Oct

23

 I was in San Juan Puerto Rico last weekend and happened across a chicken fighting establishment in Isla Verde. I decided to venture in to see what it was really like as I had heard a lot of stories and had seen the movies but had never personally been. I will not comment on the actual fights but they are definitely not for everyone, those who are squeamish or are animals lovers will not appreciate the place one bit.

However, what was interesting was the entire setup reminded me very much of the CME. There was a tiered system of seats (similar to the CME platforms) that descended to a central pit (where the fighting happened). In the lower tiers sat the professional bettors. They were largely a motley crew, not the kinds of people you would want to meet in an alley. They had various hand signals that allowed betting. The hand signals looked very similar to the old pit signals. All was done in Spanish which made it hard to follow so I managed to find an English speaking bouncer to give me the rundown.

Bets are on a one off basis and they are between members of the pit. No regulatory body exists to ensure fulfillment. However, there is a code of honor I was told and welching would not be tolerated (I didn't ask what that meant–the ambiance didn't leave many imaginative alternatives). Odds are not posted or discussed. Nor were the stats on the chicken, the prior W/L ratio, the bloodline, the breeder, etc. Other specifics such as weight and age were also unavailable. The owner's name was posted on a screen but there did not seem to be repetition. Not much data. It was very wide open and seemed overly biased toward the insider.

The birds were all kept in a long row of cages about 5 high by 25 wide. Ironically, the cages seemed more humane than those metal bottomed found in a pet store. The birds were fed into two glass cases where a pulley system sent them out to the top center of the arena, then lowering them down into the pit. Each bird was given a blue or white band on its leg to signify who was who. After blue won 7 straight I asked the bouncer if this happened much and who set the leg tags. He said it was the man behind the cages. I ventured out to find the man to determine what system he used to decide on blue vs white but all I got was "no habla ingles". Shortly thereafter white began to win (3 in a row). Perhaps my inquiry/noticing stirred something. Perhaps it was random. The vast majority of the crowd were 50+, male, and stupidly drunk. They would bet and lose and meander off. They did not seem like they would notice things like blue winning seven straight.

The fights began when the birds were lowered into the pit. Some betting took place then. The bell rang and the birds came out and began to fight. After a minute (if it went on a minute) a large buzzer would go off signifying the true beginning of the fight. I guess they wanted a minute to see the odds live. This is when the betting would get intense and the inner circle near the pit would erupt. It reminded me of a payrolls day. Odds would go off between individual parties at undisclosed levels depending on what the first 60 seconds displayed. There were bets before the first minute was up but less so than after (similar to pre 930 cash open in futures). After a while the fight would not hold much more mystery as the dominant fighter would be clearly in the lead. At this point some last minute bets would go off at (presumably) higher odds by the anxiety ridden losing gamblers as the announcer chanted "losing" in Spanish adding insult to injury.

The core players seemed to all be interested or disinterested at the same times. The activity on certain fights would get intense, other times it was slow and listless. On the way out I noticed the majority of the parking lot was full of lower priced cars while, closest to the door, stood 10 or 15 SL500s and such.

I found myself glad to be part of an established market with fair practices. I wondered if this is how things began in the various commodity futures markets which led to the establishment of the CFTC , NFA, etc. I was also told, in broken English, that the establishment was in the process of setting up a central betting system which would have a window where a bilingual clerk would take bets. Hard not to wonder what that will mean for the market and for the bankrolls of the drivers of the high end vehicles. And if the same thing(s) existed in the CME or the NYSE in olden days.

Jul

31

 I believe one of the elements we overlooked in our conversations about Apple was (is?) the Mac's superior graphics applications. Whether this superiority was by accident or design, it played a major role in the Mac's initial financial success.

Apple was (numerically) a small player (and seller) in a big and growing field. But outfits with big bucks and a need for superior graphics (i.e., newspapers, ad agencies, job shops, and design studios) had no difficulty in choosing the Apple products despite their much higher prices and refusal to license out knock-offs.

If I remember correctly, Macs had about 5-8% of the consumer market, but were dominant not only for those businesses listed above, but for any organization that wanted to produce a professional looking, graphic-intensive mailer or newsletter. As a result, many graphics-oriented software developers submitted their best work to Apple — and the disparity grew.

Despite owning over 80 Macs in our department alone (the editorial staff had more), we could never negotiate a volume discount; Mac was the market. Only a little before my retirement did the PCs begin to show some advances in design capabilities. My few remaining contacts tell me Macs are still used. If Jobs factored this into his development plans then he was very insightful.

Ken Drees writes:

Jobs made huge inroads with schools/universities as a distributions channel for macs–thereby seizing a very healthy nitch that became loyal. Journalism schools were MAC city in the 80s /90s.

Daniel Flam writes: 

Apple does have some nifty innovations, but along with a very totalitarian mentality. Democracies can turn into anarchy –monarchies can become totalitarian, and Apple is a dictatorship. Some people yearn for a messiah– Apple gave those people what they want. 

Dec

29

 Our computers were stricken by one of the most vicious and ingenious strain of virus/malware/Trojan system I have ever seen. It was a multi stage and multi component system composed of a timer based installer, a downloader that contains another downloader that in turn installs viruses that install other viruses. In addition this system operates in worm mode and installs itself on any other computer in the network exploiting the latest zero day security holes. In addition it uninstalls the antivirus on the computer and disables the firewall and the automatic updates, and preventing the installation of antiviruses. Because of the way it works the antivirus software took close to four days to discovers all the hidden features, slipping back between safe mode, offline updates and other methods of removing the virus. I am still unsure that it is behind me.

One of the most logical question would be: What do these operators and programmers stand to gain from designing a system on such a huge scale? The surprising answer is hundreds of millions of dollars, perhaps even billions! Over the last few years I have been working alongside with some of the major Internet marketing experts, which gave me insight to the problem. One of the key components in any successful internet marketing strategy is affiliate programs. These programs allow the vendor to expand the services to customers and add value to the site.

As an example, suppose we have a website that helps people find movers in their area. suppose you visit the above site and click on boxes. The boxes are supplied by a third party. Most affiliate programs have a vendor ID that is assigned to the link and a cookie to help track that the user indeed was referred by the vendor. This allows the user to leave the site. If on a subsequent visit the user decides to buy a product or service, the vendor would be granted a percentage of the sale. It use to be common practice to install a frame called a "invisible popup" in the page to mark the client and pay money to perpetrators, but newer browsers block these attempts.

I think you now all understand why these malware/viruses are such a lucrative business. By opening up as many sites as possible before being removed you are actually tagging these sites so if you purchase from any of these sites within three months you are paying the pirates a large percentage of the sale. For example if a Trojan popped up Amazon, then every purchase will pocket at least 4% of the profits (see this for example)

A couple of years ago I turned down a very high paying job offer to develop such malware for a company that makes well over 100M in profits every year from this scam. This is only one in a list of hundreds of companies worldwide that exist to exploit these security problems.

Unlike battling pirates in a million square mile area, government can battle the virus operators by the racketeering laws to follow the money trail and shut these operations down. They can investigate and expose the operators by infecting computers with the viruses and see what affiliate programs are tagged. Then they can hold payments by the affiliate programs. I think that these measures would be far more effective that trying to nail a specific individual. By drying up the pond, you get rid of the mosquitoes.

It would appear that I am in the business of making viruses - that is not the case - I went to a job interview and when I did a background check of what the company does that is what I discovered. I decided that morally I cant be associated with such a company. 

Oct

4

 I was talking to my friend who is in 20 million dollars deficit on a major building project in Manhattan that is already under way. His story is that the first bank gave a promise for the money, then folded. The bank that acquired the other bank went forward and promised the money. Then it folded. This went on for a few rounds, and now he is hoping that following the bailout he won't go bankrupt together with all the contractors and workers that rely on this. Now multiply this by hundreds of thousands of projects across America and various industries… Another friend is a real estate broker, and was telling me that people are putting properties on the market at "sell at all costs" prices.

Here is the point of this post: I wonder, if the banks are going to do a "take the money and run" — how is the government making sure that the money is actually getting to the people who need it?

Kim Duncan replies:

The banks will sell assets to TARP and reduce their short-term borrowings (repo, Fed facilities, unsecured inter-bank borrowings) in order to reduce leverage. That will only marginally allow the recapitalisation that is required before banks begin to expand lending once again. We are in a credit contraction and TARP will not put an end to this process which could last years.

Your question is based upon a false premise. People who need the “money” (actually credit) are not necessarily the ones who deserve the credit. Is the project your friend trying to finance actually worthy of the investment? Required returns on investment are going up on everything since capital is scare, debt finance is contracting and asset prices are declining. The project will have to compete for its funding and its provision will not be based upon “need” but rather the risk-adjusted returns.

However, the other part of your question - “Take the money and run” is misleading. Banks will sell assets to the Treasury and reduce their borrowings. The Treasury will increase their borrowings by precisely the same amount which the banks reduce their borrowings. Leverage will be reduced in the banking system but the government borrowings will exactly offset. As a result, the same amount of cash freed up from lending to banks will be absorbed by lending to the government. As far as the banks are concerned, the lower leverage will not likely lead to lending capacity and hence the TARP will not, on its own, lead to new credit being offered to the private sector. The best that can be hoped for is that some price momentum of distressed assets will lead to an improvement in sentiment towards and between the banks thereby allowing the interbank lending and deposit markets to function. A first step, perhaps, but clearly no panacea.

Sep

26

The thing to do would be to let the giants fail and just guarantee everyone's 401k, bank account, credit card debt and mortgages…

Laurence Glazier adds:

How about educating people about the true risks of buying property on loan, and explaining how it is only the assumption of government intervention to remove risk that supports a belief in this golden calf, the obeisance to which diverts many an artist from their element and muse.

And what happens to the giant firms of Wall Street is immaterial now. Trading is being democratized, moving from the ivory towers to empowered individuals, as computers did twenty years ago. One of those big waves.

Nigel Davies is sceptical:

GM NigelWhat if there is no solution, and that this whole business is merely evidence of a fatal flaw in humanity. As far as I can see EVERYONE could have acted differently at some point so as prevent this, but instead they drifted en mass along a line of short term apparent self-interest.

And what if the 'rescue plan' itself is of a similar ilk, putting off paying the piper because 'something' had to be done. After all, those making this decision couldn't possibly have their careers tarnished by a huge crisis in their time. Better to defer it to a future generation/generations, eh?

BTW, at the chessboard such thinking is heavily influenced by an excess of caffeine, so I wasn't joking about the Dr Pepper/no sleep thing. People ALWAYS try to force matters when tired and on a caffeine high.

James Sogi ponders the situation:

It is out of our hands now. Rather than trading fundamentals or quant strategies we are left waiting to see what the politicians do and jerk around with that mess as this or that secretary or politician plays their stupid game while the world markets hang in the balance. This is the problem with too much power in too few hands.

Victor Niederhoffer replies:

Yes, but all that happened was in the numbers to start with and would have happened the same way regardless, as will the eventual aftermath.

Vincent Andres replies to Nigel Davies:

Maybe not a fatal flaw in humanity, but a fatal flaw in the part of humanity which has to deal with money ?

Human societies need a blood system. Money/stocks/derivatives/etc. is this blood. But money is such an extraordinary feature/tool/invention that people working too much with it and too close to it become always crazy.

Radioactivity, morphine, also are very powerful things, but some rules must be respected.

Aug

22

I know it's way off topic - I am passionate about going into an automated trading strategy oriented position, I have been following this web site for many years now and I have developed quite a lot of interesting strategies all automated, and some profitable on paper. I am a top programmer [C, C++, R, WealthLab, NinjaTrader and scripting languages like PHP, Perl  etc.] with a wide variety of skills including leveraging my home network as a Beowolf cluster to calculate complex R simulations on 3000 equities ("dad, why is guitar hero running slowly?"). I constantly read material on mathematical techniques and can present some really interesting and novel ideas. I wrote some really interesting code reading poker cards off the screen and working out Bayesian odds - with (positively) surprising results. It is really my passion and I would think this is the place to find someone who shares this passion for the markets now that I am looking for a new position.

Apr

30

 My family (3 kids, wife and I) just completed a 2800 mile trip around the US East coast this week. We went NY => NJ=> PA=> WV=> OH=> IN=> IL=> WI=> IL=> MO=> TN=> KY=> NC=> TN=> VA=> MD=> PA=> NJ=> NY

The main feature that I would like to note is that there is plenty of business all over the US and every Joe Shmoe is drilling for oil in his back yard. There are plenty of places that sell oil drills and virtually all the oil wells in all the states were running. How would that impact the price of oil?

Mar

18

I went a few times to the taping of the TV series “From the Top” with the best young classical talent from around the globe and would recommend anyone who happens to be around Carnegie Hall around the time of the taping attend. The tickets are free from Freetix.  

A few years back I went to one featuring Lang Lang  before he became famous. So you might catch the next Isaac Perlman! The shows are full of humor (“Your cell phone ringing will be punishable by death”) and chickens walking across stage, really emotional moments, like the grandfather from Korea who'd never seen his virtuoso grandson in concert. Suitable for kids from ages 10 and up.

Dec

21

One of the things I find important is stability in simulations. If your model exhibits one of the following instabilities, your chance of making money from them is smaller than you imagine!

  1. Instability with regard to simulation starting parameters. This means that the method is stable with regard to the choice of the start and end bar, small variations in sampling windows, etc. Examples of this instabilities: a. A method that makes money on a 252 day window and loses on a 251 window b. A classic example: the code from the book by Didier Sornette. He fits the market to a nonlinear exponential function using R except he doesn’t try refining and randomizing the starting points for the fit and changing the window. The outcome is a graph that “predicts” the market
  2. Stability issues with regard to small variations in the money management methods, say 10% position size, makes $$$$ and 10.04% loses. This brings the stability of optimal F parameters into play.
  3. Stability issues with regard to optimization - How much is done with regard to over-optimizing?
  4. Stability issues with regard to the choice of stock (I.E. in the case of equities)- say the model works on a certain class of stocks - it may not work on others!

These stabilities seem elusive. I am wondering if you have input and thoughts about these and other instabilities one

Nov

14

The Hawaiian polymath James Sogi recommends Coercive Family Processes by Gerald R. Patterson. The book discusses how to measure and study aggressive behavior, and has already lead to great controversy in my family, as it recommends an authoritarian approach to raising children by removing what kids value, e.g. attention, when they are bad. Don't give them attention when they cry. Removing the attention is called negative reinforcement. The whole subject of how we behave when faced with stimuli of various kinds, with selling and buying being the behavior, and the environment, e.g. an economic announcement, a vivid change in a related market, or a backdrop of staged conditioning by the Fed Commissioners, would seem to call out for study and testing. This introduction to operant conditioning provides a nice summary of the kinds of things that behavioral psychologists study and might open up some fruitful lines of inquiry. A good reference to Patterson's work can be found here. In examining the diverse bodies of stimulus and response schedules covered by behavioral psychologists, one comes away with the impression that the grass is always greener on the other side and that if instead of following the promiscuous theories of cognitive psychology, that have a hypothesis for any seemingly irrational behavior, (albeit most of them are completely rational and based on rules of thumb that people in real life as opposed to college students for a buck an hour would choose), the often validated and completely specified studies of operant conditioning would be a much more fruitful line of inquiry for market people. One feels he is one the right track here as "Operant Conditioning" and "Stock Market " is almost a Google whack at 337 mentions but "Operant Conditioning" "Cognitive Psychology" has a promiscuous 38,700 mentions. It would be good to take the basic two by two table of operant conditioning and classify it by fixed ratio, fixed interval, variable ratio, variable interval, and see how these relate to predictive patterns. For example: bonds up/ stocks down, a positive reinforcer when it occurs at a steady rate with little variation (fixed interval) versus when it occurs with great variability (variable ratio). But bonds up/ stocks down, if it occurs at an unsteady state, it is an example of a positive punishment variable ratio. All the predictions of operant conditioning could be tested in the real world of humans with prices in markets, instead of on rats.

Reinforcement (behavior increases) Punishment (behavior decreases)
Positive (something added) Positive Reinforcement: Something added increases behavior Positive Punishment: Something added decreases behavior
Negative (something removed) Negative Reinforcement: Something removed increases behavior Negative Punishment: Something removed decreases behavior

Source: "An Animal Trainer's Introduction To Operant and Classical Conditioning"

Alston Mabry Replies:

As I understand it, in animal learning trials, if you put the rat in the cage with the little lever, eventually, in the process of exploring the cage, the rat pushes on the lever, and there is some possibility that a bit of food plops out. The process repeats, and the rat learns to associate pushing the lever with getting food. Interestingly, if what you want is for the rat to push the lever a lot, you provide the food reward only intermittently and randomly. If the food is provided each time the rat pushes the lever, the rat will push the lever only when it is hungry. However, if the food appears only occasionally when the lever is pressed, the rat will press the lever over and over, brimming with anticipation. Now let's assume the Mistress is a master trainer, to her own benefit. She places the rat (trader) in it's cage (home office with high-speed internet access, TradeStation account, etc.) and waits until the rat discovers the plastic keys on the keyboard and starts tapping them. Then she provides the rat with a food pellet (profitable trade). If the Mistress wants the trader/rat to trade as often as possible, she will reward the trader/rat with a profit (food pellet) only intermittently and randomly. If the trader/rat could get profit/food any time it pleased just by tapping the keys on the keyboard, then it would tap the keys only when it needed money. But because it is actually the Mistress who is in control, and she wants to maximize trading behavior from each rat, she keeps the rewards as random and unexpected as possible. In fact, "unexpectedness" is one of her most important tools. By the Rescorla-Wagner model of conditioning, the greater the unexpectedness of the reward, the higher the associative strength of the learning. This is why it is so effective for the Mistress, after a rat has tapped the keys many, many times with no reward at all and become convinced in bleak despair that no further reward is possible, to toss a nice food pellet into the cage and provoke the rat to even greater efforts.

Russell Sears responds:

This is of course the opposite of what is recommended for a baby totally dependent on the parent. I find this one of the greatest challenges of parenting, determining when to use negative reinforcement to cut off the dependency. And looking around to family and friends, especially with young adults, it seems many have never truthfully acknowledged this.

Steve Leslie adds:

This is exactly the foundation of slot machines. Intermittent rewards promote more activity on behalf of the participant. The theory is that if one gets rewarded on equal installments the activity is seen as work, whereas if one receives an intermittent reward then it is seen more as recreation. This is also how companies motivate their salesmen and saleswomen. They conduct sales contests but they do it randomly. It is one way that the company keeps the salespersons attention. Brokerage firms were famous for offering sales contests during the summer months, typically the slowest months for commissions to keep the brokers working and keep the revenue flowing. Here is a sidebar to this discussion. In Las Vegas, if a casino advertises that they give a 99% payout on their slots, then they must pay out on average the machines that they have posted to pay out that amount. This does not mean that every slot machine in the casino pays out 99%. It applies only to the bank of machines that are listed as paying out this amount and the patron has to look long and hard inside the facility to find those. What this does mean is that if you took a large enough sample size for example a $1 slot machine and played this machine forever and each individual were to put $100 in and no more, taken collectively they would receive back $99 on average. Now statisticians will tell you that everyone who plays slots will eventually go broke. The reason for this is that people continually take their reward and plow it back into the machine until eventually they have spent their full bankroll. Therefore the machine will collect everything, it just takes longer if the payouts are higher. This applies to all other games as well including roulette baccarat and dice. Even though you can approach almost even money odds such as betting the color on a roulette wheel, the player only on the baccarat table, and the line on the craps table, if you keep playing them long enough you will lose your entire bankroll.

Jay Pasch replies:

Markets are authoritarian, nature is authoritarian, society is authoritarian, the world they're going to live in is authoritarian, "ya gotta serve somebody" as Dylan would say. Of course there is great benefit to self and others in going against at times, i.e. Thoreau's Civil Disobedience, the rebel call, et al. But on the battlefield of child-rearing, relieving one's self of authority is like dropping one's arms on the field, and pants, and waiting to take one between the… eyes. What works best for the young warriors is that they have 'contracted' to decency and respect with all of the ensuing benefits and luxuries given their meritorious behavior; but break the contract and it is they that surrender their benefits, rather than the mindset that some sort of entitlement has been 'taken away'. Under this arrangement the kids have buy-in, they feel important, creative, their ideas beneficial, because they were asked to help create their world in the first place. They see clearly the reality of their own behavior, understanding it was they that surrendered their privileges rather than the big bad general removing their stripes…

Daniel Flam replies:

It would seem to me that all education revolves around pain. So you say we can't "flik" the kids? Ok let's give them a mental pain Like take away something they like, put them in the corner, its like the way the intelligence interrogators in the western world operate under the democratic laws, we just find a better way of inflicting pain in confines of the law… I find the same with the market… which bring an old adage… "No pain, no gain" How would we go about studying pain in the market?

Steve Leslie replies:

First let me say that "No Pain No Gain" is a very dangerous statement. Physical pain while training is an indication that one is approaching a physical limit. By going too far, one can instill permanent damage. Only a fool would feel a muscle tearing during a set of lifting weights and continue to lift weights. Now there are minor aches and pains that an athlete must endure however there are limits that the body can withstand. An athlete who is in touch with their body is well aware of the difference. I am sure my good friends Dr. Goulston and Dr. Dorn are much more qualified than myself to comment on this subject matter and I hope that they do weigh in. However, there are three distinct subjects here.

Giving a child an iPod for excellent grades is positive reinforcement. Withholding a reward from a child or taking away privileges would be negative reinforcement. Yelling and/or corporal punishment would be forms of punishment They are very different. The problem with punishment is that it has a very short term result. And repeated punishment eventually will result in no positive result whatsoever. Please forgive me for probably misrepresenting this study but here goes: There was a famous study performed where an electric grid was installed in an enclosed box. Mice were placed in the box and half of the box was shocked. The mice went over to the other side away from the pain. Then a barrier was installed so they could not move from one side of the box to the other. Then the mice were shocked. They initially tried to escape to the other side. However the barrier would not allow them to move over. After repeated shocking, the barrier was removed. The mice were shocked yet they did not move over to the safe side. In effect, they were conditioned to just sit and take the pain. Think about this: When your dog runs away and you beat it. That is punishment. If the dog runs away and you beat it again it will be trained to stay away. If you beat a dog long enough eventually it will just lie there and allow itself to be beaten. This is shown dramatically in abused wives. They become beaten physically and/or mentally and that if this occurs long enough that eventually they just sit there and continue to be beaten. And should someone come along and offer them sanctuary, the abused wife will chose to stay with the abuser. Someone once said you train animals but you teach children. If you really want to go into deeper understanding of this, I recommend an exceptional person Dr. James Dobson either in his numerous books on this subject most notably Love Must Be Tough. He also hosts an extremely informative radio show entitled Focus on the Family. My church radio station broadcasts this as do many Christian radio stations around the corner. He is seen very regularly on Fox shows such as Hannity and Colmes.

Daniel Flam adds:

Having spoiled brats that everyone in the room hates to be around because you don't want to put them in their spot, Will just delay the point in time where someone that is not a family member will put him in place in a most unpleasant way. Bringing up Children is like painting a work of art. You must use all the colors of the spectrum, although some colors should be used a very small dose, or you might get an ugly result. I see additional factors to the one suggested:

Today we find names for anyone who doesn't behave like a sedated rabbit. This reminds me of that shirt "I hate it when people think I have ADD! Oh look, a chicken!"

James Sogi replies:

Rather than 'greed' and 'fear', counting, like behaviorism, is more scientific. Quantify to predict. The market trains everyone to do the wrong thing. When one is trained to go long, the market goes south. When one is trained to play the range, it breaks out. Of course it trains one in the just the most intermittent and thus most powerful manner, like slots, to go the wrong way. It is called variable reinforcement. Counting gives the clue that the training is in play and not to follow the masses and to stay a step ahead of the market. Be the trainer not the trainee. Who is in control here after all. Little babies train their parents. It is the brat in public that has the haggard parent running around like a chicken. Both are miserable. Proper training involves the use of love attention and affection. It is not the rats-in-a-box syndrome. The natural reaction is to run to the crying baby. That merely reinforces the crying. The natural crying pattern has variations. When there is a break in the first few moments of crying, use that moment variation to sooth the child. The reinforces the calm not the cry. Inconsistent parents give mixed signals can cause confused children, unhappiness. Consistency give certainty and clearness to the child. I tried to see how many days we could et my kids without crying. How many times per day would they cry? Why did they cry, what were the operant conditions? Quantify the responses. Forget the mumbo cognitive jive. In the market, the public rushes to the upsurge, but is this the correct response? When the market tanks, the public trained panics. Again, scientists, is this the right response? Quantify one's own responses to get an idea of what works, what doesn't. consistency brings profit.

J. T. Holley reminisces:

My PaPa would espouse to me "the grass might be greener on the other side but someone has to mow and rake it too" whenever I would act like those cognitive psychologists! I think the operant conditioning like B. F. Skinner is appropriate for those dealing with the markets. The classic philosophy (shortened and brief) is that Plato felt to "know the good was to do the good", whereas Aristotle had a more operant conditioning belief in that "to do the good was to know the good".

Russell Sears suggests exercise:

What the kid needs is an outlet for his energy. Have the kid run a few lapse, go a few miles on his bike, or even shoot some hoops. I would suggest, that what Lackey encourages his kids to do has more to do with his kids well adjusted behavior . Lackey little league, and coaching wouldn't see these kids. Kids with no competitive outlet, takes it out on the adults. Exercise generally works better than any drug for mild depression. But what Doctor will prescribe 2-3 miles run everyday for 2 months to a single Mom for her kid. Its called "child abuse". But giving him mind altering drugs, to a developing growing brain, is called "therapeutic care."

Pamela Van Giessen laments:

This seems to be part of a larger issue where every single moment of childrens' days are being structured and moderated by adults. There is school, soccer practice, swim lessons, judo, music lessons, play dates, etc. It's kind of like jail. Even worse because at every turn there are adults loitering, supervising, and otherwise keeping a watchful eye. I call them helicopter parents. They mean well, but I can't help but be eternally grateful for my parent's lack of vigilance. I read an excerpt from John Dickerson's book about his mother, Nancy (first female TV news star), where he noted how absent his parents were and that he and his siblings were often left to their own devices, and how, in the long run, that turned out to not be an entirely bad thing. My American nephews are supervised 24/7 and while they are smart and adorable children, I notice that they are more prone to temper tantrums and the like. My Dutch nephews roam free; they rarely have a baby spell. And, honestly, the Dutch kids seem more creative and amusingly naughty. I like children who stick carrots up their nose at the dinner table, provided they are stealthy and quiet about it. Kids don't put up with other kid's temper tantrums and so children who hang out with children stop behaving like brats — at least if they want to have friends. At the age of seven, I was biking a mile to go get candy. I rarely see children about my 'hood without adults. Can't they even go to the bodega without Mom? At what point will they not be supervised and watched over? I've also noticed that the young women (oh, how I hate saying that) that work for me seem to approach their jobs, careers, and even daily to-do list like a school exam that they must ace. They miss the larger point about spontaneity, about creating, about doing as you go and it all becomes about getting an A and moving on to the next "test." They also seem to structure their lives accordingly. From x-time to y-time is work time, from z-time to a-time is not work time. One hopes that romance isn't scheduled so rigidly. When I think of all the wonderful experiences and successes (and even some failures) I've had by being spontaneous, by looking in rooms I wasn't due to be in, by not scheduling my life with much structure it makes me sad to see us creating a society of automatons.

Nat Stewart adds:

One of the most worrisome trends in my view is the "bans" on student organized, spontaneous recess games, which for me were always the highlight of the day in the early grades. The spontaneity and sense of it being "ours" and not a teacher/instructor lead activity also increased the value and fun of these activities. I think for many kids this type of vigorous exercise is almost a need or requirement, It certainly was for me. Kids who are naturally curious, such as this kid in the article who is a "gifted reader" need independent outlets to exercise their own curiosity, and opportunities for individual study and thought. I think many of these kids are just bored stiff! The extreme bureaucratic environment is not a good learning environment for many children. Kid can use logic, and I believe many start to rebel and have trouble when they are repeatedly asked to do things that they do not find logical. "Johnny has a problem…" Well, maybe he is mad that so much of his day is wasted in useless, pointless, mind numbing activities? Maybe he would rather be off on his own, reading a book. Kids can be sensitive to injustice, and little things over time poison can poison ones attitude to the entire process or system, which is unfortunate. All kids are different. Labeling children with 1000 different Disorders is only a smokescreen that hides our severely dysfunctional system.

Professor Gordon Haave replies:

I would suggest that what is wrong with the children is nothing… except a total lack of discipline and their learning at 5 when taken to a psychiatrist that being crazy is normal and they can do whatever they want because they are not being bad, they are "sick". Another good thing about Oklahoma: I don't know anyone who sends their kid to a psychiatrist. Kids get discipline, hard work, and an ass-whupping if they do something particularly egregious.

November 11, 2006 Troubled Children What's Wrong With a Child? Psychiatrists Often Disagree By Benedict Carey

Paul Williams, 13, has had almost as many psychiatric diagnoses as birthdays.

The first psychiatrist he saw, at age 7, decided after a 20-minute visit that the boy was suffering from depression.

A grave looking child, quiet and instinctively suspicious of others, he looked depressed, said his mother, Kasan Williams. Yet it soon became clear that the boy was too restless, too explosive, to be suffering from chronic depression.

Paul was a gifted reader, curious, independent. But in fourth grade, after a screaming match with a school counselor, he walked out of the building and disappeared, riding the F train for most of the night through Brooklyn, alone, while his family searched frantically.

It was the second time in two years that he had disappeared for the night, and his mother was determined to find some answers, some guidance.

Sam Humbert responds:

The long-time sense of the word "discipline" was to instruct, educate, train. It somehow became twisted (as has the word "liberal") to mean, in common usage, Prof. H's "ass-whupping." What does an "ass-whupping" instruct or educate? Well, it teaches that if you're frustrated, angry, tired or stressed, and have the advantage of being bigger and stronger than the other guy, then it's OK to indicate your frustration with verbal or physical violence. Is this the what a parent wants to teach? "Discipline", in the bastardized sense of the word, means the parent has failed. Failed to authentically instruct, educate, train. And is now lashing out, motivated by frustration, not by a desire to educate or improve the child. The parent's reptile brain is in charge. And what becomes of kids who are beaten into submission for 12, 14 years.. But then become teenagers? How will they conduct themselves "out of eyeshot" of their parents, when their parents are around to "control" them with "discipline"? What actually does work in parenting — since "discipline" doesn't — is spending time with kids, and most especially, meeting them at their level, not at your own. Becoming engaged in their lives, their interests, their hopes, fears, dreams. Really hearing them, rather than lecturing them. My kids have never been "disciplined", and many parents in our town have commented to us that there are — far from being "undisciplined" — among the kindest, most thoughtful little boys they've met. The proof is in the pudding.

Professor Gordon Haave replies:

Although, as I have said, I don't believe in Ass whupping, I don't think what you are stating is correct. In its simplest form, it is the most crude way of stating "actions have consequences". Most of this on this list know that there are better ways of teaching that then ass-whupping, therefore they don't do it. Around here in Oklahoma, it is probably not very common, but was even just 15 or 20 years ago. Now, what goes on in NYC is simply the opposite message, that actions don't have consequences, that nothing is your fault, that if you look out the window during class or talk back to your mother you have a problem that needs to be medicated. Mr. Wiz suggests that those who receive an ass-whupping grow up having learned the wrong lessons, etc. I submit that it is better than the weirdos who grow up thinking that actions don't have consequences. They are more prone to destroying families and societies, in my opinion. So, I will restate: Ass-whupping is preferable to the NYC psychobabble approach, even if it is crude in its own right.

Stefan Jovanovich responds:

The "ass-whupping" meme seems to me more than a bit overdone. Striking a small child is like beating a cat. Children are small creatures compared to us adults, and they spend most of the years up to the age of puberty navigating around us comparative giants. Simply restraining them physically - holding them still - is enough physical punishment for "acting out". What was notable in the article about poor Paul Williams is that his father - the person most likely to have the physical strength to be able to hold him still - is nowhere mentioned. You can step on a cat's tail, and she will instantly forgive you even though the pain was excruciating. Intentionally strike the same animal with one-tenth the same force, and she will view you as an enemy until the day one of you dies. I agree with Gordon's skepticism about psychiatric diagnoses. Since they almost always have no clinical basis in blood chemistry or any other quantifiable physical symptom, they are usually like visits before the parole board. The patient - i.e. prisoner - has to reassure everyone that he is "sorry" and will make a sincere effort towards "rehabilitation" - i.e. sitting still in school. My Dad's theory was that compulsory education was invented so that the adults could find somewhere to warehouse the children during working hours. In his darker moments he also speculated that it was an expression of society's underlying belief that poverty was a crime. Since almost all children were destitute, society was simply doing what it did with other criminals - locking them up and then pretending that incarceration had some useful purpose.

GM Nigel Davies responds:

I agree. And given that one of the tenets of libertarianism is to remove physical force and coercion from human affairs, this seems to be given quite the wrong message. I strongly suspect that kids who get beaten will tend towards an authoritarian attitude to life. There are more creative ways to instill discipline, such as gaining a child's attention by showing them something that actualky interests them and using a system of reward and punishment based on what they like to do. If good behaviour is rewarded it represents a trade and fosters an attitude to life based on exchange rather than force.

The President of the Old Speculators Club:

I recently read an article with a darker view — suggesting that Americans who send their children to public schools are allowing the "state" to "kidnap" their children for 8 hours a day. Hours in which they are taught what it is believed they should be taught, and shielded from those things that might make them less than docile, cooperative citizens. The goal is to produce individuals who will view governments the provider of all solutions.

Roger Arnold replies:

When I was a boy, getting a butt tannin from time to time was a part of growing up, as it was for everyone else I knew. I can still hear the sound of my father's belt as it is pulled through his belt loops. My mother would send me and my brother to our room with a pronouncement of "wait til your father gets home", and we would sit in there laughing and joking until we heard the front door open — and oh my god that's when the terror began. Nowadays we joke about it at family get togethers and, although I have never raised a hand to my own child, I can understand the utility of the spanking as a tool of nurturing.

Jim Sogi adds:

The characterization as 'authoritarian' places the wrong emphasis. The reason is that firstly operant conditioning is not necessarily controlled by parents as the authoritarian and that secondly rewards are more powerful than punishments. Everyone is subject to operant conditioning regimes, some of which they may be aware, but also by many others of which they are not aware. There are in fact random conditioning regimes that wreak havoc on the unsuspecting. The result is superstitious behavior and the development of personal "issues" and psychotic behavior due to the various random influences at work creating random patterns in people without their knowledge. We see this in the markets daily. When one is not aware of the theories of social learning, feedback loops can be created that are destructive and create bad habits. When one is aware of feedback patterns in social situations one can control the bad influences and foster the good. A human cannot opt out of conditioning regimes. They exist everywhere in the family, in society, at work, and also as random elements in daily life. The question is not whether social learning takes place, the question is which regime is going to dominate your development? The random crying of a baby? The whims of a teenager? The random flow of traffic? Or the structured goal oriented regime of successful adults in the pursuit of happiness. To believe one is not conditioned every minute is denial. The question is who is doing the conditioning and to what ends? In the delightful and hilarious book, Taxonomy of Barnacles by Galt Niederhoffer, read during the last vacation, the issue posed by the author was whether nature or nurture were the determining factors in the success of a person. This issue has been a great debate in our family and I agree with the author that nature is the predominant influence, and that we in fact are subject to many of the same traits our grandfather's displayed to a remarkable degree, and that conditioning might try to guild refined gold or paint the lily, but the mold is cast genetically to a much greater degree than most are willing to admit.

Steve Leslie offers:

Jim, you have nailed what I find one of the most difficult aspects of trading. If I open a trade and the price goes the direction I want, I feel rewarded; if it goes the other way, I feel punished, but these feelings have little to do with actual success. Success is trading when, and only when, one has an edge. Individual trades may not be profitable because of variance or because the hypothesized edge is illusory or has fallen prey to changing cycles. Success is managing risk so that, after the inevitable setbacks, one lives to fight another day.

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