Oct

3

I've decided to call it quits on the trading front (I was trading only my personal account) due to reasons of insufficient capital. Just thought I'd share my last trading blog post.

The final blog post concerns Ivan Drago, and an accounting of the similarities between myself and the real Caravaggio.

1/ In Rocky IV, Rocky Balboa is in Apollo Creed's corner watching Creed get absolutely pummelled by Ivan Drago, a stone cold Russian killing machine. Creed is under-trained and over-the-hill and Rocky knows it, but he can't bring himself to dropping the towel and calling an end to the fight until it is too late - Drago delivers a literal killing blow with no remorse, famously commenting 'If he dies, he dies.'

Rocky, sorely racked with guilt and anger, desperately needs revenge. He heads out to Russia to train in the mountains and fight Drago on his own turf. Up against the odds, Balboa achieves the impossible. He succeeds in defeating Ivan Drago, winning over the hostile crowd in the process. Let's get one thing straight: this is Hollywood. Rocky Balboa was in the wrong. He should have dropped the towel and let Creed's pride take a hit. Balboa let his friend die and there is no coming back from that. Beating Drago in a revenge match may bring some sense of justice but the responsibility still lies with Balboa. We can also make the case that just as Creed shouldn't have fought with Ivan Drago, nor should Balboa, despite all his training and despite the victorious outcome. Of course, that may not have made for a very exciting movie. Hollywood is filled with such underdog stories and they make for enjoyable viewing but we must remember that if you fight the odds all the time in the real world, they'll eventually catch up with you. (1)

Here we have one of the most important lessons from the game of trading: process trumps outcome over the long-term. It is because of this idea that I am making the decision to throw in the metaphorical towel. For all intents and purposes, my trading life is over. It was inevitable.

Just as we should consider the alternative outcomes that never materialised in Rocky IV, so we must do the same with our trading. I know that I have died many a death in the alternative histories that never happened but that could have happened had the gods of chance not been so generous with the roll of the die. My capital is pathetically low (an affliction suffered by most traders) and I wanted to build up my equity to the stage where I could enact the right trading processes. I knew it was only then that I could start trading properly. But the paradox is that in order to get there I needed to take outsized risks to build up the capital in the first place. It was a classic Catch-22 situation, one where I had to follow the wrong path to get to the right path. I crashed and burned, worked my back up, burned again, and partially recovered. But it is not sustainable. I cannot keep on fighting the Drago. It is not healthy and conducive to practising the virtuous life.

My passion for the financial markets remains undimmed but this is my last blog post for the foreseeable future. I hope it serves as a useful record of a solitary trader's efforts. The journey has been worth taking in every respect and I thank you all.

In this section, I compare my trading life with that of the real Caravaggio.

2/ Caravaggio the artist lived from 1571 to 1610 and what a life. He was a supremely gifted painter but Caravaggio was not a nice person to be around. Rebellious to the extreme and prone to outbursts of excessive aggressiveness, Caravaggio was always getting in trouble every where he went, trouble that would often included a burst of violence along the way.

I don't model myself on this guy but there are similarities. My antics in the market place were often akin to Caravaggio's pointless brawls and arguments, usually ending with me the worse for wear and filled with gloomy self-loathing. By the time I started this blog I felt I had a much better control of my emotional trading faculties, but just as Caravaggio was left badly wounded after he fought and killed Ranuccio Tommasoni in a knife-fight in Rome, I too was left with permanent scars from these pointless battles. These tumultuous events were pivotal in both lives. The artist had to flee to Naples as the authorities in Rome had put a price on his head (a pena capitale). In my objective mind I knew my days in the trading arena were numbered, but I tried to run from this reality. Caravaggio the artist continued to paint. I continued to trade. The lives we made for ourselves caught up with us both.

The desperate search for redemption is another tie that binds. Caravaggio, somehow hearing that Rome was likely considering granting a pardon, made his way back to Chiaia in Spanish Naples, where it his thought his first patroness may have been able to help in influencing the papal authorities in Rome to issue to the pardon on his behalf. Alas, it is here that the artist was so brutally attacked and mutilated by unknown assailants that word spread of his death. In Simon Schama's 'The Power of Art', Schama notes that Caravaggio stayed in Chiaia and kept painting. He says of these paintings they 'were images of redemptive suffering and, yet again, decapitation, as if he couldn't get the image of his own pena capitale, his capital sentence, out of his mind.' My brush with death came this February, and it was a dangerous one. My self-loathing hit a new high, made worse that the fact that my capital sentence (a shortage of capital) was of my own making. I equated redemption with getting back to break-even - this would be my pardon from Rome - but I now realise that it is not here that redemption lies. It lies in being true to oneself and stopping now.

[PIC : David with the Head of Goliath, 1610]

It is during Caravaggio's time at Spanish Naples that he painted David with the Head of Goliath, pictured above (2). The painting is widely thought to be a form of double-self portrait; at the very least the decapitated head is surely Caravaggio's. As with almost all art, the exact meaning of the piece is open to interpretation but right now the message that resonates with me is one of a deep understanding of the self, of the idea of redemption by making a clean break of the troublesome Caravaggio of old, and lastly, there is a heap load of self-loathing (see David's disgust with what he is holding). Schama says of this painting, 'You see something that had never been painted before and would never be painted again: a portrait of the artist as ogre, his face a grotesque mask of sin', describing the young slayer of the giant Goliath as the 'most conflict ridden David ever to be imagined in either marble or paint.' I can relate. There have been times when I felt like David and the market was Goliath, and other times when the market seemed the true David and I the ogrish Goliath, but the long standing truth is closer to idea of the double self-portrait, that I am both characters, and that today I officially severed the wicked head of my alter-ego (3). There will be no more half measures.

Rebirth denied - Caravaggio met with a tragic end. Still seeking redemption but now with a pardon apparently on the way, the artist boarded a boat for Rome, taking with him a collection of paintings he intended to give to people of influence and win favour. However, when the ship pulled in at the port of Paulo he was arrested for unknown reasons. By the time Caravaggio got out of jail the ship had sailed off with his paintings still on board. Some think that Caravaggio actually saw the ship sailing away and that, in a frenzy, he gave chase. What we do know is that Caravaggio made it as far as Port Ercole but there he collapsed on a beach with severe fever. In this pitiful state, he was taken to a local hospital where the troubled artist died. So near and yet so far.

As with Caravaggio's near redemption, my ship has also sailed (4). In the place of the important payload of valuable paintings are valuable trading secrets that could lead to success in the market. These are the product of several years of relatively intense trading and they will stand me in good stead when and if I ever return to trading with a reasonable level of capital. Of course, they are not secrets of the 'key to riches' variety, simply crucial lessons that I noted from my experiences trading the markets. My full-time trading career is over. I still plan to trade in extremely small size, seeding my two trading accounts with £500 each, but this is only to maintain an active in the markets until the day I am ready to return, if ever.

[PIC : Saint Jerome in Meditation, 1605]

These introspective paintings of Saint Jerome and Saint Francis touch on ideas of contemplation of the self, mortality, and man's role in relation to the world. It is apt to end with a famous quote by Socrates:

'The unexamined life is not worth living.'

The End

(1) Later Rocky films address this issue, with the writers giving Rocky Balboa permanent brain damage as a direct result of the thunderous blows delivered by Ivan Drago. Rocky also experiences a humbling of his financial status that forces the boxer to give up his extravagant high-life and return to his old neighbourhood.

(2) Wikipedia observes the letters H-AS OS inscripted on David's sword, an abbreviation for the latin phrase 'Humilitas occidit superbiam', or 'humility kills pride'.

(3) The non-Caravaggio me lives on here.

(4) Given my chosen trading name of Caravaggio, the question of whether I subconsciously expected this fate hangs over me. Fortunately I don't delve that deep.

Steve Leslie writes:

Your insights are exquisite and insightful and express feelings that all of us who have been at this for any extended time have gone through. Although your trading may take a hiatus (I suspect you will be back) I hope you continue to write on your lessons learned and share on this website. It takes a very special person to admit defeat but all of us have done so in our trading lives. One of the central themes of Stallone characters is the underdog who withstands great odds against him and finds the character to endure rebuild and ultimately vanquish the foe. It closely parallels his personal life in many ways. I look forward to more postings of your marvelous vision going forward. We here have much to learn from you.


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7 Comments so far

  1. Evan McKeown on October 3, 2008 10:31 pm

    Sad to read your post. I’ve been there Brother. Perhaps, I will find myself joining you in a week or two after the S&P loses another 20% and I have been reduced to selling pencils in a cup. These Bear Markets are tough. They seem to go on forever and just as we have some hope like today with the DOW up 300 it closes down 150 and saps every ounce of strength from your body. Tonight, I played in a Friday evening tennis mixer yet numbers were running through my mind. Mostly red numbers. I could not escape. The market had me questioning my own resolve. They speak of diversification yet the S&P lost close to 10% this week alone. There is no place to hide. For as soon as one moves to cash the market seems to know and reverses course leaving you questioning your judgement and skill as a trader. This Bear seems different than the others. Perhaps it is the constant reminders by the financial papers, television, even Washington is in on the act of how bad this credit crisis is. The pundits recite the same old recycled news about the credit crisis and a lousy economy and the market treats it as if it was fresh information and down we go. One thing I am sure of, greed may have gotten us into this but greed will get us back out. Just as folks sell for fear of losing, they will panic buy for fear of losing out on the market moving back up. The question is how much more pain must we endure for our patience to be rewarded? Perhaps the sensible approach is to cash in the chips and congraduate the Bear and exit as graciously as possible. Life is a gift. A billion in one odds that any one of us would be here today. No speculator in his right mind would ever take those odds. Should a man’s destiny conflict with prudence? The Bear will claim his victims one by one until the Bull has had enough and the stampede begins in ernst. If I was lucky enough to be one in a billion, then the least I can do for my maker is suck it up and play another hand of poker with the Bear. Destiny will not be denied by some hairy Bear with big feet and smelly breath.
    Goodluck Brother!

  2. P.Killian on October 4, 2008 6:16 am

    A very heart warming and thoughtful post.

    We all have our uncle points. I have not hit mine yet, but I came close last month after the Lehman debacle. When one puts on a trade purely on the expectation of a government bailout and talking to people who worked at the firm, then it is difficult to look at oneself in the mirror. I still hold onto 10 shares. I hope to receive the stock certificates someday and get them framed. Only I will know how much that picture will cost. In hindsight, what was I thinking? My success the last 15 years has been exclusively buying breakouts in a small subset of cyclical stocks and holding. Given this bear market, I am not fully invested because the opportunities for my trading style are just not there. So wanting to participate in the market and against my better judgment I have been trying to catch falling knives recently. I have a character flaw that allows me to take a portion of my account to try to hit for home runs rationalized by using the gains from some other trades

    The media are reporting an economic credit crisis, but I can’t say I fully understand what is going on. (Structured products, derivatives, de-leveraging, CDS, bond tranches, CDO’s squared, etc) But does understanding the root cause really matter.

    During past economic crises things seemed more tangible in hindsight. There was some overexpansion or bubble. The bubble burst and bank failures resulted in a contraction of the money available for business lending. The economy would contract. Unemployment would rise, labor wage rates would be cut and there would be strikes and labor unrest that one could read about in the media. Some factories would shut and there would be some reports of supply chain problems. A train might not run because a fuel delivery was not made or a spare part was not available. Or a ship of goods was stranded at the port that could not be unloaded because the buyer refused to take delivery. Maybe things were made worse because government policy contracted the money supply. Nassim Taleb would just call this heuristics and cognitive bias.

    But today the media stories seem different, but maybe they are the same but of just a different type. The credit markets are not functioning normally. Financial counter parties are no longer solvent. Some Insures on these financial instruments are not capitalized enough to meet their obligations and fail to deliver on their contracts. Valuing structured products are difficult because the market pricing mechanisms are not work properly. Companies cannot be valued accurately and can fall prey to rumors and runs.

    Congress passes Bills that are seem eerily similar to an Ayn Rand novel: “The Troubles Asset Relief Program” and the “Emergency Economic Stabilization Act of 2008”. Is it surprising that the mountain state delegations voted against the bill? Also, our Bernanke is an expert in the Great Depression. Is it karma that he is now tested? Will the standard econ 101 textbook lesson learned from the last depression be refuted? Will the standard “provide liquidity mantra” from ‘87, ‘97, ‘98, ’01 be tested?

    Then in Tandem we have a war ongoing, an election, the US demographic changes, etc. We truly live in interesting times.

    Sure the VIX is up and the daily trading ranges have widened creating some scalping opportunities, but I have already learned my lesson trying to play that game. I have reached my uncle point on these activities due to my Dyshidrosis Ezema flaring up on my feet. This has only happened 4 times in my life and always during turning points. Usually, by the time my skin clears up things will have stabilized. But based on past experience I should fully load up and leveraged myself to the hilt.

    I just do not have fortitude to do this. I value staying in the game too much.

    I am sure you will miss it and the bonds we fellow risk takers share. I salute you

  3. russell on October 4, 2008 11:47 am

    I recall watching rocky 4 at the cinema. And distinctly remember me and most other male cinema goers standing up screaming and shouting,baying for Dragos blood ! That Apollo Creed was a top guy and we all willed Rocky on ! We all knew Rocky would win but it was a close run bout! :)
    I have enjoyed your educated blogs and wish you success in the future.
    I am in the same boat and realised this week would not be my hour!
    I started trading in june 2000,and after thousands of man hours have skillfully avoided in making any money at all. With hindsight it should have been easier!.
    However on an upbeat note i appreciate there is no need to chase the market.There is and never will be a dull year!. I will be back when im ready and not when the market siren lures me in. In between this period i will enjoy life.

  4. Alice Allen on October 5, 2008 12:56 am

    “To ensure good returns, it makes sense to invest in one’s health and increase the probability of having an abnormally long investment horizon. Also, shooting for a long time horizon may give one the ability to see a playful cub where others see a grizzly ravaging the market.” Riz Din, Comment, July 7, 2008

    I hope that your advice to the rest of us just three months ago (Doesn’t it seem like three years?) was a prescient awareness of what you will do now. Please take care of yourself, and stay with this blog. So many are right there with you and do understand. We need your voice.

  5. iconoclast on October 6, 2008 6:03 am

    i just wanted to express my commiserations… without adding any further insights… you express the quintessential dilemma of the trader, profoundly and beautifully, at the level of one's soul… what you wrote is so stimulating, i could respond indefinitely, but to be concise, i would just remark how easily this activity lends itself to masochism, whether you eventually return successfully, nothing will surpass the soulfulness of your temperament… l'chaim!

  6. vic niederhoffer on October 8, 2008 11:03 pm

    It is beautiful to know that such as Caravaggio and the responders to his magnificent self effacing and self aware piece exist. Makes us want to keep this site up forever. vic

  7. Riz Din on October 9, 2008 7:18 pm

    Thanks so much to everyone for sharing their experiences and thoughts, and for their kind words.

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