Apr

13

I believe that many (if not most) of life's lessons can only be learned through experience. Yes, one can learn about the dangers of using a chainsaw by observation and some instruction and manage to not hurt oneself, but one doesn't truly understand or know a chainsaw until one has one in ones own hands and feels the wrath of which it is capable up close and personal. There are so many trials that await us for which we come sorely prepared. Lessons about integrity, character, discipline, trust and courage (especially courage, I think) only truly sink in when they have been put to the test. Don't get me wrong, I read constantly about people I would like to emulate, whose lessons I would like to have handed to me more or less gratis. Would that it were so easy. But I have never learned anything truly worth knowing about trading (or being a man, or friend, or lover, or father) that I didn't learn thoroughly until I had a position on and, win or lose, gotten myself into the thick of things.

That is not to say that I haven't learned things from reading. On the contrary, if I thought that were the case I wouldn't be here with you now. I think one of the problems that holds us back as a species is that not only are we constantly learning, but also constantly forgetting important lessons. And the critical ones need to be chiseled away at constantly throughout one's lifetime. With a little help, sometimes you can learn a few of them early, set them deeply in your psyche and keep them with you.

Nick White writes:

Excellent points. I wholeheartedly agree that actual involvement in life is a must, and that theorising about problems is of limited value until you've actually faced them. I would argue that a healthy dose of erudition encourages wide participation in the "right" activities, while (hopefully and presumably) minimising involvement in the "wrong"ones. You're more willing to put yourself in real-world activities because you have some preparation for them and want to test your assumptions. But, then, I'm assuming rationality on our part; my apologies.

This neatly leads us into the realm of probability and expectation: perhaps we can generalise that the more personally harmful an effect might be, the more one should be taught/ learn about the activity through vicarious means (advice, books, etc etc) rather than direct experimentation? I don't think this necessarily involves attempts to understand "tail risk" (which we can't really know anyway); it's a question of expected return (admittedly, we then get down to how each person "values" an outcome, once they've assigned a probability to it). This comes back to my point about the necessity of being a good empiricist / skeptic in order to squeeze the juice out of life. Sum of probability of outcomes * expectation from identified outcomes. Hedge according to the variance. Build in plenty of redundancy for the possibility of unimaginable, outsize risks. It's not perfect, and fraught with difficulties, but it might at least provide a sign post to better results than not doing it.

The other excellent point you raise is how we might better transition and generalise book-smarts / domain-dependent expertise into life as a whole? There have been hundreds of papers on this point (eg, one might be a widely published expert in academic statistics, but fails to apply those skills in the "real world" when given a real-life problem– the expertise doesn't translate, or is non-functional). I think that is where your first point on putting one's learned skills to the test is essential. It helps to consciously apply what's been learned.

In sum: learn about a field or proposed activity as much as possible with your hypothesised utility. If you have even a small chance of doing non-trivial damage vs the expected payoff, then– should you still wish to proceed– learn from a source how you can minimise or avoid the negative payoff to maximise your positive expected return. Perform or non-perform. Report the results. Then try and apply the lessons learned to other fields…I think we have to consciously work harder on this "translation" effort. 


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2 Comments so far

  1. J.M. Maile on April 13, 2010 5:14 am

    A definite learning-experience of course is the act of financial market trading.

    Many caveats suggest or recommend so-called paper-trading, as in “no actual money or not your own money involved”. Many times it has been my experience that paper-trading does not work; at least for me.

    I know of other traders who don’t subscribe to the “discipline” of paper-trading, and who instead open a new position with a small order for their portfolio.

    I am one of them. I’ll sooner trade my way into a (funded) trade and pay commission going in and out, than simulating a trade on a piece of paper and see it (godferbid) succeed or (thankfully) fail. Don’t ask me why. {o(

    Note: by “funded” I mean committed: cash, margin or otherwise.

  2. Gary Rogan on April 13, 2010 11:44 pm

    The trick is to learn the dangers of a chainsaw by using it and not by getting one’s foot cut off.

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