A classic psychological flaw

Here is something that will help you understand the way people act and what you can’t do about it! But how you can benefit from it.

I made a comment on Twitter a little while ago saying something along the lines of “if I ever think going to lose my edge all I need to do is look at social media and I know that’s not going to happen”

Entrenched views

What I was commenting on was the proliferation of misinformation and entrenched views that you often see on the Internet. When I first saw these sorts of comments, some time back now, over a decade ago. It used to frustrate the hell out of me, now I see them as a source of education and useful confirmation that I’m on the right track. It naturally leads you to understand why biases exist in the market and in the world in general.

My mission

I’ve come from a world when the bookies dominated and I didn’t want to play in that, very unfair game. So I’ve been a keen promoter of exchanges and their fairness, but obviously the opportunity as well. How can you not when you are living it?

So it’s important to understand that when I comment on something, it’s because I’m commenting on experience, not opinion. As Oscar Wilde once said, ‘Experience is simply the name we give our mistakes’ and I have made plenty. It’s not that you make mistakes that is important, it’s that you make them and can learn from them. But also have the humility to accept them.

Running a business

I generally don’t have much to gain by proffering a true opinion. As I stated before, I’ve made more from trading than I have anything else that I’ve been involved with. So an opinion coming from a trading perspective, not a marketing one.

On Friday, I made a gross profit from trading of more than four times what all by business interests in this space turned over. Today my best result on the racing yielded the equivalent of 53 monthly subscriptions to Bet Angel – Trader.  It would be quite something if we could get that many subscriptions in a day! There are also not many costs involved in trading, but lots when running a business. If I had known about what lay in front of me when I started trading full time, I may have made some different decisions. But hey, that’s experience. 🙂

That result on Friday was done with a group of people in the office for training. Because it’s difficult to trade and talk, on one course we’ve taken to having one person delivering the training while I can keep my focus on getting the best out of the markets myself in the afternoon. It’s nice to show the theory and practice simultaneously.

Underplaying things

I’ve also deliberately underplayed things. I’m conscious that with my experience and bankroll I can achieve a lot of things that others can’t, so it’s not fair to post something that violates that and encourages people to do something without a fair shot. So I alway post something that I think others could achieve. Yes, you could achieve it, but maybe with more practice confidence etc. etc. However, that doesn’t include some way out thing that I’ve done.

I’ve never actually posted online my best ever result, best ever day, week, month or year. I want to save those for another time. If you visit my office you can view some of that on the wall and ask me about them.

Today there was one market where I put through just short of £100k, but that didn’t and won’t make an appearance on social media. I don’t want to encourage people to buy anything I’m associated with on that basis. It’s just not realistic. It’s taken over a decade of crawling to get to higher levels of stake and confidence to do some of those things.

A little frustration

I’ve often been tempted to go full disclosure as that would cause a real stir. But, again, I don’t want to do that while I’m still partially tied to a product or service. I may do that when I no longer own any of the business.

However, I had hoped by now, in year 17, that people could figure out I hadn’t been lucky. I’ve devoted the best part of my working life to ensuring luck has nothing to do with it. I’ve built beautiful models to map prices and how the markets move and behave and I doubt I’ll ever be able to create such work with the time I have left on this planet. I’ve even taken some of it back into financial markets and it’s used by a hedge fund in the US that I teamed up with. My only luck there was meeting this person at the start of this journey so he could witness the journey with me.

But despite all this, you still get people having a pop (While casually ignoring some really bad frauds out there). It used to frustrate and annoy me, but now I realise that it exposes a flaw in personality and one that leads to explain why markets have been and will remain inefficient.

A classic flaw

When I see an unusual comment which can often, but not always, be critical.  I take it to the next available class I hold. There I read it to the attendees. We then revisit it later and I ask for a re-appraisal. It becomes clear what in the statement was wrong and that in fact some or all of it was errant or failed to grasp a key concept. Sometimes these comments can come from seemingly intelligent people. I once got into dialogue that ended up with me heading to Exeter university to do a lecture. I’ll have to write that up for another post, it was fun!

But over time, I began to realise this was just a general flaw in people’s thinking. They are not thinking objectively instead they are coming from an insular self-effacing perspective. They view the world and make decisions based on their own world-view and things that support that, not that of fact or others view or something that contradicts that. Anything that doesn’t reinforce that simply gets dismissed. The more you argue, the deeper the trench gets dug. So I don’t argue anymore, there isn’t much I can do about it. Curiously this isn’t just a flaw specific to the problems we face in this market, it’s everywhere when you start looking.

How else could you explain that somebody could say something or have an opinion that is simply not, true and then defend it to the death without actually stopping to question if they had made an error? Why run the risk of looking a total fool if somebody exposed the flawed thinking? But it happens all the time, everywhere, when you look hard enough. Nobody is immune!

When I realised this, it filled in another piece of the trading puzzle. I’ve known for ages there are some long-term biases in the market but struggled to explain them. But now I fully understand. Having come from a point of juxtaposition myself and having learned to overcome it, I think I’m almost there in fully understanding it and being able to shape it in others.

Rather than ramble on with more text, I’ve done a video on it: –

Tags: error, flaw, judgement, psychology

Category: Psychology, Trading strategies