Aug

14

Have No Fear, from Jim Sogi

August 14, 2006 |

Fed Day was no fairy tale. The problem with story lines is that they are linear and backward looking. The market is future discounted. Thirdly, the story is usually someone else’s agenda, not your own. Believing in fairy tales is not conducive to the bank account. Chair also notes in Ed Spec that turning points are volatile, and that when the Fed makes rare changes in direction it often continues for a long time in the same direction.Despite this, Grimm’s Fairy Tales are a gold mine of entertaining lessons on life and trading to be learned. Take for example The Story of a Youth Who Went Forth to Learn What Fear Was. Market action often shows fear at work, causing unforced errors by market participants and traders. This story is about a dull boy who lacked fear, and in the typical three vignettes endured three scary situations without fear, dealt with his adversaries ruthlessly and ended up with the treasure. Another interesting analogy with fairy tales and the market is the use of threes: three scenes — three scary drops. The announcement made believers in fairy tales go long at the false pop. Same story as last Friday.

‘When I asked him how he was going to earn his bread, he actually wanted to learn to shudder.’

During the first trial he grabs the scary black cats and nails their paws to the table and drowns them, and then cuts up the rest. In the second trial scary things failed to make the boy shudder where others would have run in panic. He plays nine pins with dead men using skulls for a ball. He says nonchalantly without fear, “lost a couple of farthings.” In the last trial, the old ghost says, “If you are stronger, I will let you go”, so he seized an iron bar and beat the old man till he moaned and entreated him to stop, when he would give him great riches…The old man led him back into the castle, and in a cellar showed him three chests full of gold. “Of these,” said he, “one part is for the poor, the other for the king, the third yours.”

During these scary trials the best course is not to shudder, but to seize an iron bar and beat the living daylights out of it to collect the treasure. Secondly even a dullard without fear can do well by applying the unique ability to deal with scary situations without fear.


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