you have both the courage and conviction to make a real change for the better. Life is far too short for anything less than that!

The great thing about this country is that whatever you want to do, you're still free to do it. It is my most sincere wish that you enjoy and take full advantage of that freedom!

Posted by Kirk at 12:26 PM in Education | Bookmark | Feeds | Link | Email This