Mitt Romney may have meant something perfectly nice when he told a voter, “Corporations are people, my friend,” but in a post-Citizens United America, it sounded elitist. Still, he may have been onto something. Corporations bring out the best and worst in people. So do markets.
Markets can bring out both the madness of crowds and the wisdom of crowds. Behind the price charts, indicators, and statistics you will always find people, with their emotions.
What you want and what you’re supposed to want
We all know the trait that separates successful traders from those who suffer the slings and arrows of outrageous fortune is the ability to control emotion. But what if you’re kind of a drama queen or an adrenaline junkie? What you want and what you are supposed to want will always be in conflict.[pullquote]If you can master your own emotions, then the emotionality of others becomes your secret weapon.[/pullquote]
As with all things, you have to find a way to make doing good feel good and doing foolish things feel bad. Not after you’ve done it, but while you’re doing it and even when you’re still thinking about doing it.
When trading, you have to learn to enjoy the feeling of calmly following your method. When I day trade, I know I’m doing it right when it feels like deeply relaxing meditation. It’s a flow state that is physically pleasurable. It also allows me to stand apart from the madness of the crowd and choose my punches.
And that’s what makes trading with emotional detachment feel good. As I often advise people (including myself): If you can master your own emotions, then the emotionality of others becomes your secret weapon. I like that edge and I’ve trained myself to want it.
Let’s go to the videotape!
A couple of movie scenes illustrate the difference. First, here’s how to lose money. Or to be precise, how to pay handsomely for the luxury of indulging your ego and refusing to admit that the market is going against your position.
By the way, note the language I’m using. “Against your position,” not “against you.” It’s never personal with the markets.
And “pay” rather than “lose.” You don’t lose money. You pay it to the market: a small amount for the chance to be in the trade. Plus a possibly larger amount for the drama that comes with staying in the trade too long.
[youtube id=”Yr4pMeH4VJA” align=”left” maxwidth=”300″]The first scene is from Oliver Stone’s Wall Street: Money Never Sleeps, which is full of good advice and a great bit about the Tulip Bubble. Here, Shia LeBoeuf’s character refuses to get out of a losing trade.
The scene touches on a number of factors that drive us to trade emotionally: our family, our childhood, our desire to show off, the sudden change when what seemed like a huge amount to risk seems a reasonable drawdown to ride out, the inability to think straight.
[youtube id=”KMRyMjRdnMk” align=”left” maxwidth=”300″]Contrast that with this short scene from Trading Places, as smart a commentary on money as you’ll find. Eddie Murphy’s character reads the emotions of the people behind the prices and the other numbers.
It’s a great reminder that whatever method works for you, it works only to the extent it can show you the human emotions driving the herd. If nothing else, it’s worth watching just to hear him say, “GI Joe with the Kung-Fu Grip.”
What we measure and what we fail to measure
Economic and financial numbers always have people behind them. They are metrics by which we measure ourselves. But don’t think for a moment that they are accurate measures of who we are.
GDP is a number that is supposed to tell us how successful a country is. Our GDP dwarfs all others. Yet one-fourth of all American children will have a time in the coming year when they don’t know where their next meal will come from. One-fourth will go to school hungry at least some of the time.
GDP is a number we like because we can calculate it. And because we can calculate it, it gives us a sense of control, of knowing what’s going on. It represents some of the things that make us happy, but it doesn’t calculate many things that matter.
To put it simply, if you can remember in detail what the market did today—the opening price, your entry and exit points, what the MiM showed, your P/L—but you don’t know what your kids did today in school, you are not measuring everything you need to measure to have a happy life.
This morning, the markets are holding their breath waiting for the nonfarm payroll report, also known as the “jobs number.” I think it’ll give the market an excuse to rally next week, but whatever it does, let’s not forget that each of those numbers is a person, a family, an employer who has to let someone go, an employer who can finally afford to hire, a person who won’t be going to work Monday. It’s one of the big questions: Does an economy exist to create good jobs or stock bubbles?
Markets are people
[youtube id=”_kyXFr2g1x8″ align=”left” maxwidth=”300″]For another way to think about the idea that the numbers represent human emotions and desires, I’ll close with an Oscar-winning documentary, Born into Brothels. I highly recommend you spend an hour this weekend watching it.
When you watch, it will be easy to just think the usual thoughts of pity and moral outrage. But try thinking like a New Capitalist for a bit. One of the self-evident truths of New Capitalism is that, other than some natural disasters, bad things always happen because someone is being paid to make or let them happen.
So the way to solve the problem isn’t to make moral appeals, but rather, to follow the money, find out who’s getting paid, and make it unprofitable for them to continue.
On February 2nd, the world will watch the Super Bowl. If it’s like previous Super Bowls or other major sporting events like the World Cup, 10,000-20,000 girls will be bought, sold, and used as child prostitutes during that weekend in New York and New Jersey. It’s an annual marketplace for child slaves. And as we all know, markets exist to satisfy a demand, profitably.
In some parts of the world, like India, you can buy a girl for less than the price of a pair of designer sunglasses. But in New York they are likely to fetch thousands, which explains why human trafficking is a $32 billion-a-year industry. The global market for human beings is now larger than the market for illegal drugs.
And as with drugs, the key is to reduce demand, to make it too expensive—in money, in shame, in social status, in political consequences—for men to buy, sell, and rape children or to let it happen rather than fighting it. Markets are people, indeed.