Jul

2

 My perception is that when advertising or self-promotion is mentioned it is often viewed in a negative context. The promoter is viewed as crass or a "sell out" regardless of the quality of the product. The counterpoint is: Who here would not be richer/better off with more effective promotion?

I am reminded Of Von Mises’ thoughts on the subject:

"The tricks and artifices of advertising are available to the seller of the better product no less than to the seller of the poorer product. But only the former enjoys the advantage derived from the better quality of his product.

"Business propaganda must be obtrusive and blatant. It is its aim to attract the attention of slow people, to rouse latent wishes, to entice men to substitute innovation for inert clinging to traditional routine. In order to succeed, advertising must be adjusted to the mentality of the people courted. It must suit their tastes and speak their idiom. Advertising is shrill, noisy, coarse, puffing, because the public does not react to dignified allusions. It is the bad taste of the public that forces the advertisers to display bad taste in their publicity campaigns. The art of advertising has evolved into a branch of applied psychology, a sister discipline of pedagogy.

"Like all things designed to suit the taste of the masses, advertising is repellent to people of delicate feeling. This abhorrence influences the appraisal of business propaganda. Advertising and all other methods of business propaganda are condemned as one of the most outrageous outgrowths of unlimited competition. It should be forbidden. The consumers should be instructed by impartial experts; the public schools, the "nonpartisan" press, and cooperatives should perform this task."

Jun

13

 I have been researching on the web how to teach children to dream. What is left out is how to develop a passion for life when dreams fail to develop. I suspect their father's example is the best teacher.

John Floyd writes: 

I am looking for recommendations for children’s books. I would like to include the right mix of education, capitalism, logic, reason, imagination, and individuality among other things. A few books and stories that I have found, and the kids enjoy: Jonathan Livingston Seagull, Thidwick the Big Hearted Moose, An Airplane is Born, and The Little Prince.  

Scott Brooks adds: 

As much as we push education in our home, we've had a dickens of time getting our children to read outside of school. Finally last year, my oldest daughter got into reading the Goose Bumps series. She loves them and needs no prodding to read up on them.

My youngest son somehow got into reading the Star Wars books. He doesn't read them religiously, but will read outside of class if given a little reminder. Interestingly, I bought him a book on bullets at the Quality Deer Management Association national convention in Chattanooga last week and he's been perusing it almost everyday. He's 8 years old and it's way above his level, but he seems fascinated by it. He had his home school teacher read it with him and explain the more difficult parts to him.

For my 12-year-old, we've had to use a different tactic. He doesn't read unless we push him to do it. However, he's really into the markets and learning about investing. So he reads stuff on the net about companies he's thinking of buying and watches and reads investing information.

I guess the key is to immerse your kids in reading and let them find what they like. When I was kid, I'd read one or two Hardy Boys book's a week. I tried to get my kids into them, but to no avail. Keep searching to help your kids find something that they like. There have been a lot of good books recommended here (and I'm saving this thread for future reference for my kids and their home school).

Many of these books are important and are one's that I'll have the kids read as part of their school work assignments (whether they want to or not). But the biggest thing that I've searched for is, how do I instill in them a love for reading a thirst for knowledge? I can't do that by forcing books on them. Sure, I can help them to learn important lessons by requiring that they read certain books. But what I really want to see is them sitting down curled up with a book reading it because they want to. I believe that should be goal! 

From Bill Humbert: 

One of my children was a reading-avoider. My goal was to get the kid reading and I happened to see the movie League of Their Own in which the Madonna character teaches the non-literate character to read by using trashy novels. I believe the quote was something like, Who cares? She’s reading isn’t she? It’s a scene we always laugh at.

Well, I didn’t use trashy novels, but I did use comic books. We started with the superhero genre and then I gradually slipped in the newer version of the old Classic Comics. For certain works I also acquired Books on Tape, which is more useful than listening to the radio in the car and it gave the child a general understanding of the work.

Since the brain stores different types of input in different locations, this child had an advantage over the children who only had read say Homer’s Odyssey. The child had the pictures from the Classic Comics, the audio from Books on Tape and the printed word itself. After a while the child started to excel in those classes. And only then did the overall desire to read take over. I think it was like a pump that needed to be primed.

Get the child reading. "What" does not matter. If the child finds that useful and desired knowledge comes from reading, eventually that child will take to the books. But you have to prime the pump by starting with something that they want to read, which is not always what we want them to read. 

Larry Williams adds:

When I wanted my kids to read a book I was reading I told them they probably should not read it — that it was too adult for them. A cheap trick, I know, but they pick up those books like a brown trout seeing a grasshopper in August.

Nat Stewart writes:

My parents did much to foster my love of reading. In early grade school I would go with my mother to the local library, where I was allowed to pick any books I wanted for that week. I quickly fell in love with the selection of children's books that focused on biographies of America's great heroes. My particular favorites where books on:

1. Thomas Jefferson
2. Thomas Edison
3. George Washington
4. Paul Revere
5. John Paul Jones
6. George Washington
7. Davey Crockett
8. Henry Ford
9. Daniel Boone
10. the Wright brothers

I loved these books! The children's books focus on a narrative of struggle, adventure, and heroism, ingenuity, and are often historically accurate enough to prove very educational. I remember reading them late into the night, hoping no one notice that I had my light on long past the official bed time.

My parents also spent a good deal of time reading to me. My favorites included books about King Author and Nights of the Round Table, "Little House on the Prairie" books, and The Chronicles of Narnia.

Let a kid explore the library and pick favorites. Provide enough options so that reading can become an adventure rather than a chore. Spend some time reading to them over summer vacation. 

From  Bill Rafter:

 We all remember our trips to the library. However that cannot be replicated today. The libraries simply cannot compete with television and the Internet either with content or "wow" factor. The answer to the problem will be in using the new technology not avoiding it. Television, even the good stuff like National Geographic or Ken Burn's "Civil War", is still second-rate because it's passive. The Internet is active, and thus has more potential as a learning tool.

Games can be very helpful. One that had particularly helped me (both myself and subsequently my children) was Scrabble. After a street game of "boxball" we would dig out the Scrabble board while we cooled down. Those games got very competitive to the extent that several of us kids started doing research on words by randomly reading the dictionary. Scrabble also required you use arithmetic to keep score.

My favorite Scrabble word was "ennui," as it cleaned out your collection of accumulated poor-value tiles. It also led to challenges, which led to another turn and more points. While researching through the dictionary I stumbled upon the word "eunuch", which also had good Scrabble possibilities. Being in 6th grade, I didn't care what it meant, but kept a mental file for future use.

Well somehow I got into a name-calling event in the schoolyard with a girl and called her a eunuch. She had no idea what it meant, but the teacher Sister Mary Hatchetface was in earshot and she most certainly knew. The next thing that happened was that I was in the principal's office (Sister Jane Battleaxe). My father was summoned. He was a Philadelphia policeman, and he happened to be in uniform.

So there I was in the Holy of Holies with the two nuns in their penguin uniforms and Dad in his, trying to learn what trashy literature I was reading. The revelation that it was the dictionary left them with no solution.

Ahhh, the ability to stick it to authority…priceless. 

Apr

27

 Here are my 3am can't sleep notes from last night. Does anyone else do this?

Small talk: Non-conceptual conversation. Lack of logical structure makes conversation unpredictable. Low information content. Attitude towards defined by: Approval seeker (enjoys) vs. information seeker (avoids). How does the profit seeker avoid the market's small talk? Can it be defined?

Driving: Audio, visual and tactile information combined with drivers' implicit knowledge of space relationships, acceleration, sound, and sensation combine to make the next moment predictable in most circumstances. Unusual/dangerous circumstances typically create wrong response (overcorrection) in all but professionals.

Test anxiety: A feeling experienced by students who never discover that test-taking is a skill that can be mastered independent of the tests' information content. Extensive drilling with practice questions under realistic circumstances is a potent antidote.

Uninformed trader: Experiences anxiety due to lack of meaningful predictive ability.

Trader anxiety: Believed by uninformed trader to be primary cause of failure.

Conceptual umbrella: Fundamental principles that aid in making connections that can be defined, isolated, and predicted.

Surprise party: The setup for the surprise party is not that different from the criminally-minded ambush. The instantaneous reaction to 'surprise' is a negative/fear response. The relief sensation combines (for some) with the positive emotion that follows to create a more extreme positive feeling. Is price behavior at a new high impacted by how recently a low was made?

Apr

24

I would like to compute the present value of a client to a financial services firm. The question is, "How much is this relationship worth to the firm?"

Here is the situation: The business has high fixed costs but low variable or service costs. About $5m in fees the past year. The client has been at the firm for 30 years and is one of the top five individual revenue generators. The client is "at risk" and threatening to find a better service provider.

What I am unsure of is how to determine the cash flow to discount. Would it be the $5m revenue, would it be revenue minus service cost, or would it be revenue minus service cost minus percentage allocation of the fixed costs?

It reminds me of the statement, "Each student costs $20k a year to educate," yet if you look at the marginal cost of a student, it is practically nothing, which leaves me unsure how to think about the issue I presented.

I am wondering, would it be best to present this as "keeping this client for X years would be worth Y to the firm," or would some other method be more insightful?

Gordon Haave replies:

You need to be more specific about the fixed costs. That is, will the fixed costs travel with him to the new firm? If yes, then you value it at revenue minus the various costs. If not, then revenue minus service costs. Although it is conceivable that the competitor can lower the service costs somehow, so you should take that into consideration. 

Nat Stewart responds:

The fixed cost is that this is a large financial services firm with hundreds of pension fund clients, with all the infrastructure that that implies.

The low variable or service cost is that no single customer creates a large additional marginal cost to service. Which perspective (or a hybrid?) would create greater insight when valuing cash flows? This situation is not as extreme as the "educating a child" example, but the same idea.

Once this was determined, I had a notion of projecting the value for finite periods (value of retaining an additional 5, 10, 15 years) and also doing a simulation using an estimate of the probability of leaving each year. Still not sure what gives the greatest insights in terms of "This client is worth Y to the firm."

Jan

7

After reading The Wall Street Journal link supplied by Prof. Haave on drbobsports, I went to his site and read his articles. I found the one, shown below, to be a nice take on "beware of the switches." I thought the full article also had good insight into money management and other topics relevant to risk taking and trading. For those who have not already done so, the link is here.

I can’t tell you how many times I’ve had a decent winning week on my Best Bets only to hear on Monday from some clients that they lost money. The problem was not the games that I recommended betting, but rather it was the way that they bet them. Here’s an example. On Saturday I give out 5 Best Bets that are all rated that same, 3 of which are in the morning and 2 at night. One client wagers $200 each on the 3 morning Best Bets and all 3 of them are winners. This client, feeling like I’m hot, doubles his bets for the 2 night games, wagering $400 on each only to have both of them lose. Another client with the same bankroll plays all 5 games at $200 each, as he should. Both clients won 3 plays while losing 2, but the first client is down $280 (wins $600 in the morning and loses $880 by doubling up on that evening’s two plays), while the second client is up $160. On Sunday I give out 4 morning games as Best Bets and 3 afternoon games plus the Sunday night game is a Best Bet (let’s assume that all of the Best Bets have the same rating). The first client goes back to his $200 per game wagers and plays my 4 morning games while the second client does the same, betting $200 on all 4 of the Best Bets. Unfortunately, those Best Bets go 1-3 and both clients are down $460 in the morning. I have now lost 5 of my last 6 games, and the first client (now down $740) backs off and decides not to bet my 3 afternoon games. The second client (down $300) bets all 3 games at $200 each, sticking to his plan. All 3 afternoon Best Bets are winners and I head into the Sunday night Best Bet with a respectable 7-5 Best Bet record so far for the weekend (3-2 on Saturday and 4-3 so far on Sunday). The first client (still down $740) decides to jump back in and bet my Sunday night Best Bet for his standard $200 and the second client (now up $300) once again wagers $200 on that Best Bet. The Sunday night Best Bet is a winner and I am now 8-5 for the weekend on my Best Bets following Sunday’s action. However, the first client is just 5-5 on those Best Bets because he was afraid of betting the 3 Sunday afternoon Best Bets after losing in the morning. Actually, 5-5 is no disaster but because of doubling up on his bets for the 2 losses on Saturday night, he is down $540. The second client bet the same on each and every Best Bet I released and he is now up $500 for the weekend. As it turns out, I also have a Monday night Best Bet. The first client realizes that I have no won 4 straight NFL Best Bets and this is his last chance to get even for the weekend, so he bets to win $550 (risking $605). The second client also realizes that I’ve won 4 straight Best Bets, but he sticks to the plan and wagers his standard $200. The Monday night game turns out to be a losing bet and the first client ends the weekend down $1145 while the second client, betting $200 on each and every Best Bet, is up a modest $280 on my Best Bet record of 8-6 (57%) for the weekend. There are a few lessons to be learned from the actions of the first client. His first mistake was raising his betting amount from $200 a game to $400 a game after my 3-0 start on Saturday morning. My winning those 3 games does not change the chance of winning either of the 2 Saturday night Best Bets, just as losing all 3 of those games would have had no effect on the later Best Bets. The second mistake was that he let fear interfere with his thinking after losing 3 of 4 Best Bets on Sunday morning (and now 5 of 6 going back to Saturday night). This client either thought that my recent losses had some effect on the Sunday afternoon Best Bets or he was afraid to lose any more money that weekend. If the latter was the case, then he shouldn’t have been betting as much per game as he was (I’ll approach the subject of amount to bet per game in a bit). And, of course, the final mistake is probably the most common. The first client bet almost 3 times his normal amount on the Monday night Best Bet in a effort to make up for his losses. Never bet on a game to bail yourself out of a hole, just accept the fact that you had a losing week and move on to the next week. Losing is part of the process of winning and the most successful sports bettors handle losing weeks in stride and move on to the next week without changing their time-tested method of handicapping. Also, never bet extra when you are up to try to make a big score. Like I said before, the percentage of games won up to that point in the weekend has no bearing on the chance of winning your next game and it is silly to raise your betting amount because you feel “hot”. The point here is not to let greed or fear interfere with your decision making. Your best decisions are made prior to the start of the weekend, so decide which games you are going to bet prior to the start of the weekend and stick to that list. Decisions made during the course of the weekend are to often influenced by results up to that point and fear and greed can get in the way of making good decisions. Prepare for the weekend by doing work during the week to isolate the Best Bets. If you are not good at deciding which games are good bets and you still insist on betting sports, then seek the help from an honest source with a proven track record (consider my Best Bets available on this site).

Jan

7

Below are excerpts from two letters my younger sister, Bethany, recently sent me. She is a practicing artist and has been since her childhood. I believe the excerpts below inspired her current study, which is under one of the world's most accomplished realist artists/painters, who runs an Atelier in NYC. 

The spirit of accomplishment runs deep on the list, starting with the Chair, who has been inspirational as both a great practitioner and a teacher. It also includes everyone else who lives a life of continual learning and self-betterment. For this reason I thought others may enjoy reading the excerpts below, even if the full context may be missing. 

I think the late 20s, early 30s is the perfect time to focus one's energy on understanding how to master one's craft…

I finally figured out that things that matter in life are in fact lifelong pursuits that are to be obtained through years of study and devotion. One must grow, learn, and struggle. One must walk in one's own path at the right pace. I think it's awesome to understand this and to honor it. I think in doing so, it is the highest honor to the self, and to one's own life. I had spent a month working on a single pencil drawing, as the masters had done, and it's really awesome that I have this sort of patience now. I think that mastery is the sum of time, focus and love all put in.

I think it is the right time for persons in their 20s to experience unease, spirited desire and impatience. These years have certainly led me to some good discoveries about the limits of my skill and focus. I am not angry at my younger self but I am actually grateful for my shortcomings and the impatience of my early 20s. It was the right place to be at the time.

…And now I see that I had a deeper experience, a gradual process of lifelong development–I do not treat immediacy as god anymore.

Some may be surprised to learn that the techniques required for artistic mastery are no longer featured or prevalent in most art schools. Mastering one's artistic medium or tools is almost frowned upon or even acknowledged as a goal, as modern art typically does not require this … It is viewed as stifling or restrictive. In the mainstream of the art world, the mastery of traditional artistic mediums is almost a lost art itself. My sister has the following to say about her current studies:

This school is an incredible opportunity and for the first time in my life I actually feel like I belong somewhere. It feels like I am surrounded by like-minded people who are all quietly and intently studying a craft that they are really serious about. There is no b-ll—t in art school. This is not about self expression, it is about mastering an age old craft in order to have boundless skill someday at executing your ideas. It's humbling in the most inspiring way.

The best thing about it is that it is such a quiet, deeply focused technique of teaching. It's the rebirth of a classical style of learning/teaching of the old masters that has been all but completely extinguished in our day. J—- C—– is a true visionary. He has a vision of that rebirth, of classical realism being taught in the traditional atelier again. It is awesome. The amount of patience and focus and reverence it requires is awesome too. The fact is that it is not a bunch of self important art school teachers, rather it's these really cool, focused, breathtakingly talented guys–most of them in their 30s who all studied under J—- C—— for years throughout their 20s and mastered the technique–who are teaching.

 I for one found meals for a lifetime in her letters.

James Sogi comments:

One of life's greatest challenges is aging. Even in later years the thrill of learning new things such as statistics, programming, markets, new books, keeping the love of knowledge, new frontiers is fulfilling and give great meaning to life. The mastery of existing skills can be deeply satisfying.

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.

Oct

14

The other day while otherwise occupied, I found myself straightening a paperclip and wrapping it in a coil pattern around a ball point pen. The end result was a small, impressive looking coil spring.

Pressing it in my fingers a few times, (ok, more than a few) I started thinking about why a coil spring seems able to bounce back from greater pressure than strait wire, or wire bent in other configurations. My thought was, the pressure is more evenly distributed over a larger area, which creates less stress on any specific area, allowing the coil to handle more pressure before permanently deforming. Regardless, this sent me to the internet curious about the mechanics of coil springs.

This leads to Hooke's law which states that the amount by which a material is linearly related to the force causing the deformation. According to Wikipedia:

Hooke's law only holds for some materials under certain loading conditions. Steel exhibits linear-elastic behavior in most engineering applications; Hooke's law is valid for it throughout its elastic range (i.e., for stresses below the yield strength). For some other materials, such as Aluminum, Hooke's law is only valid for a portion of the elastic range. For these materials a proportional limit stress is defined, below which the errors associated with the linear approximation are negligible. Materials such as rubber, for which Hooke's law is never valid, are known as "non-hookean". The stiffness of rubber is not only stress dependent, but is also very sensitive to temperature and loading rate.

What would be the market's elastic range or elastic limit, and how would it be defined? Relative short term highs and lows come to mind. Perhaps distance off a reference point, like the opening range concept, or opening of week, or month, or yesterday's close, or x periods ago. Would the elastic range for markets be different depending upon if the market is being stretched in the direction of long term drift, or in Abelson's direction?

Are the elastic properties of market prices more similar to (using above examples) steel, aluminum, or rubber? If they're like steel or aluminum, how could the useful range appropriate to reversal trading applications be defined? If like rubber, what would be the equivalent of temperature and loading rate? Perhaps interest rates (or change in rates) and a measure of rate of price change?

If one can identify or approximate the elastic range, where would be ideal buy/sell points? Too far out, and risk price exceeding the elastic limit. Too close, and one suffers though the trough of the elastic range, perhaps selling to soon out of relief, missing the upward spring. Never a perfect balance, however.

If the analogy is at all valid, are there different time scale coil springs in the market? For example, if a short term (small) coil has exhausted its elastic limit, but the intermediate range (large) coil is still within its elastic limit, would this have any impact on how to manage positions? Would such thinking risk, "turning that short term loser into a position trade" which all books say is a bad idea. Is it? If not, or if so, by what criteria?

If one turns the coil spring on its side and traces the up and down pattern, it makes a perfect cycle of highs and lows. If one were to pull the most recent coil beyond the elastic limit, the horizontal distance would increase, and the extremes would fail to meet the extremes of previous coils. Over specific durations of time, is there an expected periodicity between short term highs and lows based prior highs and lows? If such highs or lows have not been made within a calculated 'elastic range" does this anticipate a change in cycle, or an anticipated move beyond the recent elastic limit?

If one finds oneself in a trade that relative to intended time horizon has exceeded the expected elastic range, would shifting exit horizon or targets yield a better result?

Ryan Maelhorn responds:

If you stretch a coil spring too far it essentially becomes worthless. It turns back into mere wire. The 1999-2000 bubble could be seen as a ruining of the coil that took years to "fix." Price is what separates the elastic range of stocks. Stocks under $0.10 can gain or lose 500% in a single day, whereas the DJIA is said to have a huge rally if it climbs 3%. Also, if you pull the coil out somewhat and let it go, it will not only go back to its natural state, but compress slightly, and then stretch out just a tad before coming to rest. When penny stocks lose 50% or so from the open of the day, usually there will come a time during the day when they will bounce back slightly, perhaps as much as 20%, before continuing their decline. A move you wouldn't even see if you were only looking at daily price bars.

Aug

14

Most people assume that a daytrader is a guy losing his $10,000 account in CMGI, who will have to go back to moving refrigerators for a living. Sadly, that is not too far from the truth for a guy running his own money, given time, using any investment approach.Another reason for the negative reaction is jealousy. It makes people green with envy to imagine a guy taking down mid six figures while working four hours a day in his pajamas from home.

But the reaction that I respect, is the more experienced traders who recognize that there are size limits to daytrading and that if one wants to play in the big leagues one has to develop a higher level of sophistication, no matter how successful one may be as a daytrader. These same experienced souls recognize how easy it is for a guy running his own money to destabilize when the market changes and crash and burn.

My professor, who was at Solly when it was Solly and was the fourth guy at LTCM, looked at my resume and my sheets and told me that I had the worst resume he had ever seen (after 10 years of daytrading) and that I needed to get beyond daytrading because if I was not careful I would be 40 when cash equities went away and then I would be a greeter at Wal-Mart.

Of course the flip side is that for many of the investment/trading guys out there who are not doing something as 'easy' as daytrading to make a living, their 'sophistication' is just a crutch to hide behind as they will under perform indexing year after year.

The bottom line is that dollars are green and if you have got the nerve to do it on your own and can do it, then you can write your own ticket and live the way you want to live. As has been well discussed on the list, money doesn't buy happiness once one can pay the bills, so it is mostly the intellectual challenge that should push any successful daytrader into the 'big leagues.'

Nat Stewart comments:

In the 1990s and 2000s some on the sidelines missed opportunities and were afraid to take a chance. They often now manifest their impotence in hatred for those who shoot for a dream and are willing to assume risk. The day trader phenomenon of the late nineties created a mass mob of little Abelsons, waiting for the fall and relishing the reports of young upstarts getting their comeuppance.

Yishen Kuik adds:

In the late 1990s thousands of otherwise unremarkable young people were making a great deal of money as day traders. Public knowledge of this was fairly widespread — perhaps you recall the television ad where stock trading Junior lands his helicopter on the front lawn of the family home, as Dad looks on bewildered.

It was about upsetting the perceived status quo, young upstarts making fortunes doing apparently nothing too strenuous while 'the rest of us' were left behind, looking stodgy and foolish. When the NASDAQ collapse came and a lot of these mo-mo fortunes were destroyed, the moment of schadenfreude was too delicious for the general public to resist. The public's smug satisfaction that "we were right after all" led to the comforting notion that those who day trade are indeed fools who will soon lose all their money.

I think therefore that the public's enmity towards daytrading is partially explained by the need to protect its own fragile ego — it hurts too much to believe that someone sitting at home in his pajamas can draw down 7 or 8 times the median wage while Joe Public sits in his cubicle cursing out the boss.

Craig Cuyler mentions:

I came across some guys that had a fund in Switzerland about a year ago they were posting plus ten percent returns per month scalping the Dax and Dax options. They developed some software for the Deutsche bourse and had a data pipe line that was a few seconds faster than the rest of the market. The were buying or selling bullets and making five to ten ticks all day on many many trades. It lasted about six months until their method was discovered. Articles on the Flipper have also appeared over the past year, and it is the same story, they have a very short lifespan. There are some other very short term strategies that I have seen for trading futures based on NYSE tick, that work quite well. I just think that, for the reasons I have given, the equities are very risky, and perhaps you bleed to death slowly until rampant markets like pre 2000 come along again.

Archives

Resources & Links

Search