Philosopher, Juris Doctor, surfer, trader, investor, musician, black belt, sailor, semi-centenarian. He lives on the mountain in Kona, Hawaii, with his family.
In the Perfect Storm Sebastian Junger describes in detail the process of drowning. When drowning under water, the mind is clear, but the reflex to breath overcomes the conscious mind after several minutes even with knowledge that inhaling means drowning. The irony is that the body can survive for up to 4-5 minutes without breathing without serious brain damage, yet the reflexes cause one to give up, or drown because of panic.
Surfers train and practice and think about getting hammered in big waves, getting held under and the possibility of drowning. We practice swimming under water, running deep underwater holding rocks. Yet one technique stands out in my mind to avoid panic. This is the trick: consider that even 20-foot monster waves have a period of 20 seconds max. So if you are held under one wave, you have a good chance to come up for air in 20 seconds. Most people can hold their breath for 20 seconds. The danger comes if you get held down for two waves. Avoid panic by remembering that you will probably pop up after 40 seconds at most. Though it seems long when tumbling underwater in the dark, it's only 20-40 seconds.
For trading .... mental preparation might help to avoid the panic reflex to give up at the bottom of the trade. Remember while under water that 6 out of 10 doctor's studies show the market is only going to drop x points, not forever, and will soon bounce back up; that its only some short time until the panic ends. The irony is that most drawdowns ought to be survivable. It's good to know your strength, know the size you can handle mentally and financially, or when you feel strong or weak. Don't get in over your head. Chair recommends reducing risk in inverse proportion to your edge.
The market is up 108 points the last four months. I hear people say now they are long. A secretary told me today how much money she made in stock x, stock y and stock z. An acquaintance tells me all his stocks are up except only one. Things are good, the weather is warm. It is good that people are making money in the market.
John Lamberg adds
I discussed this with my son James during a break from his MCAT preparations.
The main reason your body forces you to take a breath is due to the increase in CO2, which is the mechanism that tells your brain to breathe. By holding your breath your blood is using up all the O2 but not able to remove CO2 from your blood. Not only does your primitive hypothalamus force you to breathe but your blood becomes acidic due to the CO2, which triggers a panic response.
It takes some serious training to try and overcome your primitive brain. A trick swimmers use is to hyperventilate before diving in...this expels most of the CO2 in your blood allowing you more time before your hypothalamus decides it needs to get rid of the CO2 build-up.
Jim Sogi, May 2005