The promise given was a necessity of the past: the word broken is a necessity of the present– Aparna

Two weeks ago, 700 residents of a small, affluent mountain community were stunned to learn that at least 90 million dollars they had entrusted to a pillar of their community was gone. The man who seemed to have it all-a sprawling mansion, the fanciest cars, the trophy girlfriend and the most reputable business in the state– declared personal and company bankruptcy. The town is reeling from this, TV cameras are going house to house and many say they were "completely wiped out and don't know what to do or where to go." They have fallen apart and are going to pieces.

Sparing you the details, the essence of this story is that there were too many secrets lies and false promises. The more secrets you have, the sicker you are. This applies to all aspects of personal and business life. The more secrets you keep about who you really are, what you are doing with your money (the last great taboo of our culture), the sicker you are.

This is nowhere more true than in trading. If you do not get right with yourself and those who believe you and believe in you, you are in sickness and stinking thinking. The most important way to begin falling apart without going to pieces is to tell the truth. If you are hiding your losses from a loved one, step up and tell that person. Don't pretend you are a winner when you are losing. Don't allow your pride to get in the way because pride (especially if built on a false and crumbling foundation) leads to misery, falling apart and, for some, going to pieces.

What happens when you go to pieces? Addictions, acting out behavior, depression, continued lying to self and others, and all manner of mental, physical and spiritual DIS-ease. It is only through telling the truth and being radically honest and taking personal responsibility that you find true freedom. This is exactly what happens every day in life and in the markets. There is so much hype, deception, misinformation and disinformation. You search desperately because you want to find the truth. But most of it is not the truth. The truth is often intolerable to bear. Denial, rationalization and the search for confirmation of your biases are much easier. No one wants to fail, but failure is a part of life. Failure is a part of trading and investing. Losing in the markets and life is often the beginning of winning. It's OK to fall apart without falling to pieces. It's necessary to get stopped out, to preserve capital, to embrace risk and take total personal responsibility for your thoughts and actions. Winners fall apart, but they quickly regroup. They don't crumble and hide in the corner or lie to others about how great they are.

It's freeing to admit that we are human beings, that we are fallible and we make mistakes. It's OK to make mistakes. It's not OK to lie about them and pretend they don't exist. In time, the truth will be revealed but at this moment, hundreds of suffering people have lost trust. Trust is a commodity in very short supply today, yet it is the bedrock of any relationship. People will not trust you if you lie to them. You will never learn to trust yourself if you continue to lie to yourself. It's a vicious cycle of denial and obfuscation that leads to self-destructive behavior and further self-sabotage.

There are many lessons for trading and living in this story. Here are a few ways to keep from going to pieces when it all falls apart:

Always tell the truth to yourself and those you love and who love you.

Trust, but validate and verify everything.

Don't trust anyone but yourself when it comes to your money.

If something seems too good to be true, it probably is.

Don't assume anyone has your back. Take full and total responsibility for your actions and don't sit around waiting for someone to bring you flowers or make money for you

Just because something has worked in the past, don't assume it will keep working. Linear thinking is complacent thinking and leads to a false sense of security and comfort.

Don't get greedy. Remember, bulls and bears make money-pigs get slaughtered.

Don't put all your eggs in one basket. Diversify whenever possible.

Everything you thought and dreamed for your future can be gone in the blink of an eye.

Hope is not a viable strategy for trading or investing in anything.

Stay really strong in body, mind and spirit because you never know when the tsunami is going to hit.

Prepare for the worst and expect the best. Have a backup plan. Have three backup plans.

When it all falls apart, you can and will survive if you don't fall to pieces.

If you once forfeit the confidence of your fellow citizens, you can never regain their respect and esteem. It is true that you may fool all of the people some of the time; you can even fool some of the people all of the time; but you can't fool all of the people all of the time–Abraham Lincoln



 I cannot count the number of times my trading was going along really well, then all of the sudden, wham… all my profits were erased in one fell swoop, one bad trade. In retrospect, I got arrogant, and decided, because of my invulnerability, to assume extra risk which became my undoing.

Despite many decades of trading, I still occasionally get a b**ch-slap from the mistress of the market when I get excessively confident. In my own case, this seems to happen when I have many trades on and all are solidly in the black, or I've had a real good run. I get a sense of invulnerability, hubris, and that's my own personal kryptonite. At least I can recognize this flaw, and it hasn't reared its ugly head in a few months. Usually when my normal balance between my offensive and defensive game goes out of whack is when I get killed. Now I have a system in place that identifies when I'm about ready to go on tilt. The system hasn't kicked in yet, so maybe I'm learning something.

When I was coming up, an old grain trader told me that "Hope" is for losers. I used to get stuck in a position, and hope it would come back, and it usually would not. In fact, my friends saw me hoping for an improvement and were fading me all the way down. It took awhile, but I learned that hope won't bring the market to your favor, but hope will make you go bankrupt. Finding people full of hope can be a gold mine for you, provided you play it right. Seeing a person "Hope" for his position to improve enables another person to get additional clarity on what the market is going to do….at least in my case…..but I like fading losers. The converse is that I don't mind or take it personally when people fade me when I'm wrong.

Luck is just wrong. I don't believe in luck, and if it were to exist it would be a zero sum game. Is a person who wins the lottery lucky, or is he just part of the statistical distribution? I like to think of luck as an offspring of statistics and probabilities. There is a probability for every possible occurrence in the universe, and things just happen without any mysticism involved..Some gamblers like to have lucky rabbit's feet, or other talismans. I like to sit in position to those guys in table games. Some guys like to brag about their lucky streaks and I listen carefully. I like to observe their streak, and at some point, start to fade them, a little at first before I really press. Sometimes this works, sometimes I get my butt handed to me on a silver platter, it depends.

My favorite are the superstitious, as they believe that some mystic power controls their destiny. Evidence of any kind of lucky charm raises my curiosity and I try to observe that person for any fade clue. It's tough enough to pull money out of the markets. The emotions of hubris, hope, and luck make it near impossible to make money. These emotions are akin to having a horse player bet the his idea of an overlay, only to lose, and hear the lament, "Boy, I wish there were just one more furlong." In horses, as in the market, and life, there is not one more furlong and do-overs aren't allowed.

Kim Zussman replies:

How about this definition of luck: 

From Merriam-Webster:

1 a : a force that brings good fortune or adversity b : the events or circumstances that operate for or against an individual

2 : favoring chance

3. Favorable or unfavorable outcome which was not caused by skill, effort, or actions taken.

I purposely left out "ability", since some large fraction of ability is genetic, and one can only obtain good parents by luck.

Janice Dorn writes:

Self attribution bias applied to trading posits that traders attribute good results to skill and bad results to bad luck. This is a common bias that underlies the inability of many to admit they made a mistake.

Rudolf Hauser writes:

Kim's definition of luck is a good one but I disagree when he writes "I don't believe in luck, and if it were to exist it would be a zero sum game." There is no question that ability, persistence, preparation and work in general are needed to take advantage of opportunity, but luck also plays a part. So much of what we do involves interaction with other people and some depends on being in the right place at the right time. The geologist or anthropologist who is traveling somewhere and happens to notice some clues that will lead to a significant discovery is the beneficiary of both his or her skill and good the good fortune of being alert (not luck –or is it if you were just doing something else at that time and so missed what you otherwise would have notice so you had bad luck) and the luck of being in the right place at a time they had the experience to take advantage of the opportunity.

Or what about the person who takes a job in a local company that just has a product about to take off and ends up making a super salary and seeing the stock he purchased in the company rise and make him rich whereas if he had done the same in another town with the same skills and hard work doing much less well because the people running the company in and industry with no such product line and whom he had never meet were bad managers and ran the company into the ground? Sure he or she did not have perfect foresight and the ability to evaluate the thousands of people one interact with and predict how will interact with them over a lifetime–but then who does?

There is no question in my mind that a person who does not fully apply themselves is not likely to be able to take advantage of what good fortune of opportunity presents itself but there is also no question that luck plays a major part in life. And it's not just genetic– if you were born in a country in perpetual war and poverty your changes of a good life are much less than if you were born in the U.S.A. Or what about the Jewish children born in the 1930's in Germany or central Europe rather than the U.S.A. or being born in either place in the 1960's? Was that there bad luck or a failure of keen judgment and hard work on their part if they died in Hitler's gas chamber? What about the person who contracts a disease and dies from it when a cure would have been available had he gotten the disease a decade later? Was that something he or she could have prevented or just bad luck?

Kim Zussman adds:

I know a guy who is a retired contractor/developer, who "came from Germany with $20 in his pocket" and is now very wealthy. He developed a number of commercial and residential properties.

Why so successful?

1. He happened to like to work outdoors, was good with building, and good at commanding laborers
2. Was born charming
3. Was lucky to have lived through three decades of atypically high appreciation in real estate

Had any of the above three been missing, especially #3, he would not been as successful — maybe even a failure. I call that luck.

You can say the same about stock bulls in the 90s, oils and railroads in the past — all kinds of bull markets and bubbles, without which the great moguls and flops would not be. Not to mention war heroes who survived to tell the story, as opposed to those who took equal action but were silenced.

Economic society is pretty much zero sum over short periods, if you add all the give and take together.

Russ Sears writes:

Much of what we call luck is really the skill, effort and actions taken by others and given to us by the generosity of those most successful.

This would include living in a free country.

Further, much of this skill, is willingness to take actions and give effort where the difference between success and failure often hinges on the smallest thread. A thread so small, that even the most skilled, those putting the most effort can not be assured that any fruit will be borne. But one where the skill lies only in putting the edge in their favor.

This would include parenting and trading.

Finally, much of what looks like incredible luck is compounding of these skills over time and history.

However, to anecdotal throw a wrench into the "no such thing as luck" I have a relative by marriage, that won 2 lotteries. One a $4.3 million jackpot in MO state lottery, by entering one ticket a week. The other a half million Reader Digest sweep-stake, by answering the junk mailer. But she would like to remain anonymous.

The untold story however, is how the money tore apart her family. Luck or curse, I leave it to the reader.

Jim Sogi writes:

 Chinese proverb

Good Luck Bad Luck!

There is a Chinese story of a farmer who used an old horse to till his fields. One day, the horse escaped into the hills and when the farmer's neighbors sympathized with the old man over his bad luck, the farmer replied, "Bad luck? Good luck? Who knows?" A week later, the horse returned with a herd of horses from the hills and this time the neighbors congratulated the farmer on his good luck. His reply was, "Good luck? Bad luck? Who knows?"

Then, when the farmer's son was attempting to tame one of the wild horses, he fell off its back and broke his leg. Everyone thought this very bad luck. Not the farmer, whose only reaction was, "Bad luck? Good luck? Who knows?"

Some weeks later, the army marched into the village and conscripted every able-bodied youth they found there. When they saw the farmer's son with his broken leg, they let him off. Now was that good luck or bad luck?

Who knows?



James Cameron in avatar studioSmash hit Cameron film "Avatar" fits well with current Laureate apologia:

"John Podhoretz, writing a critique for the Weekly Standard, goes so far as to call the movie "anti-American."

"The conclusion does ask the audience to root for the defeat of American soldiers at the hands of an insurgency. So it is a deep expression of anti-Americanism-kind of," Podhoretz writes." (ABC news)

Not surprisingly the film is setting records in Russia, where the mafiacracy foments resentment against the US imperialist military-industrial complex. Expect louder cheering from those quarters as we become layered with increasing taxes, bureaucracy, and official corruption, evening the playing field.

Janice Dorn writes;

In 1984, George Orwell described a superstate called Oceania, whose language of war inverted lies that "passed into history and became truth. 'Who controls the past', ran the Party slogan, 'controls the future: who controls the present controls the past'."

Barack Obama is the leader of a contemporary Oceania. In two speeches at the close of the decade, the Nobel Peace Prize winner affirmed that peace was no longer peace, but rather a permanent war that "extends well beyond Afghanistan and Pakistan" to "disorderly regions and diffuse enemies". He called this "global security" and invited our gratitude. To the people of Afghanistan, which America has invaded and occupied, he said wittily: "We have no interest in occupying your country."In Oceania, truth and lies are indivisible.

Stefan Jovanovich comments:

I don't think Orwell would have agreed with Dr. Dorn. He wrote 1984 after working for the BBC during WW II when private letters were read by government censors; food, petrol and housing were all under government control; the currency had, within very recent memory, ceased to be exchangeable for gold; And –most important of all– all the citizens of a common law state were subject to impressment at will. That is hardly the situation now.

Measured by Orwell's standards, the glorious good old days of the 1960s were a great deal closer to 1984. The Tet offensive debacle of the NVA was a "success" because Walter Cronkite said it was; the New York Times knew best; and we had a draft. Over the past half century the tyrannies of academia have become far worse, and the civil servant class has expanded to the point that the U.S. and Europe are now equally oppressed by bureaucracies and airport security is truly a tyranny invented by the telephone sanitizers; but freedom of thought has never been greater. It becomes less and less possible to say "everybody knows".

As for perpetual war, there has been one going on in Africa for the past decade and a half. No one has done a census of the casualties, just as no one did a census of the deaths from Mao's Great Leap Forward or Stalin's rationalization of Soviet agriculture, but reasonable people agree that the scale of all 3 atrocities is comparable - somewhere between 15 and 30 million deaths beyond what would have occurred from normal aging and disease and ordinary mayhem. Thank God that perpetual war, which surely dwarfs our own petty struggles against Islamofascists, is coming to an end. Those who decline to believe in Almighty Providence can attribute the onset of peace to other causes: simple exhaustion and the decline in the supply of Kalashnikovs and other implements of less than mass destruction. Whatever the cause, someone much closer to peace has broken out in Africa. In the world of Oceania that would not have been allowed. 



Here is the strongest evidence yet that Lp(a) causes heart disease:

December 23, 2009 by Lisa Nainggolan

Oxford, UK - New genetic research has identified two relatively rare single nucleotide polymorphisms (SNPs) that explain just over a third of the variance in lipoprotein(a) (Lp[a]) levels in individuals of European descent. The work confirms unequivocally that Lp(a) is a causal factor for coronary disease, say Dr Robert Clarke (University of Oxford, UK) and colleagues in their paper in the December 24, 2009 issue of the New England Journal of Medicine.

Read the rest of the article here.



GondiiParasites influence behavior to a remarkable extent in humans and markets (they are called viruses on computers). For example: gondii causes humans to be very attractive to cats so the gondii can be transmitted. The markets develop these parasites also. They  show systems that work. They are eaten by investment advisers and publishers and promoters and CTAs. That way they can be transmitted by the water supply, — I mean, money supply. When transmitted, they cause losses as they cause the brain to malfunction to think that for example cycles will persist, until the next round of non-infectives can be found.

Scott Brooks responds:

Human behavior is just like the deer on my farm. It's cyclical and goes thru a "feast to famine to feast to famine" ongoing cycle. Deer, if left unchecked by hunters, will explode in numbers to the point where disease, often in the form of parasites such the midge flea that carries EHD (Epizootic Hemorrhagic Disease), spreads. Mother Nature is the older and much crueler sister of the Market Mistress, and when she steps in to to correct a situation, long painful deaths ensue. Starvation, death from disease (which often results in a weakened animal being caught and eaten alive by a predator) and other horrendous forms of death and miserable existence (for those that survive) ensue. Mother Nature steps in and cleanses out the excesses. The Market and Economy go thru the same boom and bust cycle. Everyone "Parties like it's 1999" without realizing that every good thing must come to an end. That's when the Mistress steps in cleanses out the excesses…..and the party stops. Market downturns, recessions are her way of cleansing the herd. But when the herd doesn't respond, deeper more painful methods must be used — just as we saw in the 1930s, and 1970s, and as some would say we're seeing right now.

Janice Dorn comments:

T. gondii damages the astroglia of the brain. These are sometimes called astrocytes and are kind of a brain glue or support, particularly as regards the blood-brain barrier. For years we have known of correlations between certain mental disorders and T. gondii. Schizophrenia has a strong correlation with T.gondii and is believed to be transmitted from mother to fetus. High rates of T.gondii are also associated with a variety of anxiety, depressive and so-called "neurotic" disorders in the affected population. These include bipolar (manic-depressive) illnesses known to be associated with hypersexuality and volatile behavior. There appears to be some difference in the behavioral manifestations of T.gondii in women vs. men, although the exact brain mechanisms or anatomical pathways for this are not, to my knowledge, well-delineated at this time.

Debra Humbert comments:

I have been thinking a lot about the systemic and interactive components of the cat tales. Do infected men and infected women fit more naturally as a couple? Do the rocks in his head fit the holes in hers? Does a non infected male respond in the same way to an infected female as would an infected male? How does an infected male affect a non infected female? Can the dynamic only be created by two infected parties? Or is one infected party of either gender enough to demonstrate the dynamic? Analogously, I'm curious as to which gender would be perceived as the cat and which the mouse? I'm not sure it is as obvious as one might assume. The studies may be influenced by researcher perception/bias. Here is why. Alley cats: risk taking and rule breaking men are hot and attractive to some women. The alley cat male is a challenge and an aphrodisiac/bad boy kinda thing in the same way that a promiscuous female has powerful desirability. It is a phenomenon that women often discuss. Are the symptoms as gender specific as they seem? So the mice will go closer to the cat? Got that. But I don't get which is the mouse or the cat in terms of gender. The infected male or the infected female? Also, in terms of evolutionary adaptation — what would be driving it? More births? Fewer births? Gender of offspring? Questions, questions. I have so many questions.



 The market has had a daily rhythm known in the blues as a shuffle; di dah, di dah, di dah. You might also hear this in William Tell's overture.

Marlowe Cassetti replies:

An interesting thought. Has anyone transcribed market movements to a musical score and does the playing this "music" have any predictive significance?

Dr. Janice Dorn comments:

Tom Hamilton has done some interesting work in this area. I have his CD, London Fix–Music Changing With The Price Of Gold.

I do not believe there is predictive significance, but I have not tested this.

Marlowe Cassetti writes:

I listened to the excerpt of "London Fix" and it is beautiful. Certainly not random tones.

Last year I built a mole chaser that comprised of a micro-chip that generated random tones. While testing it on my workbench I literally got nauseated listening to it. My wife forbid me from running it in the house. The moles weren't too fond of it either.



 The most powerful kind of love is the love that is not self centered, but goes outward. This kind of love can take many forms such as the love of knowledge, compassion and empathy towards others, the love of nature, love of one's profession and work, or the love of art. In some respects one can love the market as a love of knowledge.

I disagree with the oft used characterization of the market as 'mistress'. That definition embodies and emphasizes more tawdry, baser instincts in the relationship. It is an erroneous anthropomorphication and an unhealthy relationship. Empathy is one of the elements of love. Empathy can be used to understand the herd's motivation to profit in the market. Love enables late nights, long hours and tedious computations. Love is power. Love creates power and that is why it is the greatest of all.

Jeff Watson adds:

I'm so glad that the holiday season has passed, as all of the commercialized sentimentality tends to give me a case of a sour stomach and the need for a strong bromide. Holiday cheer is supposed to allow one to demonstrate love for his fellow man, and a person is supposed to show this love by purchasing as much swag as possible to keep the holiday numbers strong. To all of this, I have to agree with Dickens and say, "Bah Humbug." Not to say that I have anything against love, but love has some psychological components that should be examined. Love has been shown to be a mammalian trait, much like hunger or thirst. Psychologists state that there are different stages of love in an interpersonal basis that include lust, attraction, and attachment. These stages can be overlapping and all involve the chemistry of neurotransmitters in the brain and other endocrine glands. Some theories about this misunderstood phenomenon also state that love is composed of three components that are intimacy, commitment, and passion.

While it is all good that psychologists have done exhaustive studies of love, it is my contention that self delusion is a major component of what we call love. When there is that initial attraction between two people, only the good sides are shown, and one only sees an incomplete picture of what the other person is all about. The mind makes up an idealized model of the other person, ignoring all of the other characteristics that could cause one to change one's mind.

Love happens to be a very irrational concept, although it's  worked since time began. Love has been the subject of writers from Shakespeare and Ovid, to Danielle Steele and a hundred other cheap romance writers. Love happens to be big business, in fact it's a multibillion dollar business. It would be a tough calculation to determine the amount of our GDP, that is a derivative of love.

Love happens to be a very bad thing for speculators or any traders for that matter. When one falls in love with a position, irrationality takes over, and one only sees the idealized position, not the real one. When one loves one side of the market, whether it be bullish or bearish, all other rational arguments fall upon deaf ears. When one loves a particular method of trading… a style, one might not see that the method has become unprofitable before it's too late. Love will keep one going back to the same mistakes, all irrational of course, but that's what happens sometimes. One might fall in love with the Mistress of the Markets, and feel a strong desire to be at her side 24/7, and always have a position on. Spending all of one's time in the market courting the Mistress, carrying a position, can spell financial doom. I'm sure that a hundred different analogies about the detrimental effects of love regarding trading could be listed, and this short list is by no means complete. I will admit that I feel a lot of love in my heart for friends, family, and my country. I will also admit that I've felt love in the markets before and paid very dearly for that love. Since I've gotten older, the best trading lesson I've finally gotten after all these years is the lesson of a dispassionate attitude, not love.

Kim Zussman writes:

 A man walks into the market, and asks, "What kinda Gin ya got?"

She replies, "Oxygen, Nitrogen, and Estrogen"

It seems no accident to refer to the market's alluring, seductive, narcotizing, hypnotic, deceptive, convoluted, torturous, capricious, punitive, empty, destructive path as "mistress". Not just any mistress; but that just ripe girl with a perfect body, blemish-less skin, and crystal eyes that smile with love just for you. Until you grow to need it.

How do you dally with her without falling in love? As Jeff says, love is the point beyond which ruin no longer matters. If you can be intent enough to see it coming, can you be strong enough to resist the temptation of heroic sacrifice?

Maybe it takes a good lady's man. Presumably the guy who can take it right to the edge, make her believe, but hold back enough of himself to walk away unscathed at any moment. See Casanova.

Dr. Janice Dorn observes:

J DornIn my experience, one approaches the study of the markets, the long hours, the tedious computations with a sense of passion. People truly fall in love with the study of the markets and the attempt to make sense of them. Perhaps it is the challenge of attempting to understand or explain that which can possibly be understood or explained after the fact — not before.

First Corinthians 13: 1-13 says that — of faith, hope and love — the greatest of these is love.

In the actual trading of the markets, there is no place for faith, hope or love. Markets are not entirely rational and not entirely random. They hold out hope and dash it. They hold out faith and dash it. One can fall in love with the idea of trading until your real money in on the line. Then, the mean markets show themselves and love turns to fear and loathing. Certainly, one can use the concept of empathy to understand the motivation of the herd to profit in the markets. The herd needs empathy because, for the most part, the herd loses.

The markets are neither friendly nor loving. This is a game where some 60 million people compete everyday to take your money before you take theirs. If love is truly a battlefield, there is no better place to find the battle than in the markets.

The markets demand humility, they demand gratitude, they demand that one approaches each day as a loser.

I challenge anyone who actively trades these markets every day to tell me that they are not a demanding mistress, that they are not there to take as much money from as many people as possible or that they are loving and kind. 

Paolo Pezzutti adds:

The relationship between love and passion is interesting. A sane passion helps you reach significant results and objectives. You do not have great objectives if you are not a dreamer, and somehow an irrational component in these endeavors is always involved. Markets are not loving and caring, but you can actually love the way they are structured and twork, and how they surprise investors with sudden and unexpected moves which systematically trap the herd on the wrong side.

You can love the long and patient endeavor to discover hidden inefficiencies and short term behaviors due to specific and repetitive moves of certain participants in the markets. However, love must not be confused with obsession. In this regard, the initial phase of a relationship is characterized by an instantaneous attraction. This phase can be replaced by an anxious and obsessive phase, characterised by an unhealthy attachment possibly overwhelming your life. The final destructive phase may involve extreme feelings of self-blame, anger, and desire to seek revenge. Markets are a fascinating expression of social behavior. The emotional behavior and the ever-changing characteristics and number of participants makes them so complex and quite unpredictable. But the feelings that participants in the markets can have are quite similar to those in a relationship. The post Lady in Sorrento I wrote back in November is about this.



J SogiThe use of fixed mechanical resting stops seems to be an admission of inability to trade your way out of a paper bag. It is also an admission you are undercapitalized. It is one thing to realize you were wrong. It is another thing to give up on the bottom tick.

Isn't it better to trade your way out of a bad situation rather than give more of your money to the opposition in defeat? It is a harmful mechanical crutch. It is better to watch for a better opportunity to exit with some grace. It is better to know the market, and know yourself.

Larry Williams objects:

What if you cannot exit with grace — market goes limit down 10 days? No way to trade your way out of that…

Stops prevent failures and allow one to regulate the size of the loss.

I'm talking trading here; not investing… value investors buy and hold until value changes or overall market gives a sell, that seems to be best strategy.

Shui Kage adds:

The old Japanese market proverb: "Mikiri senryō".

"To ditch a small loss is worth a thousand ryō" (In today's language: is worth one million dollars).

Most amateurs are unable to take losses at small size and most amateurs are not very good traders.

Phil McDonnell dissents:

PhilIf the market goes limit down (or up) against you then stops will not help either. The stops will not be executed. In that case only proper position sizing in the beginning or an option hedge will protect your position. There is no guarantee a stop will be executed at your price or anywhere near your price in the event of a gap open.

There is no theoretical basis that stops should work either. I have written about this here on numerous occasions. Thus the best advice is to back test, taking stops into account explicitly. When testing stops one should use great care to increae the assumptions regarding slippage. Invariably stops will be hit during fast markets when slippage is the greatest. Compare that to a back test without the stops. If the test using stops gives a superior overall risk reward profile then it is reasonable to use stops. One should never think of stops as the sole money management technique because of the slippage and gap issues discussed above. Rather stops are more of a trading tool to reshape your risk reward profile.

There is another reason to consider stops and that is psychological. Many of us are simply unable to pull the trigger when we get into a losing situation. Suppose you had a trading model that predicted that tomorrow would be up by the close. The obvious way to trade that would be to get in and get out by the close tomorrow. But if your system was wrong (and they all are sometimes) then you may find yourself holding the position simply unable to admit the loss and freezing on the trigger. It is easy to come up with all sorts of rationalizations for this behavior. "The drift will bail me out" might be one. Suddenly your plan has changed from a one day trade to hold it for ten years until the long term drift bails me out. So if you find yourself doing this too often then having a preset stop may be the psychological crutch you need to be successful. Better than that, of course, might be to simply write your plan down and execute it as planned.

Dr. McDonnell is the author of Optimal Portfolio Modeling, Wiley, 2008

Janice Dorn adds:

J DornI would add to this that placement of stops is both art and science. It is among the most difficult concepts for a trader to grasp, and there is more confusion surrounding stops than almost any other aspect of trading. How often do we hear: “They see my stops” or “There is clear stop-running going on” or something similar re: stops. That is why when I trade ( not invest), I use multiple contracts, keep taking profits and trailing stops ( on a good trade) and get out as quickly as possible when the trade is not going right for me. Also, I am prepared to lose on a certain percentage of all trades per my trading plan. I used to hate and could not accept getting “stopped out” but now accept it as part of the cost of doing business.

Also, it is very challenging for most traders to “stop out” and then get back in again. Part of the reason for this is inexperience, and the other part is the way that losses are seen by the brain. Losses are weighed about 2.5 times as heavily as gains. This means that if you are down 10% on one position and up 10% on another position, you are break even on paper, but are down 25% in your brain. There is a complex process that goes on inside the brain of the trader that is looking at losses. But that is another topic and I have already digressed from the “stops” thread.

Dr. Dorn is the author of Personal Responsibility: The Power of You, Gorman, 2008

Jeremy Smith tries for the final word:

Everyone uses stops.

Some put them in immediately.

Some keep them stored in gray matter for later deployment.

Some wait for the margin call.

Kim Zussman exclaims:

Kim Z"Say uncle!"

If you trade less than 100% of your investable capital, that is a stop.

If you trade predominantly the capital of others, that is a stop.

If you let the account blow up without borrowing against your home or retirement accounts, or hitting up   friends/family, that is a stop.

If you decide to trade small enough to preserve your marriage, sanity, or life, that is a stop.

Even the Kamikaze had stops.

Nigel Davies suggests extending the discussion:

What about broadening this discussion still further to include the 'reverse-stop', ie a profit target? I don't see much difference between the two from a conceptual point of view, the issue here being psychological (one represents a loss, the other a win).

Can one be ideologically opposed to stops without also being unable to take a profit? I don't see how we can discuss one without the other and they all come under the category of 'planned exits'.



Is the Subprime mess one more indicator of the devil may care, not my fault, no care no responsibility, times we are living in? Are the Fed bailouts the ultimate back up to keep this poor social situation alive, leading to a poor thought process for the next rogue trader, head fund manager, and for that matter retail trader sitting down at his platform.

Is this ultimately leading to a internal breakdown of our own risk mismanagement on our own accounts even though at the end of the day it's us on our private accounts and we will be ultimately responsible.

How can we change the situation - When is someone going to stand up and say, "I'll take the hit , I'll wear the pain , It was me!"

Janice Dorn explains:

Maslow's hierarchy of needs is often shown as a pyramid where people go from the base to the apex in terms of what they focus on. The lowest level (base of the pyramid) reflects the most basic human needs– food, health, sleep, physiological needs). The next level is shelter and safety from danger. The next three have to do with belonging (love, affection, socialization), esteem (self and from others) and-finally-the highest state is self-actualization (evolution to a higher consciousness, authenticity, achievement of individual potential, transcendence, creativity).

Humans are unable to progress to the higher levels when they are preoccupied with the needs of the lower levels. In order to distract people from higher levels, one need do nothing more than threaten their basic needs. When people are focused on their basic needs, they do not have the capacity to deal with powerful issues such as personal responsibility. They are too busy focusing on either feeding themselves, dealing with illness or worrying if they will have a roof over their heads tomorrow.

Throughout history, the best way to strip power from a person is to divert their progress up the pyramid by doing something that forces them to stay "stuck" near the base of the pyramid.

We are not evolving. Rather, it appears that there is a not insignificant amount of devolution occurring. As long as we look to "the powers that be to get us out of this mess, the less chance we have to move through the bottom two stages and get on with creative evolution. We will, as a nation, remain, worried, frightened, and sick. The way that power was taken from kings was to poison them. They did not die, but they stayed sick and thus fell down the pyramid to the lowest level.

The person that must stand up and take the hit and wear the pain is the person who looks back at each of us in the mirror. If we cannot do this, we will turn to everyone else to rescue us, to fix the mess, to take care of us, to save us from ourselves. The war against personal responsibility and individual empowerment is in full force. We are unraveling.

Alex Castaldo notes:

I was surprised by the headline in the Financial Times on April 10 "Banks take blame for crisis".  Maybe there is hope after all. 

Russ Humbert offers a deeper perspective:

While nobody wants to take responsibility for the sub-prime mess, the media has certainly laid blame at the feet of the capitalist. "Capitalists acting too aggressive", "Capitalists only out for their own self interest", are a couple of the "causes" I have heard from the media. However, if the origins and the incentives in the sub-prime markets are studied or in other words the true "cause" is explored, it clearly was due to the markets letting socialism creep into their midst.

The timing of the GSEs entry into subprime seems highly suspect.

The deterioration of underwriting standards can be understood, if you understand the rating agency or risk management was graded almost solely on industry average and industry statistics. Such "pooling" of risk management might as well been pooling of agricultural production. What happens is nobody works. It was a mad rush to capitalize on others' efforts.

Thankfully, the capitalist inspired puts in the contract led to most of those irresponsible enough to think they could get a free ride on everybody else's risk management efforts paying the price. The capitalist insisted they had a least enough skin long enough that they couldn't ignore it without getting caught. Thankfully, some of those capitalists caught this problem early enough and are driving a hard bargain to make sure this mess gets cleaned up fast and making sure it won't happen again. While this may be a high price to pay, just imagine if those aggressive capitalists hadn't all dived in at once. The march to socialism might have been slower, but like a boiling a frog, this would have slowly allowed the GSE's to eat a cancerous toxin, driving them to a slow painful unavoidable death. Or if the short sellers had not been allowed to price the actual risk, those executives responsible would have crippled the banking system and the economy for perhaps a decade, bleeding but not admitting wrong doing to stay in power (as happened in Japan).

Capitalist was the cure, socialism the cause.



No CountryWith moves in the first hour of trading on several occasions reaching half the yearly average move in prices, limit moves in the agricultural commodities happening almost one in two days, and volatility in stocks recently showing that a 2% daily change is average, the fifth biggest brokerage saved by just a hair from going under, and Fed infusions to preclude a market meltdown a la 1907 and 1929, it's apparent that the market is no longer for old men.

I've developed a few indicators of this. One being the 90 second, two point move down in Bunds on Friday ("in den Keller gerauscht"), down five points at the time for the week, shifting the decks for $6 billion in value from those with the stops, and the 14 days of 1% or more moves that we've been running each month in stocks, the daily moves in soybeans of limit up or down 10 of the last 20 days, the half-hour declines of 15 points in S&P at the end of the trading day and the frequent air pockets in all markets with 25% of margin moves in 30 minutes.

James Lackey recounts:

For the past month, for all the big up and down opens the total sum of only about 10 points. The problem isn't the open, its the the open to lunch. One day this month the S&P had a glorious comeback to close the day up 48 after a down 15 pointer, but that was a tough 28 point up open pullback to buy. An up open-12:00 had another big up day of 53, sell that big up open of 23 and you missed out. Often the down moves closed down for the day and the ups, up.

If you didn't catch the open or jump on an up open for the open-12:00 you missed many a move. Worse, buy a down open after down days and you get pinned to the mat. That is nothing new for March. How about a double dipsy doodle failure? Friday was miserable.

Janice Dorn writes in:

These movements may be related more to psychological state than to age. Those in their sixth and seventh decades know best when to be in and when to stay away. It looks like there are a lot of novice traders,  likely of every age, suffering from manic-depression, who are unable to hold positions for more than 10-30 minutes, and whose moods vascillate from sheer depression to euphoria in fairly rapid sequence. I don't know how to test this other than the types of mail I get every day from traders. They want "in on the action" in the "hot commodities" and don't have a clue what they are doing.

I got mail from someone the other day who had never traded real money and has to go to the back room of a store owned by his cousin to watch the markets since he does not have high speed connection at home. He told me that "some big firm" in the east wanted to hire him immediately and give him $2 million to trade. This was based on his paper trades that showed that he could make 0.4% a day scalping.

I think that we may also may be dealing with increasing emotionality and overconfidence among traders, for a number of different reasons, including instantaneous worldwide communication. Add to this the relentless and shameless promotion by futures and commodity trading services and firms, and one has a recipe for at least part of what often seems to be an incomprehensible, violent and volatile mess.

Usually when someone says "I've never seen anything like this before," it means he is losing. In the past months, it is becoming clear, in a number of commodity markets, that we really have never seen anything like this before.

Nigel Davies proposes a remedy:

Perhaps the more mature speculator should head for Mauritius where the stock exchange is open from 9am to 12.30pm. This leaves plenty of time for hot tea before the open and it finishes in time for lunch. And then one can have a nice game of checkers in the afternoon.

Alston Mabry comments:

J BardemThe scene that gets shown over and over is where the hit man goes into the gas station and tells the old man to call the flip of the coin. The hit man explains how the coin has been traveling all these years to come here at this moment for this decision. The old man, bewildered, asks, what am I gonna win or lose? Everything.

Which strikes me as an interesting metaphor for what many investors have experienced in the last year or so. That coin is all the things you didn't know about, that were coming your way: the mortgage derivatives, the borrowed money, the margin calls, the collapse in home prices, the volatility, the troubles at Bear. One day a guy walks in the door and says, "Call it."

Gregory van Kipnis adds:

My take on this provocative film is along similar lines, but without the comfort of an apparent opportunity for a decision. For me the "hit man" is pure evil that may come your way and give you the sense you have some control (chose heads or tails), or that the outcome is probabilistic (50/50), when in fact the outcome is predestined, it is all fate made to look like a game. Notice the line, which comes close to the end, when he appears in the wife's bedroom. When asked why he was there he says you were doomed when your husband didn't accept my offer to trade the money for your life. I got him, I got the money and now I getting you. Then he adds, 'this is all I can do for you.' He gives her the appearance of control with the offer of a coin flip. She refuses. The rest is left to your imagination.

James Sogi opines:

Big SurfTruth is, we have seen this before, the consecutive afternoon drops — right at the bottoms of July and August during 2002, before some big rises. Too few to be robust, but as precedent. But it seems the micro action is slowing down. Like Friday, quite odd. 2-3k on the bid and at the ask. I think the sides are starting to equilibrate. Ranges and gaps are dropping.

In the surf lineup, I'm the oldest guy out except for Makalwaena Bob at 72. I see lots of teens and 20s out. Fewer in their 30s and 40s. None after that. They're strong and careless about danger. They talk about silly kid things. I've seen many of them drop out of the surf lineup: weight, beer, kids, job, drugs, lack of interest, injury, arrests. Its good to still be out there after all these years. It's a different perspective. Its hard to stay in shape and strong and flexible. The speed is down. I try to be in the right spot at the right time. Wait for the nice sets. Avoid getting caught inside. I keep an eye on the horizon, the weather, the buoys, the tides, satellites and can be there when the waves and conditions are right. I like having nice equipment to fit the conditions. I see many parallels in the markets and trading.

Mr. Albert reports:

Here are a few recent qualitative observations from an equity day trader:

1) The speed of price changes is way up and the 'noise cloud' around price is much expanded.

2) The change is volatility from one day to the next is dramatic.

3) Stocks often trade very hard in one direction and then stay there without much of a reaction.

4) My 10 mbps line is compressed to ~1.5 mbps and pinging Yahoo times out for three iterations at the open.



 The book Aha! Gotcha by Martin Gardner contains much food for thought and enjoyment in the field of self-referential paradoxes and coincidences that arise in many fields. He starts with variations of the Liar's Problem. Epimenides said "all Cretans are liars." But considering that he was a Cretan, did he speak the truth. In exploring such paradoxes, Gardner explores some of the profound questions and unusual insights that such paradoxes lead to. I believe that such explorations will give similar insights into markets.

Gardner cover probability paradoxes in the ares of average, small world, patterns, and clumps. An example from averages is that most great mathematicians were first born sons. The fallacy is that first born sons are more common than second born sons because of one son families so that any group is likely to have more first borns. The fallacy arises in the work of those who predict stock market disasters. They point out that an inordinate number of disasters come when the market has not gone up or some such, leaving out the fact that most great booms come from the same preconditions. The Good to Great boys make a similar error in pointing out that most great companies pay attention to a core. They leave out the same from bad.

LetterThe small world paradoxes are based on the experiments of Stanley Milgrom that show that people are connected to vastly more people with a few steps than might be expected. He found that it took five steps to mail a document on average to a given person in another state. Watts has subsequently shown the lack of reliability of the study and in the age of Internet, it might take two minutes for such a chain to happen if the people were wired. However, one thinks of the recent $7 billion loss and the three weeks of study that it took the bank to verify it and the many people that were involved in the trade, and no wonder the US stock market went down 60 points in the five minutes before or just during the unwinding of the trader's positions.

The third set of probability paradoxes introduced by Gardner are based on variations of the Birthday Problem. If there are more than 23 people in a room, the chances that at least two have the same birthday is 50%. Similarly if four people in a room, the chances that at least four have the same sign of the twelve is 40%. This should give one pause when noting coincidences. With the 20 markets that one looks at, the chances are well over half that two of them will have exactly the same sequence of rises and falls. Similarly,the chances that you'll find a day that will show the same direction of big or small change as one of the days last week is quite high.
PiA related set of coincidences is based on the digits of pi. You can find a run of seven threes in the workout and you'll be able to find 15 up or down days in a row if you examine enough markets , changes, or chart patterns. The fourth set of paradoxes is related to clumping. You're going to find if you mix up red and black balls in an urn, that they look like they form a meaningful mosaic of large clumps of the same colors. You'll suspect adhesion, but really you're seeing random numbers. Gardner applies this theory to the spins of roulette wheels, and the applications to what looks like valid charting ideas is clear. It's a good caution.

One of the more interesting things about Gardner's book is that he is not a mathematician. He uses common sense and consults with experts to explain all the unusual phenomena. This common sense approach leads to many AHA's by him, and when you translate it into your own bailiwick, it's like a child looking at things that are second nature to you but are not so obvious.

The book is highly recommended for those who like childlike areas of discovery in their field.

Riz Din comments:

Vic's review of 'Aha, Gotcha' also got me thinking about trading and life in general from the existential perspective. It is both uplifting and depressing.

Whilst I am not mathematically inclined, I have always had an appreciation of probabilistic events in life. I feel this gives me an inner strength because I appreciate and am comfortable with the likelihood of the downside events, especially when they are outside of my control. For example, when I was mugged a few years ago, I was scared but the event didn't scar me mentally, because I figured that the mugger was out to mug someone, and it just happened to be I. In fact, staying rational gave me an upper hand and I actually managed to get the mugger to give me my mobile phone and wallet back to me (minus the cash). Another time, my car (parked) was involved involved in a hit and run. I reasoned that these things happen, and I wasn't being personally targeted. The bit that upset me was the potential cost and inconvenience. Also, I try to live a healthy life, but I appreciate the high odds of dying of cancer or heart disease. It's the probability distribution of life. And as life goes on, we gain more knowledge of the bigger picture, of the likelihood of various events, and of the uncertain.

We come to appreciate the fact that there is a 50% chance of two people having the same birthday in a room of 23 people, of the fact that we will probably be involved in a car accident in our lives, of the fact that we will all one day die, of something. I feel this is a powerful awareness because it keeps us in the driving seat of life. It is harder to be knocked off kilter.

However, whilst being armed with the knowledge of probability helps us to see through many of the common fallacies, it brings with it a problem that relates to the emotional response to upside events, specifically the sense of surprise. For example, should I feign surprise when two people in a room share a birthday? What about if I have a run of ten successful trades in a row? The trading example is less likely than the birthday example - its just over 1/1000 if we assume 50/50 odds. However, if I trade frequently enough, the real surprise would be if this never happened. My question is if I have a rough idea of the probability distribution, should my degree of surprise vary depending on whether I experience a low probability event or a high probability event? I suggest my emotional response should be the same, unless something out of the ordinary happens (ie beyond one's mental model of what is likely).

It's important to qualify that I only talking about the surprise element here. As this gets stripped out of my life, I feel I am more balanced but also that I am less human because I am no longer easily surprised. I am still amazed at the beauty of life and all that jazz, but its just this sense of surprise is increasingly missing from my life. Is my thinking faulty? I feel a bit like the Albert Camus's 'The Outsider', who, in the words of Camus himself: 'is condemned because he doesn't play the game … He refuses to lie. Lying is not only saying what isn't true. It is also, in fact especially, saying more than is true and, in the case of the human heart, saying more than one feels.'

Janice Dorn adds:

This is such an honest and thought-provoking post — I love it, and thank you for it!

It speaks to so many issues, not the least of which is that no one gets out of life alive. That is a given and we shall all live and die with it.

Going further, as we age, we forget how to play. We lose the childlike wonder, the ability to be surprised and the sheer joy of being alive.

Traders take themselves altogether too seriously. I have found this to be true through many years of trading and teaching. It is good to have emotions under control when trading, but even better to learn to let the emotions run free when we are not trading. I have been accused of laughing too much and smiling too much. So be it, because that is who I am. I don't want to be free of emotions and the ability to laugh at myself and experience new things. I don't want to become Dr. Spock. I want to cry, dance, sing, laugh and realize that everything exists only because of the existence of its opposite. Without sadness, we would not know joy. Without boredom, we would not know excitement and surprise.

In the greater scheme of things, life is to be lived on one's own terms and the choices one makes are highly personal. If someone feels that there is no surprise, and likes it that way — wonderful.

If someone wants surprise, then it is within that person's power to see the world from that perspective. Everything is a choice, both in trading and in life. Life is never about what happens to us. Rather, it is about who we are and what we do with what happens.

The late Peter Drucker once asked: For what do you want to be remembered? This question may induce us to renew ourselves as the person we want to be or become. It may not, but it is worth asking just to find out. If you ask yourself that question a few times, the answers may be surprising.

There are some 50 trillion single cells in our body. We have the ability to use our brain to enrich, nourish and nurture these cells. We are able to put these cells into balance and harmony with our environment and to be gentle with ourselves, whilst continuing to push ourselves forward into the true freedom of authentic self.



HGHGiven the remarkable performance of older players like Clemens and Pettitt, has anyone pointed out that perhaps one of the main thrusts of investigation should be whether there would be a beneficial effect for all of us in using moderate replacement quantities of substances like steroids and HGH that decline significantly with age?

I for one would like to know more and would appreciate article citations, book recommendations, and information on physicians specializing in the field.

Chris Cooper replies:

Such beneficial effects are apparent to anybody with an open mind. Nevertheless, the idea that a performance-enhancing drug might actually make you healthier is the kind of message that is not acceptable to the mainstream.  Aging is not "normal", it is a disease, and should be attacked like any other disease, with an eye to minimizing the deleterious effects.

What you are referring to is often called hormone replacement therapy (HRT).  The approach is to use drugs and nutrients to bring the body's hormonal balance back to what it was when you were a young man.  Is it surprising that if you achieve this, you actually feel much more like a young man?  Why does our culture consider this to be undesirable?  My goal is not simply to be healthy as it is commonly defined, but to strive for optimal health, a very different concept.

A good book to start with was written by my doctor Philip Lee Miller, called Life Extension Revolution: The New Science of Growing Older without Aging. Dr. Miller is in the SF Bay area. Also I've heard good things about the Kronos Centre in Phoenix.

Janice Dorn writes:

One of the contributors to my just-released book is a world-renowned authority on optimal health.  I took nine years of my life, and traveled 1.5 million miles outside of the United States to every country in the world (some many times) in search of life extension and radical wellness methods. Needless to say, it was an incredible journey, and it continues to this day.

Caveat Emptor. There are many charlatans out there, and we are in largely-uncharted waters. It is a passion for me, and I believe that the goal in this area of life is to delay, avoid and eventually reverse death.

Jim Sogi suggests:

SurfPerhaps a better way is hard effort. I still get out and surf 20 foot waves last week and take time to surf at least four times a week and train when there is no surf. No pill will keep you in shape without effort. Just the thought of a pill is enough to kill the will to motivate effort required to maintain and build strength, flexibility and stamina. It's like technical analysis, it offers an easy way without the work, and will lead to more harm than good. I see many men really going downhill. They don't stay active. Laird Hamilton says, "Keep Moving!" That is the best way to stay fit. I compete with the young guys everyday in a competitive lineup in the water for waves. I can't outperform them, but have other strengths which give advantage.  It's hard work. It takes hours everyday to stay moderately fit, and more to build strength. That's the problem, most don't and won't take the time and effort to maintain and build strength and gradually lose it. Strength from a pill won't help without the agility, flexibility and stamina that are the other components of fitness. Don't worry about the pill, just get out and spend the hours everyday to stay fit.

Chris Cooper responds:

BodybuilderYes, a better way is hard effort. I have gotten more benefit from the sports that I train for than I have from the drugs that I take. The drugs are an incremental benefit, though, and I am certain that I am better off with them than without them. And you may find, as I do, that instead of being de-motivating, they actually increase one's desire to participate.As an example, suppose you are taking testosterone. If you are not exercising, it will do little to build muscle. You still get the other benefits, such as general feeling of wellbeing, increased libido, increased optimism. It enables you to build muscle faster, because that only happens if you put in the effort. It's not magic, you still have to do the work — but testosterone also makes it possible for older men to train as hard as they did when they were younger, because your body will recover more like it used to. 

Larry Williams opines:

The flap about HGH in baseball is pure propaganda, based on my personal extensive testing of it. I concluded it was expensive and of little, if any help, in waging the war against old man age — a view that is now also backed up by science.

Ken Smith responds:

Studies are studies and not reports from individuals. I am an individual. The studies cited older people. I am an older people. My individual report differs from the studies as reported.

I can tell you resistence exercise will promote better body tissue and that the same exercise will tear tendons, ligiments, induce on-going pain. There came a time when the benefits diminished and the pain increased.

I am reminded of a story told by an author about his last visit with his grandmother. She was quite old, in her 90s As they conversed during her feeble days, on one of those days, her last it turned out, she asked him for a small glass of wine, told him there was a time for everything, sipped the wine, closed her eyes and passed on to the next dimension.

Russ Humbert remarks:

I would not be so quick to rule it out Growth Hormone for enhancement. The Chinese women seemed to have had much success with using it for distance running in the mid 90s. Several of the women were running times better than the men. However, they also ran extreme high mileage and were practically starved while setting several women's world records before their coaches where caught transporting drugs through customs before an international competition. Several of the stars went insane under such a regiment. 

Charles Pennington enquires:

Dr AliI'm open-minded about this, and I went as far as to buy the book written by Chris's physician, who seems like a reasonable guy. But the Life Extension directory of doctors isn't re-assuring. There is just one doctor listed in Manhattan, Dr. Majid Ali, whose website is Featured there are "Hydrogen Peroxide Baths and Foot Soaks" "The Oxygen View of Pain Management," "Bowel Detox," "Water Therapy," and "Dr. Ali's Castor-cise."

I also checked for a practitioner nearby in Connecticut. Doctor Warren Levin, in Wilton CT, is at The general garishness of the site, the endless list of specialties — "Magnetic Field Therapy," "Juice Fasting Therapy," "Auriculotherapy" — and even the Ron Paul promotion (Ron Paul == more permissive environment for quacktitioners [which is fine]) all leave me skeptical.

I wonder if Chris's physician could recommend someone in Manhattan who has a more rigorous, scientific approach than these guys.

Chris Cooper replies:

Perhaps these links will be more productive:

American Academy of Anti-Aging Medicine

The American College for Advancement in Medicine

Steve Leslie extends:

Philip MorrisI think back to the 1960s when the medical profession and the tobacco industry discounted the evidentiary link between lung cancer and smoking as anecdotal. And for 40 years after that the tobacco industry still fights in courts as to smoking and COPD, lung disease, heart disease and emphysema — long after they have paid billions of dollars to settle various class action lawsuits and agreements with attorneys generals throughout the country and have watched 450,000 American citizens die every year from smoking related illnesses.

I watched my father wither away and die as a result of a lifetime of smoking cigarettes.

Now some want to debate that the beneficial effects of steriods and HGH in adults outweigh the anecdotal risk. And I think of those in professional wrestling such as Chris Benoitk who committed multiple murders of his family and then suicide, professional footballers such as Lyle Alzado, dead from brain cancer, professional baseball players such as Ken Caminiti, dead and an avowed steroid abuser, high school boys by the tens of thousands who experiment and take steroids and commit ‘roid rage and suicide, and the untold thousands of recreational users who develop enlarged hearts and forms of cancer such as prostate cancer while juicing just to get bigger muscles.

Chris Cooper clarifies:

Chris BenoitThere is no medically documented connection between suicide and anabolic steroids. The medical data also say, "Supraphysiological doses of testosterone, when administered to normal men in a controlled setting, do not increase angry behavior." 'Roid rage is a convenient media myth. Steroids may very well cause changes in feelings, but that is far from causing major behavioral changes like those suggested above.

Take Chris Benoit as an example. When doctors examined his brain they found that it resembled the brain of an 85 year-old Alzheimer's patient. It had suffered so much trauma and had so much dead tissue that normal function was not a possibility — while dangerous personality, behavior, and temperament changes were more than probable. During his time as a professional wrestler with the WWE, Benoit had subjected his body to head trauma hundreds of times, most notably with his signature "Flying Head Butt" as well as dozens of other highly flashy (and dangerous) moves.

Steroids are being unjustly demonized, just as marijuana was in Reefer Madness, followed by equivalent media behaviour regarding LSD, Ecstasy, and many other drugs. Certainly steroids have their downside, and just as with recreational drugs, should certainly not be used by minors. But perspective is not allowed in times like these, where fear is inflamed to further the objectives of those who will benefit. 

Steve Leslie continues: 

Taylor HootenI dispute Mr. Cooper’s assertion that the is no medical documentation connecting steroids and suicide or rage. That is ridiculous. At a Senate Caucus hearing Don Hooten testified that his son Taylor, while in high school, began using and abusing steroids and committed suicide.

Mr. Cooper furthermore claims that Chris Benoit murdered his family and then committed suicide because of years of suffering numerous concussions and possible dementia. Did he personally perform an autopsy on Mr. Benoit? Has he examined the autopsy report? Where does he draw his conclusions from? In short, what specific research does he quote? Furthermore, what are Mr. Cooper's qualifications in forensic pathology and/or psychiatry?

Mr. Cooper further argues that it is some sort of a myth, steroid usage and its association with massive mood swings and subsequent rage. He then compares steroids to marijuana and says that it is being demonized by an uninformed public. Not to stop there he equates such unfair demonizations with LSD and ecstacy and “other drugs.”

He diminishes the risks to an absurd level and I am severely shocked and alarmed.

Chris Cooper responds:

Don Hooten runs the Taylor Hooten Foundation, established after his son committed suicide. Now Mr. Hooten runs around the country telling everybody that it was because of steroids, when there is no evidence pointing to that. According to,

There had been no active anabolic steroids in Taylor's body for two months prior to his suicide (according to a report on the THF website) At 17, when he killed himself, his hormone levels had likely returned to completely normal, and only metabolites of nandrolone (not active compound) were still detectable.

And no, I didn't personally perform the autopsy. But here is a quote from the doctors who did, via,

SLI's tests showed that Chris Benoit's brain had large amounts of abnormal Tau protein in the form of Neurofibrillary Tangles (NFTs) and Neuropil Threads (NTs). Multiple NFTs and NTs were distributed in all regions of the brain including the neocortex, the limbic cortex, subcortical ganglia and brainstem ganglia, and were accompanied by loss of brain cells, a condition for which no other neuropathological evidence for any chronic or acute disorder could be found.

Gordon Haave adds:

QuoteIt is silly to say that one can't quote the work of someone else. That is, one can't comment on an autopsy unless one performed it himself. If we took such an approach all of the time, there would be nothing to write about.

Furthermore, in the interest of scientific inquiry, providing anecdotal stories to a statement about a lack of research does not prove anything. I have no dog in this fight, but I admire people who challenge orthodoxy.



Alan MillhoneTo be totally safe and protected from exposure you would have to avoid the market altogether. Or like me, not have any rentals and thus I would avoid all bad renters. Trading and real estate gets into our blood and there is a certain thrill or 'rush' in dabbling or being immersed! Also in many of our cases it is all we know. I watch the market, but I am not savvy enough to be a investor.

Janice Dorn adds:

To be totally safe and protected from exposure, one would have to be dead. Even then, one wonders if there is safety and protection from exposure. The most common cause of respiratory illness is breathing. So- do we all stop breathing? Move to a high mountain area to get "better air" and then risk other challenges to our body, mind and spirit?

Life is about risk. Life is risk. We risk from the moment we come into this plane. There is risk in everything. The challenge is not to avoid risk, rather to embrace and manage it. One of my favorite verses:

There once was a very cautious man who never laughed or cried.

He never cared

He never dared

He never dreamed or tried

And then, one day, he passed away and his insurance was denied.

For since he never really lived, they claimed he never died

Jim Sogi marvels at the day's events:

At 9:00am the White Knights ride in, save the situation after the huge  drop late yesterday. That was quite a move. Do they plan this kind of thing on purpose for dramatic effect? Or is just to squeeze the the last few drops of blood out? What a rinse. They obviously knew ahead of time.



If one sins against the laws of proportion and gives something too big to something too small to carry it — too big sails to too small a ship, too big meals to too small a body, too big powers to too small a soul — the result is bound to be a complete upset. In an outburst of hubris the overfed body will rush into sickness, while the jack-in-office will rush into the unrighteousness that hubris always breeds. -Plato



The existence of self awareness arises from the brain’s amygdala, and the cortex. Both have separate perceptual structures and awareness creating an illusion of self awareness. Cartoons portray the little devil and the little angel. Descartes framed it as, "I think, therefore I am". This is the amygdala's perception of the operation of the cortex. These two physical structures and their operations battle during every trade, and one of the minimum barriers to trading success is to establish the dominance of the cortex over the amygdala, a task which few humans are able to accomplish.

Janice Dorn adds:

A portion of the above was published in the July, 2007 issue of Stocks, Futures and Options Magazine. I present the article in its entirely in response to remarks about brain interactions in the decision making process of trading. It is my first attempt to conceptualize this process from a neuroanatomical/neurophysiological/neurobehavioral viewpoint. This is a work in progress, as I am presently writing an update, refinement, and extension of it. 



 "At the corner of William street and Exchange Place, we met F. He was once a man of wealth, but he had left it all in that same unfathomable abyss. He was a harmless but very disagreeable lunatic, a Cassandra who predicted nothing but evil." Ten Years in Wall Street, by Worthington Fowler, 1870

It's much easier to learn and remember from stories than from more traditional ways. This among other things is the basis of the most successful language programs, our most popular friends, and much of children's activities. It is also the basis for much of the best selling literature including Louis L'amour who describes himself as a storyteller and whose Western books have sold more, about 500 million copies, than all other writers of Westerns combined from the beginning of time.

One can agree that stories are a great teaching tool, but one must also note that they can be used to illustrate any point. And the problem with such stories is that there are enough of them that even the most specious promoter can haul out a few great predictions and stocks that show his greatness. It would be good, therefore, in telling stock market stories to include a moral that perhaps could be tested. I'll start the ball rolling with two stories.

Jim Lorie was one of the most successful speculators I ever knew. He passed away with a vast estate and he did it mainly on a teachers salary which was very modest in those days. His method was always to ask his friends for a good stock, buy and hold it, letting go only when it was bought out. He didn’t believe much in technical analysis and when I told him that I planned to start a firm to speculate based on the multivariate analysis of the predictive properties on one market on another, he told me that he recommended against it and that I should stick to mergers and acquisitions.

When he came to New York for Merrill board meetings he liked to come to our offices to relax. He always was very eloquent, and facile, indeed, he was the only one that could stop a faculty gathering in its tracks and have a hundred people crowded around him to hear his bon mots. He always had five jokes of a free market nature to share, as well as five books he had read that he could recommend. We always talked like two brothers and there was never a halt in our dialogue, which usually subsumed our great victory 10 years earlier in the Western Squash doubles, where he said that he must have been the better player because the opponents hit 95% of the balls to me. Or perhaps the conversation would turn to the macaque monkey I had as a pet that I named after him.

But this day, just before going to a board meeting at 1 pm, he became a bit tongue-tied and reticent for the first time. Finally he blurted it out, "Vic, you don’t have to accept this. But I'd like to participate in just 1% of your action for the rest of today. What do you say?"

I can’t leave this call for stories without relating one from the times that Sam's was founded, circa April 15, 1864. "On the first of April, the bull leader, Morse was at the height of his glory. Every stock that he touched had turned into gold for the fortunate buyers. Rock Island, Erie, Fort Wayne, Pittsburgh Ohio, and Mississippi certificates responded in succession to the wand of the great enchanter. … He fought the bears as one would his natural enemies and now throughout the whole market, it was in vain to search for any of that tribe of bears…. Alas, how changed from that Morse, who but the year before, had led his dashing ranks to the summits of the market. He departed from the arena, a stripped, penniless, heartless, stricken man. Out of the troops of wealthy friends, which but lately clustered about him, only one or two still clung to him (like Doc and Wiz might cling to me) … An appalling stillness, like that which precedes a tornado, followed the words ‘Morse and company had failed.’ "The board room seemed suddenly transformed into a cyclopean workshop where a hundred great trip hammers were being plied. Pillar after pillar toppled over, till the dome fell. A three-month mad revelry of speculations, in which were concentrated all the emotions, all the incidents of a century of sober, legitimate traffic, — then the dark dawn of another melancholy awakening. … A crowd of ruined operators reeled and served up to the rostrum, half crazed by their losses, and stupefied or maddened by drink, and the whole room rang with yells and curses.

"The space outside the railing was jammed with weary faces, on which was written only the word "ruin." Above all the chorus of execrations was heard the word "Morse." Human nature now showed its basest side. No epithet too vile with which to couple the name of the prostrate financier, (you can still find many of these on Elite, traded about me today). He had fallen like Lucifer in one day (on April 15, 1864, sort of the same as me on Oct 27, 1997).

"The men who but yesterday extolled him to the skies, now vied with each other in cursing him. The king of the market was a lurking fugitive. Men calling themselves gentlemen met him in the street, and showered abuse upon him. Shoulder hitters, who had lost some of their ill-gotten gains by his fall, sought him out, and struck him like a dog…. A few month more, and he lay upon his death bed in a second-class boarding house, and without means to pay for the common necessities of life.

"Even when he died, his landlady held his body for trifling debt (perhaps one of Artie's predecessors had to forcibly take the body to the morgue, as he often told me that he had performed this duty for many failed gamblers and that all of them died broke). It was only when some friend stepped forward and paid the sum, that the funeral rites could be performed over all that remained of what was once a king of Wall Street."

I believe I could always count on Dan Grossman, and one of my wives or daughters, or a collection of friends to save me from that suspended state should a similar hiatus be visited upon me.

The moral of these two stories is that all gamblers die broke and you should never get in over your head. Let us have more stories with testable morals.

George Criparacos adds:

It was a clear day, late spring, and we decided to go horseback riding on a farm, a little outside of St. Louis. I had never ridden a horse before, and they gave me an old horse on the premise that this horse had so much experience with first timers it would follow the rest of the pack without giving me a lot of trouble. So we rode off and my horse followed the rest with me trying to hold on. It was a nice feeling and a first hand-on experience of all the cowboy stories I had read as a boy.

A half hour later, with my back starting to ache, I was enjoying the sense of being under the clear sky when suddenly the horse stopped. My friends started picking at me, that by now I should have learned how to. But the horse refused to move. Then, without notice, it turned and started galloping as fast as it could. It was really scary. To this day I do not know how I managed to stay on the horse for the five long minutes it took to run back to the barn, elongated by the fact that besides being out of control I did not know where we were going.

We entered the barn and the horse stopped. I jumped off with my heartbeat at 200 only to hear my friends laughing, as they entered the barn behind me. And then it happened.

Clouds as green as a cucumber filled the sky. It was then that I realized what the expression "out of the blue" means. A hail storm with hailstones as big as an apple started. For the next half an hour, no one was laughing. We all realized what the horse had done, and under the protection of the barn stories emerged of the secret senses animals have.

Since then, and this is the moral of the story for me, I have always paid attention to signs that are not easily identified. A muscle that starts twinkling on my right arm, a toothache that comes and goes. and I have read of the back pain a certain very successful trader has to warn him of something that cannot be seen or measured. 

Ali Meshkati comments:

Like many aspects of the financial markets, there is a razor thin line that separates the realm of speculation from the realm of gambling. It is most interesting that these two realms can become fatally intertwined as a result of poor judgment and/or strategy in speculation leading to a gamblers mentality of recouping gains as quickly as possible. It is all the more interesting that the average “speculator” will, in the heat of battle, fail to recognize when he has exited the universe of speculation and entered into the alien world of gambling. It is only after one has exited the battlefield - perhaps due to a fatal wound - that the participant realizes that the terrain in which he or she began the battle was not nearly the same as where it ended.

As a former hedge fund manager, who experienced quick success, followed by quick failure, it is true that, for a majority of mortals in the world of speculation, the greatest of failures will come after the greatest of success. The reasons are obvious, the core of which lies at the basic element of our nature, which is to survive. Success leads to a dulling down, so to speak, of our instinct to survive. With that dulling down comes a series of events that can occur in any order, but typically consist of the following:

1. Puffing of the chest, which, in modern times, comes in the form of acquiring large homes, fancy cars, expensive furniture and collector items that have little purpose or use, besides showing off to whoever is willing to look and listen.
2. Relaxed discipline, primarily in the form of enjoying yourself, to the detriment of the very vehicle (your mind and body) that got you to the point where you can enjoy or abuse the things that you are enjoying or abusing in the first place. Excessive eating, drinking, and sex, which serve to disrupt the harmony that enabled your success.
3. Lack of focus, which typically leads to an unrecognized crossing of one of the many thin lines that exist in the financial markets. Subsequently, this leads the speculator into an unknown realm, which, he or she will not recognize until steep losses ensue or perhaps even complete failure, if the survival instinct has been dulled down enough.

I know of very few speculators who have not succumb to basic human nature, which often works to the detriment of speculators, as the markets are heavily counter-intuitive and prey upon basic human emotions and nature. The only goal of the speculator then should be to always be paranoid, as the battle with yourself is never-ending.

Janice Dorn adds: 

A scorpion and a frog meet on the bank of a stream and the scorpion asks the frog to carry him across on its back. The frog asks, "How do I know you won't sting me?" The scorpion says, "Because if I do, I will die too."

The frog is satisfied, and they set out, but in midstream, the scorpion stings the frog. The frog feels the onset of paralysis and starts to sink, knowing they both will drown, but has just enough time to gasp "Why"? The scorpion replied softly and calmly: "I can't help it, it's who I am, it's my nature., it's me being me."…from Aesop's Fables

No matter who you are, how intelligent or how much education you have, if you keep doing the same thing over and over again, expecting different results, you are suffering from the most insidious form of insanity. This is self-delusion of the highest degree. Many years ago, when I first started to trade, I was so optimistic that I could make money consistently. I was smart, more educated than almost anyone I knew, a successful brain scientist and physician, and always had been able to study hard and master anything I put my mind to. I could do it and nothing was going to stop me. I would work longer and more intensely than anyone else, and show wonderful profits month after month.

Little did I know what I was facing, and that I was about to come head on with the most challenging task of my lifetime. Simple, maybe, but not easy. Not easy at all. After a few months, I found myself dancing as fast as I could, yet running on a treadmill going nowhere and suffering from vertigo, headache and a severe case of tick-itis. I studied and read everything I could lay my hands on, subscribed to service after service looking for the Holy Grail and struggled to make consistently successful trades. Why couldn't I do it? What was wrong?

Is this so difficult? What about all the people who have returns of greater than 80% a years? They couldn't be exaggerating, could they? After all, it's in print and on a heavily subscribed website, so it must be true. Mustn't it? So I studied more, subscribed to more services, learned new indicators, bought books, joined some chat rooms and saturated myself with information. This produced more vertigo, headache and sleep deprivation. I was on total information overload. I started sleeping sitting up so that I would not sleep too deeply and could awaken more easily at 4:30 AM (having gone to sleep at around 1:30 AM) in order to study and watch the markets before they opened at 6:30 AM.

I was in total immersion, so why couldn't I make consistently successful trades? I became paranoid, thinking it was a kind of conspiracy since every time I took a position it went against me. I knew the stop and was stopped out in my minds, but we didn't take the stops because I had faith that the position would come back. It was some kind of a misunderstanding or misinterpretation by the market that was responsible for the price spiraling downward.

Buy more. That's it. Average down and keep averaging down and eventually, I will get it right. Eventually, the price will come back up and I will be justified. Why isn't the price coming back? I know it has to. After all, I studied it, charted it, listened to the gurus, read everything on every bulletin board, and it absolutely has to come back. Oh, that news that just came out… Ugh! Must be false or overstated because there is no reason that the stock should be selling off like that.

I know it is coming back, so I will buy more. Wow! Look at the size of the position now. Hmmmm. I better kick it up a notch and start participating in every message board and study every report and watch every tick every day for signs that life is returning and I can get back from underwater. Most of you know how this feels. I do. I have been there, lived it, and suffered losses from it. Life was miserable this way. I became depressed and irritable. I walled myself off from the rest of the world just trying to figure out what to do. I had dug a really deep hole and the only way out was to sell and take the losses, or waited and be in agony day after day, watching my account and my self-esteem (what was left of it) erode like sifting sands.

I tried too hard, studied too much, and pushed myself to the point of both physical and mental exhaustion. Why? Why did I not honor the stop, continue to hold on and even average down? I had to figuratively kill the frog and kill myself in the process. In order to be reborn, I had to destroy the internal self-defeating programming and start all over again. I had to step back, look at what I had done with a sharp and penetrating glare in the bright light of day. I decided to take the loss, to stop trading for a while, to take a vacation and center myself. My health returned. The dizziness and headache went away. I didn't care so much about watching the flickering ticks (so, at least, I was in remission from a severe case of tick-itis).

It was not the market, the charts, the software, the gurus or anyone/anything else. It was me! I was my worst enemy. Nothing was going to change until I got right with myself.

"The most exquisite paradox is that as soon as you give it all up, you can have it all. As long as you want power, you can't have it. The minute you don't want power, you'll have more than you ever dreamed possible." Ram Dass

Steve Leslie adds:

The depth of this fable is remarkable beyond belief. There is a meal that is worth a lifetime here alone. The speculator would be well served to read this several times and reflect on its enormity since we have all been guilty of doing something that we blame on "our nature" and ultimately suffer the consequences. It can be a convenient excuse.

I can think of so many illustrations of this that a book could be written on this one fable alone:

Phil Mickelson had all but won the 2006 U.S. Open by holding a two stroke lead with three holes remaining. He had played beautifully for 69 holes on Winged Foot in Mamaroneck N.Y. Winged Foot had lived up to its reputation of being a brutal challenge for the greatest players in the game. Mickelson came to the 16th hole and on the par five he bogeyed. He parred the 17th hole and came to the 18th hole needing a par to win the tournament. He had been struggling with his driver all week and Johnny Miller commented that all he needed to do is put his drive in the fairway and the tournament was his. He would become only the 2nd person in the last 50 years to win three major tournaments in a row. Miller suggested that he should take out a three wood and just smooth it into the fairway.

Inexplicably, he takes out his driver and pushes his shot to the left, it caroms off a hospitality tent, and lands in a trampled patch of dirt with an obstructed view to the green. He tries to pull of a Houdini-like shot and hits a tree leaving him with essentially the same shot. This time the ball is struck and flies into a bunker. From there the nightmare continues. He overcooks the sand shot and makes an up-and-in. His double-bogey practically gives the tournament to Geoff Ogilvy who had to chip in for par on the 17th hole himself to preserve a totally bizarre finish.

"I still am in shock that I did that," Mickelson said after his final round 5-over-par 75. "I just can't believe that I did that. I am such an idiot. I just couldn't hit a fairway all day. I tried to go to my bread-and-butter shot, a baby carve slice on 18 and just get into the fairway and I missed it left. It was still OK, wasn't too bad. I just can't believe I couldn't par the last hole. It really stings. I came out here and worked hard all four days, haven't made a bogey all week [on No. 18] and then double-bogeyed the last hole. Even a bogey would have gotten me into a playoff. I just can't believe I did that.

"So, it hurts because I had it in my grasp and just let it go, as opposed to somebody making a long putt or what have you."

Let us learn from this and remember that as Caesar remarked "The fault dear Brutus is not in the stars but in ourselves." 



When you feel the market has been nasty to you, probably one of the best things to do is to invite a good friend over, to open a bottle of wine, and just  spend some time together. As a suggestion, I propose a wine which is getting more and more popular in Italy, called Aglianico del Vulture. It is a red wine produced in Basilicata (Vulture area), and it is considered one of the finest wines that is produced in Italy from Aglianico grapes. The color of the Aglianico wine is ruby garnet red with a dry and savory taste, and 11.5-13 % Alcohol. The wine goes very well with meats, especially roasts and wild game.

My approach to the market lately has been quite poor, because of a lack of discipline. I did not close a losing position, hoping that the usual random movement could help me as it normally does (99.5% of the time at least). But the market has not been "normal", and unfortunately this time it worked differently and I could not (or did not want to) find a decent exit. This is a lesson that I am sure will drive my trading behavior in the future.

Flexibility and recognizing your own mistakes is very important. The market has changed behavior in the past 3 months and I have not been able to understand it in a timely manner and act accordingly. Last night I invited a friend of mine over, and spent some time talking about the next holidays, past common experiences, and we enjoyed a couple of glasses of good wine.

Today, my trading loss is still there, but the Aglianico and the friendship worked well. I look to my future trades with more optimism, and with the aim to improve as a trader applying the lesson learned.

Janice Dorn writes: 

It is not the markets that one tries to understand, rather one's response or reaction to what the markets are saying. It is a form of inability to take personal responsibility that causes us to lay the blame for underperformance on something outside of ourselves. There is no shortage of people, places, or things to blame. Instead, we may be better served to drive all blames into ourselves and to respond to that activity with self-compassion and learning.

In the end, it is not the markets that have been nasty to you; rather it is you who has been nasty to yourself in the environment of the markets. Friends and wine may certainly help, although I am not completely certain how this works except as a temporary respite



 I have heard that the cause of Cyril Burt's death was gallantry to women. He insisted on walking a lady back to the subway in the rain, and died of flu a few days later.

We often see this trait in old men; an unholy courtliness to women, especially attractive ones, that borders on fixation and would be inappropriate for anyone under 70.

Certainly the Greenspan transcript on 9/11, with him showing off that he does not like the cutoff in a certain chart and that he has been fooling with his short wave radio, even as the tragedy unfolds, is a sign of sickness.

What is the general tendency of men to be overly chivalrous and boastful? This is something that is a certain mark of decay in people like the Sage, the weekly financial columnists, and the fake doctor.

I wonder if this tendency is more prevalent among chronic pessimists, and is it a symptom of something much worse?

Vincent Andres adds: 

It makes me think strongly about so many mothers who infantalize their children consciously or unconsciously? This point is not clear to me. Some women may have a real pathological and uncontrollable drive to remain mothers. Their goal seems very clear. Remain a mother. Remain a needed mother. Remain young.

Such mothers what to show the neighborhood "see how well I educate my child," and doing in fact exactly the opposite. They actually poorly socialize their kids to keep them dependant on their mom, the "only one able to understand them". The number of very precise and efficient tricks and tactics used to accomplish this is amazing.

Of course the concerned child also remain young. At 30 always at mom's home (or in jail), depending on mom's money, etc. Could any child escape this kind of situation? How? It's so cool to stay a child. This seems much more common today than 20 years ago.

Janice Dorn replies:

It is my experience that this situation differs from person to person with aging. Men of an older age tend to view themselves and women in a framework which exaggerates that which they held when younger. In essence, personality tendencies of youth are magnified in adulthood.

A depressive tends to become more depressive, a person with obsession or compulsion tends to become more obsessive and compulsive. There are certainly instances where dementia and other sorts of degenerative brain injury can lead people to behave erratically (go naked in public, go after young boys, other inappropriate behavior).

For the most part, however, "normal" aging appears to reflect exacerbation of qualities present when they were younger. You will always find those who are a sucker for a pretty face and youthful body (think of any number of women and men who use this and exploit it as a lifestyle).

By the same token, misogynists become more so. I believe that these are normal so-called defense mechanisms which individuals use in an attempt to not lose themselves.

In other words, the magnification of the personality traits with aging represents the strong need to hold on to those aspects of self which the person senses they are losing.

George Vaillant from Harvard has done some very nice lifestyle through the ages work, including study of the ego. I believe his earlier work was a bit more serious than that recently where he appears to be directing more to the masses, happiness and spirituality.

David Hillman mentions:

"Becoming a caricature of oneself," as I'm fond of calling it, was evident in corresponding for some time with a famous author who had written his magnum opus and done other good work in the '60's.

For the next 40 years, he continued to hammer away at the same off-beat theme to anyone who would listen. Increasingly fewer would. His reaction was to pump up the volume. The longer he kept it up, the more tiresome he and his theme became.

Rather than appearing to be the life-sized, thoughtful guy with interesting theoretical ideas he once was, he looked to be a ranting, bloated, washed up, parade-balloon-sized radical who hadn't had an original idea in years and couldn't let go.

At the time of our last correspondence, he was actually still quite a vital and active near-nonagenarian, and a really nice guy, but who would have known? It makes a pretty strong argument for introspection and re-inventing oneself from time to time.

Also, in this respect to 'an unholy courtliness to women,' I highly recommend Memories of My Melancholy Whores by Gabriel Garcia Marquez.

….García Márquez's slim, reflective contribution to the romance of the brothel, his first book-length fiction in a decade, is narrated by perhaps the greatest connoisseur ever of girls for hire. After a lifetime spent in the arms of prostitutes (514 when he loses count at age 50), the unnamed journalist protagonist decides that his gift to himself on his 90th birthday will be a night with an adolescent virgin. But age, followed by the unexpected blossoming of love, disrupts his plans, and he finds himself wooing the allotted 14-year-old in silence for a year, sitting beside her as she sleeps and contemplating a life idly spent….. —

Laurel Kenner quotes:

SENEX AMANS (from Latin "ancient lover"; also spelled senex amanz in Old French):

A stock character in medieval fabliaux, courtly romances, and in classical drama, the senex amans is an old, ugly, jealous man who is married to a younger, attractive but unhappy woman. He is often a poor lover (or even impotent) with bad breath, wrinkled skin, and grey hair.

He is frequently cuckolded by a younger, handsome, virile man who secretly seduces his wife. We find examples of the senex amans in Chaucer's "Miller's Tale" and "The Merchant's Tale," and in various other fabliaux. Likewise, the motif also appears in the medieval French lais such as Marie de France's "Guigemar" and similar works such as Tristan and Iseult.

The motif of the senex amans often becomes useful for fast characterization, since it often can quickly cast a predatory light on an elderly male antagonist. An example of such use would be the old king of Ghana pursuing the young Imoinda in Aphra Behn's Oronooko, or any of the aging aristocrats sadistically pursuing young innocent girls in Gothic novels. [Read More]



The markets remind me of "Rock, Paper, Scissors," thinking one-ahead, and then one-ahead of those thinking one-ahead. World of RPS is a good site at which to brush up on the concept.

If the market breaks out the last hour for a few days, then the next day will break out half an hour sooner, then the next day sooner still…

Janice Dorn remarks:

I often get mail from people telling me they never change their systems, that the machines do it all for them while they are on the golf course. Dr. Katir's post tells the true tale, I believe.



 Almost Totally Right So Far - and Happy To Let The Market Be My Judge:

Let us look at what has happened in the markets since the FTSE overshot my 6480 target by about 35 points on Monday. But it peaked that day and it has not managed to hold above 6480 for more than two successive closes. It closed at 6449.4 on April 18, 2007. Such missed targets are common. The locals in a market will want to make the wise speculator not quite correct if he is foolish enough to make his stops too tight. That's why it happens. It might be called, I suppose, the bulls' last revenge! Figuratively, the animal is mortally wounded but still has enough energy left to kill the successful hunter who comes too near too soon.

A similar phenomenon characterized the last hour of trading on the Dow Jones today. Again, to put it figuratively, the blow to the heart delivered on February 27th mortally wounded the old bull. Yet it crawled back to its old high and then, tonight, in one final act of revenge, unexpectedly leapt up above where everyone expected. It killed off all the foolish gloating bears who'd come too near too soon. In other words it had put their stops too close to the market.

These figurative ways of thinking about the market may seem simplistic but they have enormous predictive power if used correctly.

So where do we go from here? In a word, down. The next three days, April 19th, 20th, and 23rd, will all see lower closing prices than the day before, on both the Dow Jones and the FTSE. This is the start of a major bear market which will last about three years and be the greatest one since 1929-32.

I, like many others and your esteemed self, am weary beyond words by perpetual bears that cry "wolf." Or should it be bear every other week? If I am wrong about this week, I am a fool and should never be taken seriously again. I am happy to let the market be my judge - and, figuratively, my executioner!

Janice Dorn writes:

My research (possibly incomplete and inaccurate) indicates that William Hutton is a pseudonym for a British geologist who bases much of his work on the prophecies of Edgar Cayce. He also calls on esoteric writings from Gurdjieff and Ouspensky, among others.

He is far from alone is this type of fear mongering. There are plenty of people who live and breathe this stuff as they prepare for apocalypse. The Association for Research and Enlightenment (with which he has been associated for 40 years and most likely founded) is based in Virginia Beach, Virginia. His mailing address also appears to be Virginia Beach. His webmaster, Jonathan Eagle, is the co-author of his book entitled: Earth's Catastrophic Past and Future. I should be so lucky to have a webmaster who can co-author books with me! 

Steve Leslie adds: 

I do not know who William Hutton is. I have no idea what his credentials are nor whom he represents if anyone or anything. He may very well be a very respected person in the financial world therefore I will withhold judgment. I wonder aloud where he did surface from and what his qualifications are. I suspect this is some sort of an incipient joke perpetuated by someone who is using the name of a former investment house in his name. I can see the subtle joke in that when E.F. Hutton talks people listen.

That said, I wish to express my view on his posting. I find his inflammatory comments entirely counterproductive and destructive. In fact, I warned this type of writing would spew forth directly around Feb 27th when the market took a very big hit. If one would like to read my column, you can find it on titled Cowboy Up. I cautioned against listening to "nattering nabobs of negativism" who will try to rubber stamp themselves and their careers by predictions of cataclysm in financial markets.

I wonder what good possibly comes out of such grandiose and garish predictions. This reminds me of Joe Granville who built a career out of one grand call in the market, and spent the rest of his career losing money for people, or Elaine Garzarelli who in 1987 suggested there would be a major collapse in the market. She has since become less prevalent yet she still lurks in the background. There have been many comments over the years attributed to Alan Abelson and his constant harping about an overvalued market. This quintessential uber-bear who can brighten up a room just by leaving it specializes in schadenfreude. Ad an editor, who as far as I can tell has never managed money nor had any track record, he is a very flowery and entertaining writer and an interesting character but a crusty curmudgeon nonetheless.

I must say that I cannot recall whether he has ever made any money by owning stocks or if he was ever ebullient about the stock market or the United States economy or commerce in general.

Even Robert Prechter who when properly motivated can be quite a trader, and in the early 1980s won several trading championships on a national level, has been warning about a super bear cycle predicted by his work with Elliott Wave since the 1980s.

Of course, the most sanctimonious prig of them all is Warren Buffet. The Oracle of Omaha seems to have made so much money and has decided to give so much of it away that he sees no need for anyone else on the planet to make any more money that they should therefore acknowledge their pathetic lots in life and submit to a cold and heartless destiny of insignificance. I am hard pressed to recall a time when he proclaimed that it is a great time to own equities. He reminds me of the great college football coach Lou Holtz who could never find a reason why his Notre Dame football team could possibly win a football game, yet consistently stood atop the polls at the end of the football season.

Then there was the time, I went to a national conference in 1995 and attended a lecture by a very respected financial newsletter writer at the time from Montana. He was riding a crest of stardom. His views were that inventories were rising at unsustainable rates and the markets were extremely risky here and going forward. In his view, we were to enter a period of unstained growth and his predictions were that we were about to embark on a very bearish and cruel time in the market. Any casual student of the financial markets will remember that this was the beginning of the greatest stock market advance in history.

Now we fast forward to William Hutton. Here is an excerpt from his post here:

"So where do we go from here? In a word, down. The next three days, April 19th, 20th, and 23rd, will all see lower closing prices than the day before, on both the Dow Jones and the FTSE. This is the start of a major bear market which will last about three years and be the greatest one since 1929-32.

"I, like many others and your esteemed self, am weary beyond words by perpetual bears that cry "wolf." Or should it be bear every other week? If I am wrong about this week, I am a fool and should never be taken seriously again. I am happy to let the market be my judge - and, figuratively, my executioner!"

Now, I mentioned on Tuesday that historically the market tends to rally directly after tax deadline and the 5 days following the drop date are quite positive. This was based on historical numbers reaching back 13 years. I also espoused that technology tends to do well for the quarter following April 15th.

I do not know what the future will hold. It may very well be the stock market falls dramatically; we enter a phase where equity prices erode to levels approaching that of the great depression. It is possible. It is also entirely possible that a butterfly flutters its wings in China and this causes a hurricane and an ensuing tidal wave that wreaks mass destruction in California. I am sure that there are even numbers people who can tell us what the likelihood of such an event is. It is possible but not very likely.

At the end of the day, for the week and for the year it really does not matter what Mr. Hutton has to say. Nor does it matter much what I have to say or what anyone else has to say.

What matters is how one maximize the chance to make money in the markets, how we as investors can actually deploy our hard-earned capital with a positive expectation and yield, and how we utilize information profitably so our standard of living for ourselves and our family can grow substantially on a yearly basis. This is the greater good and the greatest goal.

Theories and anecdotal comments and worthless and useless. The proof is in the financial pudding.

So finally, I say to Mr. Hutton assuming he exists, in the words of Arnold Schwarzenegger, "You have been erased."



 The following is excerpted from an article in The New Scientist.

Part of a human heart has been grown from stem cells for the first time, a UK research team has announced. The small discs of tissue could represent the first step towards building a whole heart from stem cells.

Animal trials are planned for later this year and, if successful, replacement tissue could be used in transplants for people suffering from heart disease within three years, they said.

"Like everything published ahead of time, it's hard to work out exactly what they've done," said Stephen Minger, a stem cell scientist at King's College London in the UK. Yacoub told the newspaper that similar valves could be fitted in patients within five years, but it would take at least 10 years to build an entire heart. 



Alzheimer's Vaccine Works on Mice: Japanese scientist.

March 28, 2007 11:49:28 PM PST

 Japanese scientists have developed an oral vaccine for Alzheimer's disease that has proven effective and safe in mice, the director of a research institute behind the project said on Thursday.

The team is preparing to move to small-scale clinical trials in humans, possibly this year, said Takeshi Tabira, director of the National Institute for Longevity Sciences in Aichi, central Japan.

Animals are able to recover their functions after developing symptoms, but humans are less able to do so. It may be that this only works in the early stages of the disease, when symptoms are light"

When administered to mice suffering from the disease, which causes dementia and is currently incurable, the vaccine reduced the amount of amyloid plaques in the brain and improved mental function.

Amyloid plaques are believed to be at the root of Alzheimer's — a growing problem for aging populations around the world. The disease affects five million in the United States alone, the Alzheimer's Association said in a report last week.

The treatment did not cause inflammation or bleeding in the brains of the mice, Tabira said.

The vaccine is made by inserting amyloid-producing genes into a non-harmful virus. When taken orally, the virus stimulates the immune system to attack and break down the amyloid proteins in the brain, Tabira said.

The treatment was tested on 28 mice genetically modified to develop Alzheimer's disease. Half the animals were given a dose of the vaccine at the age of 10 months, while the control group were not treated.

Three months later, tests showed mental function in the treated mice had returned to levels close to those before they developed Alzheimer's symptoms.



Once again, we see the common meme whenever there is a big down day. From various email lists, to chat boards, to news sites, and to TV, the commentary is all the same: What went wrong? This is usually followed by posts about how this or that system that is supposed to prevent the market from going down didn't work.

Never is there consideration that the movement might have been random, or that in fact the move was in fact an act of the capital markets efficiently pricing in new information.
Noticeably absent, of course, is the lack of "what went wrong" statements whenever the market goes up big.

Why? I offer two explanations, and the answer is likely a combination of both.

First, human psychology. It is well known that people tend to assign their winnings to skill and their losses to luck, malfeasance, someone's part, or a system breaking. Most likely there is a large issue at play regarding people refusing to view events logically when the event itself is negative. Perhaps Dr. Dorn could comment.

The other explanation is a mistaken view of the role of capital markets, specifically the stock market, in an economy.

The role of capital markets in an economy is, at its most basic, to serve as a meeting place for those with surplus capital and those with a shortage of capital. The primary market in equities consists of those with excess capital wanting to buy shares in companies who are in need of capital.

The secondary markets then serve to offer liquidity to those who purchased equity in the primary markets. The secondary market is critical to the success of the primary market. Without the liquidity of the secondary market, investors would take a liquidity discount on what they are willing to pay in the primary market.

In order to entice investors to invest in common equities, they must offer a risk adjusted return that is above other more secure investments. If there was no risk adjusted return, people wouldn't invest in the secondary markets, and thus people wouldn't invest in the primary markets.

For most of the century, the figure needed to keep the equity markets chugging along has been around a 10% annual return.

The pricing in the equity markets also sends resource allocation signals to the economy as a whole.

Now, most people don't see that as the purpose of the stock market. Most see the purpose of the stock market being "to go up." Therefore, when it goes down they think that something has gone wrong.

But, the purpose of the stock market is neither to go up nor go down. For it to serve its purposes, it must go up over time, but going up is not its purpose in and of itself.

In short, the market went down today. If you lost money, it is nobody else's fault but your own. If you made money, there's a good chance it was luck.

Janice Dorn writes:

In partial response to Professor Haave's insightful commentary, I have a several minute-long video which I made on January 24. 2007, discussing what is known as the self-attribution cognitive bias. If I am able to send it to the list, I will. Until then, perhaps this will be of some assistance, perhaps not.

Human beings are fragile as regards the whole situation of self-esteem. This is much more detailed than the small paragraph or two, but perhaps it captures some of the essence.

The human brain has many ways of protecting against assaults on the fragility of self-esteem. In psychoanalytic literature and much of the psychiatry literature, these protective tactics (which are, in large part, little or big lies we tell ourselves) are called defense mechanisms. In the language of behavioral neurofinance, they are called cognitive biases.

The self-attribution bias manifests as a tendency for good outcomes to be attributed to skill, and bad outcomes to be attributed to just plain hideous bad luck.

A decision matrix for self-attributional bias looks something like this:

                             GOOD OUTCOME             BAD OUTCOME

Right Reason                  Skill ( or luck)         Bad luck

Wrong Reason                Good Luck                Mistake

Among the questions that follow from this very brief discussion of self-attribution are:

  1. When are we lucky and when are we skillful?
  2. Are we right for the "right" reason, or are we right for some other reason.
  3. Does it matter, as long as we are right?
  4. How do we measure and "fess up" to mistakes, i.e. recognize mistakes as mistakes by taking personal responsibility and accumulating regret?
  5. Is it important to do this, and why?
  6. How do we learn from this and what do we learn from this?
  7. How important is it to learn from this?
  8. What about all the other cognitive biases and how they impact self-attribution?

The essence of the self-attribution bias is: Heads was skill, tails was bad luck, with all and every due apology to any long tails who may or may not be listening in!

Art Vandalay writes:

This article is two months old but very important in my opinion. It will be the main driver this year.



There's trouble on the street today
I can feel it in my bones
I had a premonition that he should not go in alone
I knew his charts were loaded, and he was ready for the kill
Until the stock imploded and the blood began to spill.

So baby, here's your ticket…lick your wounds and slap your hand
Here's a little money now, do it just like we planned
If you're cool for 20 hours, it might pay you 20 grand!

I'm sorry it went down like this, and someone had to lose
It's the nature of the business.
It's the Trader's Blues.

The hedgies and the gurus, market makers and the law,
The pay-offs and the rip-offs, and the things nobody saw
No matter if it's futures, or the stocks that go mo-mo
You've got to get those loaded charts 'cause it's all about the dough.

There's tons of shady characters, lots of dirty deals
Every name's an alias in case somebody squeals
It's the lure of easy money, got a very strong appeal
Perhaps you'll understand it better standin' in his shoes

It's the ultimate enticement
It's the Trader's Blues

You see it in the headline, you hear it every day
They say they're gonna stop it, but it doesn't do away
They move it through an ECN or flip it on the NAS
They hide it up in arbi, and I mean it's here to stay!

It's propping up the governments and big fat global stew
You ask any SEC man, he'll say "Nothin' we can do."

From the verbose newsletter writer back down to me and you
It's a losing proposition but one you can't refuse.

It's the politics of fear and greed
It's the Trader's Blues… 

Janice (with apologies and gratitude to Glenn Fry and "Smuggler's Blues") 



What are your thoughts or solutions for any or all of these Time Traps?

From Jim Sogi:

It's not necessarily time, it's really a question of categorizing priorities. Take all the things that have to be done and put them into 3 categories:

  1. Must do to survive. Do those.
  2. Next are important but not absolutely necessary. Get as many of these done as possible.
  3. The rest, get to it if it does not interfere with first two. If not, forget it and give it up.

How does one categorize? In this order: Each lower item must give way to the higher in priority.

  1. Health
  2. Family
  3. Other

Seems to work well but its not going to be what the "Man" tells you or wants you to do. Another good trick is to turn off the TV and radio for good. Disconnect them and throw them in the rubbish. They are evil.



From Peter F. Drucker, The Essential Drucker:

 "There are innovators who are 'kissed by the Muses,' and whose innovations are the result of a 'flash of genius' rather than of hard, organized, purposeful work. But such innovations cannot be replicated. They cannot be taught and they cannot be learned….

"But also, contrary to popular belief in the romance of invention and innovation, 'flashes of genius' are uncommonly rare. What is worse, I know of not one such 'flash of genius' that turned into an innovation. They all remained brilliant ideas.

"The purposeful work of innovation resulting from analysis, system, and hard work is all that can be discussed and presented as the practice of innovation…. And the extraordinary performer in innovation, as in every other area, will be effective only if grounded in the discipline and master of it.

"Purposeful, systematic innovation begins with the analysis of … the seven sources of opportunity: … [which are] the organization's own unexpected successes and failures … incongruities … process needs … changes in market structures … changes in demographics … changes in meaning and perception … [and] new knowledge. All sources of innovative opportunity should be systematically analyzed and studied. It is not enough to be alerted to them….

"An innovation, to be effective, has to be simple and it has to be focused. It should do only one thing; otherwise it confuses. If it is not simple, it won't work. … All effective innovations are breathtakingly simple. Indeed, the greatest praise an innovation can receive is for people to say, 'This is obvious. Why didn't I think of it?'"

Dan Grossman writes:

In considering innovation/invention, I would add the US probably has a more flexible society for welcoming change, and a more varied capital market for financing innovation, which is probably why innovation seems to do better here.



By Jay Gillette, Network World, 01/24/07

HONOLULU - For the second year running, no U.S. city has made the list of the
world's top Intelligent Communities of 2007, as selected by global think tank
Intelligent Community Forum. The ICF met and announced this list as part of the
29th annual Pacific Telecommunications Council (PTC) conference here in Hawaii
last week.

The ICF selects the Intelligent Community list based on how advanced the
communities are in deploying broadband, building a knowledge-based workforce,
combining government and private-sector "digital inclusion," fostering
innovation and marketing economic development.

 As announced by ICF chairman John Jung, the intelligent city finalists are:

 * Dundee, Scotland, United Kingdom
 * Gangnam District, Seoul, South Korea
 * Issy-les-Moulineaux, France
 * Ottawa-Gatineau, Ontario-Quebec, Canada
 * Sunderland, Tyne & Wear, United Kingdom
 * Tallinn, Estonia
 * Waterloo, Ontario, Canada [Read more here

Alan Millhone comments: 

Is that report telling us something about a possible problem with our entire educational system in the USA ? Everything in this country revolves around sports and the money it generates. It would be a dream to see chess and checkers taught in our schools at an early level. Bob Pike of Chula Vista, CA teaches a two week checker program in the local schools in his area. He can prove that a class taking his two week program will perform better on tests during the year than a class that does not take his program.

The current World 3-Move Style Checker Champion, Mr. Alexander Moiseyev, came over from Russia in the early 90's. He told me that in Russia, at a very early age, his parents put him in a special school to learn checkers and chess and was taught to record his games, use a clock and other academics in the second grade.

I will make a bet that the winning cities still use some form of discipline in their schools. In my school years, almost every teacher had a paddle under their desk or a belt, and I still respect every teacher I had even if they were still living today.

Stefan Jovanovich adds: 

Benet developed "intelligence" testing to identify those relatively few people whose cognitive faculties were impaired. He saw it as a diagnostic tool for confirming other symptoms of physical brain damage, Down syndrome and other mental impairments. He considered Stanford's use of the testing methodology to rank all people's intelligence as a gross misuse of his methodology. My dad made a sizable personal fortune from being an executive and shareholder in a company that was the largest for-profit publisher of standardized tests in the world. He knew what every cramming coach since Samuel Johnson has known; if you have a willing student and you teach to the test, you can change someone's scores. Just before he died, we had a brief discussion of what the effect of the No Child Left Behind Act would be. His answer was "some teachers will cheat on the scoring and within a decade everyone will be teaching to the test." The well-to-do and their children seem to agree. Why else would they pay for Kaplan, Princeton Review, etc.? For the SAT, LSAT and GRE, if a student puts in four to six good months of steady cramming, someone with an "average" IQ can produce well above average scores. The extraordinary literacy of Americans in the period before the Civil War (compare the Grade Levels of the State of Union addresses of Andrew Jackson with that of the most recent of his populist Democratic successors) was the product of the same kind of instruction. Students were crammed in reading and writing in a daily grind. After only a few years of study, they knew the language thoroughly.

There is no logical reason why compulsory American education cannot be limited to the span of Lincoln's formal education - four to five calendar years - and the curriculum "dumbed down" (sic) to nothing more than reading, writing and arithmetic. That would be a sufficient tool set for people to be able to go on in life and learn to become plumbers or lawyers or GrandMasters by their own means. Politically, this is an impossible dream, of course. We can rely on the private market to provide us with food and shelter and images for the walls of our caves, but the state must be guaranteed in its monopoly over the teaching of young children. Who says America has no official religion?



If you have ever been around an Alzheimer patient, one of the most troubling aspects of the diseases is the patient's inability to make sense of the present. You would think that this frustrating incompetence would be the victim's main concern. You would think that this confusion would make them submissive and accept the care of others.

I believe much of the confusing, frustrating, even belligerent behavior of the Alzheimer patient can be better understood as a desperate, intense search for self. Memory is closely linked to our personal identity. Their geographic roots, family (especially intimate partners), culture and religion become intensely important to them in this search.

It seems that much of their behavior is declaring their unique perspective as an individual since they are overwhelmed by their sense of confusion. While acknowledging it, often through fear, they don't know what is happening. They relish the ability to interpret events and personalize them, which is foundational in our perception of our selves as individuals. Therefore, while they are completely confused, and are trying to assert themselves as individuals, they often becoming belligerent, defiant or they make decisions in spite of their fears. While acknowledging they are completely confused, they still refuse to give up the right to make choices and to interpret the events themselves. The ability to make decisions is fundamental to our identity of self. They would rather make a terribly wrong decision than give up that right.

It would seem that many of their decisions are made through their intuition rather than through their understanding of the facts. "Fight or Flight" instills intuition within us as the primitive response to fear. Furthermore, Alzheimer patients often exhibit a child-like urge to engage in art and creative endeavors. If you, like me, believe that intuition is a subset of inspiration, then you will agree that they exhibit a need to sharpen their intuition.

As is clearly exhibited by the Alzheimer patient, I suggest that there is an intense battle of the legitimacy of our concept of self within each of us. Much of this focus is placed on our personal ideas and perspective. Often we use our intuition, in spite of the common sense dangers in doing so in many situations, to validate our identity or self.

Perhaps one of the most dangerous aspects of pseudo events is not just the staging of the event, but the staging of the audience. Often, the audience is staged to control his intuition, and then these pseudo events make it easy for him to rely on his intuition and the internalization of the event.

Consider porn, clearly the event and target audience is staged. But the personal internalization of the event leads to the wrong conclusion: the exhibitionist relates to our personal perspective. Magazines, web sites and other pseudo event outlets will gladly take your money to help you validate your personal perception with the glaring evidence to the contrary that there is nothing personal about the event.

And many millionaires have poured countless dollars in pursuit of the porn star trophy wife.

Acting on intuition derived from pseudo events is often like the Alzheimer patient. It's an action based on validating your personal perspective, rather than making money. Pseudo events for investors stage your intuition by staging a "Fight or Flight" event, and like the porn events, this reaction is irresistibly natural.

Here are some suggestions on how to prevent this.

1. Always be aware of whom the target audience is and the path the event is leading you down or painting, to make it look like your own intuition. Ignore your gut response if you are the target audience.

2. Try getting facts from outlets in which you are not the target audience. Vic and The Enquirers come to mind.

3. Get your information from the enemy.

4. Fear mongers. They will try to relate to you personally. Politics is a favorite. This causes you to trust them, and this also isolates you from the herd. Then they puff up the problem, and finally whisper, "run … run far, far away." They hate it when you turn and fight. But I've had some of my best ideas fighting fear mongers.

5. Seek out, do your own investigation, especially when you have personal expertise or attachment, such as regional companies. Don't rely on other like minded individuals.

6. Be well aware of the new ease to specifically target you. Niche marketing pseudo events are especially effective due to our personalization, and therefore implied uniqueness, of these mass marketers' message.

7. Recognize your vulnerability to pseudo events in times of personal trouble.

8. Seek sources of intuition from the distant past. There are pseudo events that have stood the test of time. Form your own interpretation of these views from the original source.

Janice Dorn comments:

I would refer anyone who is interested in understanding what might be occurring in an Alzheimer patient to the concept of Lifeworld. This has been articulated well in a paper entitled: The Lifeworld as a Phenomenon and as a Research Heuristic Exemplified by the Study of the Lifeworld of a Person Suffering Alzheimer's Disease by Ann Ashworth and Peter Ashworth. I do not have a link for the full article, but I do have the original article published in The Journal of Phenomenological Psychology, Sept. 22, 2003.

This work describes, among other things, the essential features of a Lifeworld:

Temporality (and its events)
Spatiality (and its objects)

As regards the person suffering from Alzheimer's disease and the caregiver, re: Self, the following are concluded, in part:

Self includes the attributions of identity as well as the person's experience of his or her presence, agency and voice within a situation. Perhaps, most fundamentally, it is plain that a person with dementia is a self in the sense of being the center-the point of view-of his or her psychological world. In the phraseology of Sabat (The Experience of Alzheimer's Disease-Life through a Tangled Veil, 2001 and Surviving Manifestations of Selfhood in Alzheimer's Disease: A Case Study, 2002), the person can say "I." However, the world of spatiality and temporality is not segmented in the conventional way (for example, with thresholds and boundaries) so the limits of self are not self-evident. Certainly, distinctions of ownership may be lacking, so that the self is associated with some objects (my robe, my slippers) and disassociated from other objects.

Putting aside the fact that the concept of "self" is a highly debated subject (ala. Satre, Hesserl, etc.), one may find quite useful, per the work of Sabat, to distinguish between three notions of self: Self One who is capable of saying "I." Self Two which claims, as it were, self-attributions, and Self Three, which is enacted in day to day relationships. If caregivers and others focus on deficiencies due to Alzheimer's such that they constitute much of a Second Self, then ongoing relationships are subverted. The Third Self is thus particularly vulnerable to deleterious and unnecessary social effects, specifically excess disability (prejudiced attitudes and behavior).

For example, a person suffering with dementia may find that a main way in which agency can be exercised is indirectly through requests for others to act. A time delay in response by the caregiver when asked to ask on behalf of the person with dementia can be enormously frustrating in the following way: the caregiver is seen as part of the sense of agency of the patient. Thus, it is as if the person with dementia had set off to walk, and found that her legs would not respond in the instantaneous way that their membership of her bodily self required them to act.

Additionally, there is a great need for presence and voice.

The concept of compassionate or right speech is one which cannot be overemphasized here. In fact, a study and adoption of compassionate listening is, in my opinion, critical reading for anyone who is dealing with persons with dementia. The best overall paper on this is by Gisela Webb and entitled: Imitations of the Great Unlearning: Inter-religious Spirituality and the Demise of Consciousness which is Alzheimer's.

What remains after the unraveling of mind, body, language and knowledge in Alzheimer patients, is what was there in the beginning.

If I had to read one paper on how to conceptualize and actualize interaction with a person suffering from dementia, it would be the work of Webb, as it is a wellspring of wisdom, enlightenment and acceptance that what we are, at the deepest level, dealing with in those suffering from dementia is a progression toward death, both for the patient and for the caregiver.



I am a big follower of your writings and philosophical thoughts. I have a question that I have never gotten a good answer to, so I decided to pose it to your brilliant minds!

Are trading gains and losses considered a zero-sum situation? For example, when Amaranth lost $6 billion in less than one week, does that mean that investors on the other side of the trade made $6 billion?

This might be a very simple question but I can’t really seem to figure it out, nor do I get a consistent answer from any of the people that I ask.

Dr. Janice Dorn comments:

I found a paper on The Winners and Losers of The Zero Sum Game, from Larry Harris (author of Trading And Exchanges).

I have always believed that trading futures is a zero sum game. If this is incorrect, please be kind enough clarify, and thank you.

Steve Leslie offers:

Something can only be a zero sum if it is frictionless. There is no perfect machine, they all expend energy of some sort.

In a private transaction I sell you something and you buy it then it is zero sum. 100% of the money transferred hands

Einstein said all matter in the universe remains constant. That is not to say that it does not take intermediate forms.

Although I do not trade futures, the chair and others are the experts there. I believe in his book he mentions that it has the least costs to it. In the world of intangibles it is the “cleanest of transactions” as it eliminates the spreads. Please feel free to correct me if I am wrong. The big boys screw the little guys by manipulating the markets eloquently, described once again by chair, when the Bank of Japan would put in buy programs and sell programs on currencies. My guess is that the Federal Reserve can do same by adding money and taking it out of the system.

Forex has its costs in the form of pips.

In securities of course there is a transaction cost. You pay commissions, and in stocks there is a bid and an ask. Spreads are killers in options. A 2.4 bid and a 2.6 asked is approximately 10%, right there. Tack on handling fees and the math is rough.

Forget real estate, seemingly everybody in the world gets a piece of that action, be it from title searches, broker fees, impact fees, etc.

Also, do not forget taxes! You sell something for a profit and governments, state and Fed. want a piece of the action.

The rules of engagement are against the player from the start. that is why the investor needs to be wary and not overtrade — To control costs and taxes.

Exchanges are like poker games in casinos. For every hand there is a “rake”, for example, in a $100 pot the house may drag $5 of it off the table. Put in a dealer tip of $3 and the player who wins the pot. gets $92 of the $100 that was in play. If no new money is added to the table the game will eventually fold due to lack of funds. It will have all ended in the house’s coffers. In a house game you win a $100 pot you keep the full amount “no rake no toke”. There you have to guard against team play, cheats, and slippage due to betting mistakes.



One must repeat that the unconditional drift of the market is 10% a year. Whenever you are short, you have a drift going against you. When you wish to go short, chances are that the drift of the market will be above 10% a year. That’s because you and others think there’s a bear market retrospectively, and require a higher rate of return to be invested. In addition there are frictional costs to being short. Put them all together, and I’ve never seen a short seller who’s made money, nor has the Palindrome. It does give psychic value however in that it lets you vent your hatred of the system and yourself. It also gives stature because you are always on the negative which seems so much more poignant than the positive.

Since you always are giving away money on the short side, on an expectational basis, it is best not to consider it as the wind is against you unless you are truly insecure. The question of when you should go short is the wrong question. A better question is when you should increase the leverage of your long investments. I would propose a hypothesis that it is good to do that when the market has suffered a decline with a given period of a certain magnitude or more.

I believe the above reasoning, as well as the questions I ask bears about whether things are truly so much worse than before, and whether if they are, is this bullish or bearish, which I have made repeatedly since 1960 but also for the last four years, during which the market has doubled, has prevented many people from self destruction.

Dr. Janice Dorn provides a different perspective:

Part of the profundity of Victor’s remark is that the bears make poignant arguments which are almost tailor-made to touch something very deep inside of those who are always watching and waiting for some disaster or catastrophe. The bearish arguments tend to be more scholarly, detailed, laced with Latin words and appeal to the limbic core of the brain (which holds memories of fear and terror and sees them even in their absence), as well as the higher neocortical areas which are, in some way, hard-wired to process, consolidate and retain bad news more firmly and longer lasting than good news. Bad news is stored as pain and that pain can be evoked in almost any situation. Good news tends to be more fleeting and there is more difficulty reaching into the brain stores to retrieve the memories of euphoria. Perhaps the neurochemistry of euphoria (be it dopamine, serotonin, norepi, or any of the thousands of neurochemicals) is configured in a way as to be more transient, spontaneous and non-entrained. Depression, disaster, danger lurking around every corner is much more “reachable” in terms of our psyche. Once again, this is likely a function of the way that the cortical neuro-pathways are laid down and communicate electrochemically with each other in the vast cortical landscape.

In any case, the rah-rah cheerleaders are often seen as buffoons, whereas the permabears are the scholars and masters of Latin.

“A mass of Latin words falls upon the facts like soft snow, blurring the outline and covering up all the details. The great enemy of clear language is insincerity. When there is a gap between one’s real and one’s declared aims, one turns as it were instinctively to long words and exhausted idioms, like a cuttlefish spurting out ink”
–George Orwell, writer (1903-1950)

John Bollinger adds some numbers to the discussion:

S&P 500, 1950 to date, returns by month, ex dividends mean = 0.734%, standard deviation = 4.085%

Dr. William Rafter explains the professional’s dilemma:

Dear Mistress Market,

To second the chair’s remarks about the risks of being short, I emphatically state that “a friend” has never made any money on the short side of equities. Even in profound bear markets, the friend has gotten nothing but frustration out of the short side. Conversely the friend has been able to make money on the long side in those same profound bear markets. But the friend has a problem: people who hire his services want him to add a short component.

More than a quarter of the hedge funds pursue a long/short (”L/S”) style. Let’s assume that our friend had a very successful fully-invested long-only (”L-O”) strategy. The funds don’t want to employ his L-O strategy because they are under the impression that a market-neutral strategy of L/S is less risky. But our friend knows that the short side is just wasted; he can prove that his L-O strategy beats a L/S version of the same thing. By beating it, we mean in every way: higher Sharpe Ratio, lower drawdowns, etc. Now the friend is looking for an allocation of X dollars in his L-O program, but the funds only want to give him .3X or .5X. Since he clearly cannot make money on the short side, he has adapted by finding a strategy that will go nowhere - and that’s what he shorts. (He cannot short the index, because he knows that also will go up.) By his little charade he gets his full allocation, and the fees that go with it.

But this irks, as there are inefficiencies all around: extra transaction costs, risk of errors, extra man-hours, etc. Furthermore, our friend assumes that he is not unique. Others must have the same problem. With more than a quarter of the hedge funds using L/S strategies, how much is being wasted? Is our friend on ethical quicksand by giving the “professional client” what that client says he wants?



Laurence Glazier asks if Optimism in the Markets Exists for More Simple Reasons:

Putting it very simply (or too simply?) is the positive drift in the market an inevitable manifestation of human potential and the innate cheerful optimism we all have, or at least were born with?

Scott Brooks provides his perspective:

I would say no.

Most people are not innately positive or optimistic. Most Americans are blessed by capitalism simply by accident of birth. If they had been born in a communist country, they would simply be sheep there (as they are sheep here) albeit much more unhappy sheep with a greater sense of hopelessness.

Growing up where I did and being surrounded by the people (and their negative destructive attitudes), I don’t think most people are innately optimistic. Any optimism they have is because they are surrounded by an environment of capitalism which breeds some optimism because here they are at least safe (no secret police to break down your door in the middle of the night), they are well fed (no mass starvation, or really, any starvation here), there is consistency of rules (rules and laws are not based on the arbitrary whim of whomever is in charge) and they can see that what is happening around them is consistent with what they innately know is the philosophy of life (as opposed to the propaganda they are exposed to in statist countries…innately they know its a load of cr-p).

No, people are not innately optimistic. Capitalists are. Think about it. What we have today is because of the skills and mind set of very few men. Rockefeller, Carnegie, Edison, Gates. Or men like Jefferson, Franklin, and Henry. Or scientists like Currie, Oppenheimer, Watson and Crick, or my uncle Bob.

What we have as a country is the result of just a few people who were truly optimistic and had the strength of character to fight through all the naysayers and negative busybodies (the Elsworth Tooheys and Wesley Mouchs, Dan Rathers, Paul Krugmans, Alan Abelsons, etc. of the world).

No, people are not optimists. They are negative pessimists who will almost always resort to the lowest common denominator of gossip, destructive thinking and thinking the worst of people.

Just a few of us actually create something of value in this world.

The rest of the world rides on our coat tails….and most of them are dragging anchors behind them or throwing rocks at the back of our heads, or climbing up on our backs to whisper in our ears all the negative things they can think of…but the nice thing is that on our coattails there is also an odd person or two (not very many mind you) who are glad to be on our coat tails…

They appreciate what the men of the mind do for them. And they fight the negative naysayers dragging anchors, throwing rocks or whispering in negativism in our ears.

They are known by many names…but most on this list would think of them as the “Eddie Willers” of the world.

Prof. Gordon Haave Disagrees:

No. The things you cite explain the growing economy. The positive drift is simply what the market pays you to part with your $$$ to put into volatile investments. In fact, the more optimism you have the less the market would have to pay you, so that would actually bring returns down, which of course highlights the important to us optimists of people like Abelson. If everyone thought like us, returns would be lower.



Time is the substance from which I am made. Time is a river which carries me along, but I am the river; it is a tiger that devours me, but I am the tiger; it is a fire that consumes me, but I am the fire…Jorge Louis Borges

The majority of human beings conduct themselves as if they intend to live forever. In essence, there is no systematic or productive review of the past, no real or meaningful planning for the future and minimal learning from the present.

Sigmund Freud posited that the unconscious mind does not have a notion of time, and that our deepest needs and wants remain, for the most part, unchanged throughout life. When you think about this, it is a compelling confirmation of the saying that most people lead lives of quiet desperation and die with their song still inside of them. They don’t take time or effort to find out the words or lyrics to their song, let alone try to sing it.

Crowd or mass behavior is even more primitive and impulsive than that of any one individual, since crowds tend to pay less attention to time. An individual alone can at least be aware of time, especially,when feeling lonely or longing. In a crowd situation, there is only the moment and there is no limitation on time. It is as if whatever is happening can and will go on forever (Party like there’s no tomorrow). Eventually, the music stops; however, crowds, in the heat of the moment, have little perception of time or limitations.

Gustave LeBon, the French philosopher and politician described in “The Crowd” a collective mind-set that is completely different from what that individual would feel, think or do in isolation. Freud believed that attitudes toward group leaders stemmed from childhood feelings toward the father–some combination of trust, fear, desire for approval and imminent rebellion. Group-think of this type can be regressive and infantile to the extreme. This is part of what manifests, on a larger scale, as panic buying and panic selling.

Mass mentality is magnified in real-time virtual stock trading rooms. The perceived necessity is to be part of this crowd by saying something which the individual believes to be clever, insightful or original so that one is not invisible, but makes one’s presence felt. This type of behavior can, if not modulated and regulated, go on for very long periods of time (since crowds have no real time perception) and result in escalating behaviors as various members of the crowd struggle for dominance or simply to be heard, seen or recognized. It is noise and more noise. In order to be recognized as part of the group, individuals may resort to verbal or physical behaviors which would not be recognizable to those who know them apart from the crowd situation.

In the case of a “virtual” crowd, such as a trading room, the verbal exchanges can take on even greater intensity, since one is ( for all intents and purposes) anonymous in cyberspace. The primitive, aggressive portions of the brain overpower the newer, more developed areas of the brain, often in ways which even the individual does not believe. How many times have you heard someone say, or seen someone type “Did I really just say that?” The individual is in disbelief that he or she allowed and could not control primitive limbic impulses and deep-seated drives. “OMG…sorry, I didn’t really mean that…or..I can’t really be saying that, can I? or “What was I thinking” or “Oops, wrong room LOL.” The use of emoticons and music further cloud ,deceive and add even more cacophony and tachistoscopy.

This situation is exacerbated further by the volumes of information, disinformation, misinformation and media verbiage that assault the trader’s mind, body and spirit every day. With few exceptions, this is deception, smoke and mirrors. The rat brain (paleo/archicortex), designed for flight or fright is attuned constantly to the possibility of attack, thus highly paranoid about and vigilant for the many types of deception that are perpetrated on a daily basis in the financial markets. The rat brain reacts with fear, greed, anger, retribution, sarcasm and loathing of self and others. The new brain ( neocortex) filters the information, makes a logical decision about its importance and then responds. Sometimes, the best response is to do nothing. Great traders know when to react and when to respond and are acutely aware of the difference between reacting and responding. Great traders have learned to make the old brain and the new brain work in harmony and flow, rather than battling continually with each other.

Time and price are facts of economic life. Because ontogeny recapitulates phylogeny, people repeat behaviors and cycles repeat. Windmills of your mind are simply never ending or beginning on an ever-spinning reel. The brain is a “time machine,” assert Duke University neuroscientists Catalin Buhusi and Warren Meck. Understanding how the brain tracks time is essential to understanding all its functions. There are cycles of weather, the moon, politics, commodities, currencies, stocks, sectors. art, fashion, food and just about anything that you can imagine.

Unfortunately, the majority of traders are unable to recognize these cycles because they are blinded by noise. It is only when traders are able to separate from the noise that they achieve the clarity of mind to recognize cycles and cycle changes. One way to attempt to filter the noise and look for order in the markets is through numbers. The work of Isaac Newton (1643-1727) and Leonardo Da Vinci (1452-1519) contains interesting correlates of numbers in the markets. Newton’s Law: for every action there is an equal and opposite reaction translates to the AB=CD parallel movement pattern of Gartley. DaVinci’s Codex notebook on the Fibonacci Summation Series illustrates the ubiquitous nature of these numbers throughout the entire universe. W.D. Gann wrote extensively on time, price and pattern. Gann ( who was born in 1878 and reportedly started trading in 1902) stated that time has the strongest influence on the markets because ” when the time is up, the trend changes.” The essential premise behind Gann’s use of charts to predict price was : history repeats.

A ton of stuff has happened since 1452. The markets have become more complex, global, computerized and trade essentially 24 hours a day. The herd mentality is at work, but on a much larger and highly magnified scale. Deception is more subtle and sophisticated. Time seems compressed and trade more frenetic . It is as if the logarithmically- accelerating rate of change of technology is permeating our minds and bodies in such a way that everything is urgent, breaking news, want it now, get in and get out quickly, take the profits and run. Is time all we really have so we must grab for all the gusto and goodies now, quickly, furtively, and then start looking immediately, frantically for the next big win? It is not without coincidence that frenetic is synonymous with inflammation which underlies a huge number of human diseases, many of which fall under the general rubric of “stress.” The toll on wellness and health is enormous, since stress debilitates and kills.

Accelerating change aside, human emotions have not changed. Greed and fear are the same now as they have been from the dawn of civilization. Those who win consistently more than they lose have learned to self-regulate the forces of greed and fear. They have trained themselves to harness and respect the power of numbers. They have learned that time takes time, and that a trade keeps working until it doesn’t. They allow time, price and pattern to play out.

Successful traders have learned to filter, modulate and use whole brain thinking to their advantage as they trade the numbers. They realize that when the time is up, it is up and they are able to get out and get ready for the next opportunity. They know that time is on their side, and they are prepared for it. From a place of relative calm, stillness and centering, they open themselves to receive and act on the messages that their whole brain time machine is telling them.

Time is nature’s way of keeping everything from happening at once…Howard Hoffman



As an experiment, I swallowed a 10mg Paxil tablet a few days ago and now feel ready to report on this aspect of the demise of American society. I begged the little green pill off a manic-depressive to better understand him, his so-called anxiety, and the smiling Paxil faces'I see walking around the high school where I teach.

This is the most common prescription in the world for depression, anxiety, bipolar disease, my favorite post-traumatic stress, premature ejaculation, and gambling disorder.

One daily 40mg tab was my adult friend's starting dose that I cut in 1/4 for the trial. I took it with a glass of water on a half-filled stomach to dull the effect. I kept a pen and notebook in pocket to record the effects and went for a walk in his garden.

An initial mild euphoria took hold in twenty minutes as I continued to smell the roses. I sensed the medication's smooth absorption via the gastro-intestinal tract and insidious entry into the CNS. I hadn't tainted the results with prior research to self-administration. Everything felt free and easy, not a care on earth. Yet I could still make notes and identify plants.

The Paxil high got heavier an hour into the trip, with the thought: Are you anxious? Depressed? Obsessive? Uneasy with people? Then Paxil's the drug for you. One problem: You may never quit.

The absolute worst feeling I got from the drug, that is perhaps what most users embrace, was becoming an Eloi. The sensation was distinct and lasted for two hours. The Eloi are one of the two post-human races in H. G. Wells' 1895 novel The Time Machine. In the year AD 802,701, humanity has evolved into two sub-species: the Eloi and the Morlocks. The Eloi are the attractive upper crust living on the surface of the earth, while the Morlocks live underground, working and tending machinery that provide food, clothing and infrastructure for the Eloi. The Morlocks continue to support the world's infrastructure and serve the Eloi who have undergone drastic physical and mental deterioration. Having solved all problems that required strength, intellect and virtue, they have slowly become miscellaneous dingbats. It is revealed that the Morlocks are tending to the toiless Eloi's needs as a farmer tends cattle — because the Eloi comprise most of the Morlock diet.

My next thought along the Paxil journey was to cry out. Just imagine a legion of Happy Faces drooling down the school sidewalks and into the SED (Severe Emotional Disorder) classroom that I once taught for Riverside County, Ca. Their so-called Paxil Faces are rounded, waxen with thickened lips and dreamy eyes reflecting a happy, soulless mind. I anguished at that stint before being dismissed for insubordination and arguing against kid drugging and withholding of my salary.

Finally, six hours after the first taste, I came down from my Paxil high. An annoying aftereffect was wanting more for the remainder of the day. Paxil Paxil Paxil. I took my notebook and feelings to my buddy who commiserated. He had tried to stop. He had twice tried to stop and each time had felt so physically wretched that 'the continued addiction was preferable to the withdrawal'.

I would not have to withdraw from this small, experimental dose, but sense that it can be done with a charismatic physician's advice, at a bangup clinic, by geographic distancing from the drug, or best of all with the support of a recovered peer. There should be a Paxil's Anonymous. It may take weeks, one milligram at a time, and with all that I've said, plus exercise, good diet and water, and plenty of work or hobbies, it shall be done.

One recovered from the Paxil habit should feel so accomplished that depression or anxiety is never an issue, just a bright future.

That's the short report of Paxil on trial. I've experimented similarly with a couple dozen other prescription drugs in the name of altruism. Paxil, and the stable of like SSRI (selective serotonin reuptake inhibitors) antidepressants, are hands down the most pathetic therapeutic craze I've witnessed since earning a Psych Tech Certificate two decades ago. By rendering a patient or citizen unwilling to make judgments and incapable of taking stands, there is no role for them other than in the vegetable garden of life.

It's the most amazing, most common prescription in the world. So many millions more could be dangerous if they get pointed in the wrong direction.

Ken Smith replies:

What are they in Denial about?

1. That the same political class that has been in office for decades will ever change anything.

2. That the ministers, rabbis, preachers, priests they listen to will ever tell them the truth about life; that religion is big business and nothing else.

3. That they can save money by spending money.

Dr. Janice Dorn replies:

The worst lies are the lies we tell ourselves. We live in denial of what we do, even what we think. We do this because we are afraid - Richard Bach

Why do we run from the truth? What makes us close our eyes and bury our heads in the sand rather than face what appears to be a harsh reality? Why are we compelled to cling to dysfunctional relationships and losing stock positions in the midst of increasing drawdown of our mental, emotional, physical, financial and spiritual capital?

We act this way because we are driven by hope. We behave in a certain manner because we want to believe that, somehow, somewhere, sometime, things will get better. We refuse to cut losses in our personal lives and portfolios because it is an admission that we are wrong, that we can't make good decisions and we will have to say goodbye again. The final saying goodbye to someone or something for which we yearned, lusted and made our own is painful. We cherished this as a possession, believed that everything would be fine if we were a little more patient, held on just a little bit longer and kept doing everything we could to make it right while, every day, we were dying slowly inside.

People have been coming to me with "problems" for nearly 30 years. Bad jobs, hideous and abusive relationships, childhoods from hell, depression, self-destructive behaviors, addictions, compulsions, anxieties, phobias and the devastating consequences of undisciplined and massively risky trading. It's always about what's wrong. After all, why go to a shrink or a trading coach if things are wonderful? Why celebrate the positive aspects of one's life when there is so much misery and despair? Why bother to take personal responsibility when it is easier to remain in victim mode?

My monthly Trading Doctor Newsletter was born out of these experiences, strengths and hopes…both yours and mine. No matter what, we are always determined to "fix" the problem, to make the pain go away, to stay with the losing relationship or the underwater position because we "know" that everything is going to be fine if we just keep working on it. It will be OK. The person we love will change and the stock will come back. Forget about the fact that it is ruining our lives, that we can't eat, sleep or exercise properly and can't remember the last time we felt any semblance of serenity or joy. Just deny that the whole thing is happening and everything will, like some magic trick, turn out just fine. Won't it?

Denial ain't just a river in Egypt - attributed to Mark Twain

Years ago, I bought many thousands of shares of a low-priced stock because I became convinced that it was the next best thing to sliced bread. I paid no attention to anything I read or heard because the stock was being touted by someone whose opinion I respected. It made no difference to me whatsoever that the company had less than competent management, massive debt, no revenues and one of the ugliest charts on the planet. For reasons which I will explain in more detail in The Trading Doctor Newsletter, I had grown, fostered and nourished a BELIEF that this was going to be the big win for me. I truly believed that I would get in on the ground floor and then watch with delight as Wall Street finally noticed what a groundbreaking product this company had and the stock would start going up and up. Visions of a ten or twenty bagger infiltrated my brain and made themselves perfectly at home in my limbic system. I started having personal feelings about this four letter stock.

I loved it, knew it was going to live up to every expectation I had about it, read every piece of news I could about it, told friends that this was the next biggest and best winner and it was only a matter of time before everyone would see the beauty and power that I knew. I was there first, so no worries at all. My belief system was so skewed and distorted that I could not see the truth. I did not want to read or hear anything negative about the stock since I was now in love with it to the tune of tens of thousands of dollars. I owned it. It was my prize possession and I felt like, in some way, I needed to defend it against all naysayers. Kind of like a marriage or a new relationship, I didn't want to hear anything bad about it. My brain was filled with the neurochemistry of new love and attachment, so please don't bother me with reality. Just like every other new relationship, stocks are entered on hope.

Please let me know if any of you can relate to the following quasi-delusional stinking thinking and denial of reality that took place in my brain over a period of two excruciatingly painful years. Please share with me if you can identify with the panoply of thoughts and feelings that ran through me day after day. Please tell me if you have ever felt like this, if your mood for the entire day was dependent on what was going on with one or more of your holdings. Please talk to me about this type of vertiginous, tortuous, torturous, neurotic brain scramble and how that is working for you:

Oops! What is going on? Almost immediately after I bought the stock, it started to go down. This can't be happening. I don't want to believe that it is going down even though I see it right in front of me. There must be something wrong. OK. This is just a teeny temporary correction and it will come back soon. Hmmm. I have a little loss here, maybe I made a mistake and should get out and watch it or read some more. No. That's not possible. I am smart and educated and this company is the next big winner, so I'll hold on and it will come back. What's up with this? It keeps going down every day and I can't sell now because I will be taking too much of a loss, so I have to hold on. Anyway, I know that the minute I sell, it will turn around and start going up. It happens to me all the time. I just know it. It's the market, and everything is being sold, not just my beloved four letters. I am a highly intelligent woman and I have made the right decision. I am not a loser and won't be a loser. I really want to win and this stock is going to come through for me.

As soon as the market gets a bid, it will come back. Anyway, I have decided that I am not going to trade it. I will just hold it for the long haul since the story is developing, good news is supposed to be coming next month, they are going on the road to get sponsorship and analysts will start recommending it. The chart now looks like death, but that doesn't matter because a lot of charts look like that and many have just turned themselves around into big winners. Maybe now that it's down 30% from where I bought it, I should buy more so that I can lower my cost basis. It wouldn't be that much money since the stock is cheap and just think how much I will gain once the Street "gets it right." But my rule says never add to a losing position. Maybe I should break the rule, just this once. Let me think about it and sleep on it and see how it acts tomorrow. WOW! It went up today. It went up 10% in one day, so things are starting to improve. Too bad I didn't buy more yesterday because I would have had that extra cushion and lower basis. Oh well. Not to worry, things are really perking up now and I was right not to take the small loss and even more right not to take the large loss.

Now I am back at break even and all I can say is "good for you for holding through". All that worry for months was worth it, and the market is now going to reward me for my excellent stock selection, patience and loyalty. Now that I am at break even, I no longer feel complacent, fearful or despondent. In fact, I am now a little anxious because I have to figure out how to sell the stock when it really starts to take off. Do I take a partial after it runs up another point or two, do I sell it all, do I just hold on to it as I see it run up even further? What if I sell it all and it keeps going? Ugh. That would really be a bummer, especially when I have waited so long for the breakout. Yes-it looks like it's breaking out, so I could actually add to it since it is now a winner—well, sort of a winner because it's just a little over break even. I know about buying breakouts because I read how so many people do it successfully and this looks like the time to buy more. But I already have enough and I am starting to feel increasingly uneasy since it is just a little over breakeven. Interesting how I didn't experience this when the stock was losing and I was down so much (on paper, of course). In fact, when I had the losing position it was easier because I didn't have to do anything. I just sat and waited and knew it would come back. And it did. Now I am starting to get really scared because I have a teeny profit and maybe I should take it. But–what if I sell it and it keeps going up? I won't do anything. I will just watch it and see what happens tomorrow. I'm a winner on paper so it is ok now.

There is the risk you cannot afford to take, and there is the risk you cannot afford to not take - Peter Drucker.

But it wasn't okay. The next week I sat in disbelief as the stock lost nearly 30% of its value. That was it. I simply could not take it any more. I was sick and tired of being sick and tired. I refused to endure one more minute of this. I was too good to suffer any more. I could no longer sit in misery and despair and wait for the market to throw me a bone so that I could get all excited and happy again. It was just simply too much torment and I was no longer taking responsibility. I was letting the markets dictate to me how I would feel that day. I was allowing the markets to exploit every aspect of my personality that would cause me to be weak, tricked and off balance. I had to get my head out of the sand, get out of denial and sell. Tens of thousands of dollars vanished into the market abyss. Two years of mental machinations and emotions which covered the entire range of any "feelings" chart I had ever seen. I bought with hopes and dreams and sold with despair and defeat. I ran screaming into the other room and then suddenly, I felt a sense of utter calm and tranquility. I was free from the daily suffering, the agony of thinking I knew something when it was really about how much I did not know. I was no longer a prisoner of brain scramble, endless tormenting of self and depletion of personal energy. By taking action I stripped through the denial and magical thinking. I took personal responsibility, empowered myself and gained great courage. Yes, I have scars and wounds which I cherish because they are there to remind me of hard fought times and lessons learned. It is idiocy to hold and hope, and bravery to admit you are wrong and get out before it's just gone too far. This experience is etched in my brain and written on my soul. I shall never forget so as not to repeat it.

I committed every one of the "Ten Biggest Blunders Investors and Traders Will Make in 2006-2007". I drove myself into a state of almost complete mental, emotional, physical and spiritual drawdown. I broke my cardinal rule of Don't Lose Money. I held on because for some reason I could not get myself out of denial. It was only when the denial lifted that I felt both courageous and free. I faced the truth and got out of hope and fear. Through this brutal experience I learned lessons which I teach to others daily. I know what it feels like because I have been there. I know what courage it takes to play this great game and to rid yourself of false evidence, stop playing ostrich and deal with the absolute truth which is staring you in the face.

In the markets, as in life, the only way to grow and preserve yourself is to get rid of what is not working for you. It doesn't matter if it's your relationship, your house, your pet or your position in the markets. If you do not have the courage to cut your losses, they will fester and take you down with them. To see and know in your heart what is right and not to do it is complete lack of courage. To be courageous is to do, in the face of seemingly overwhelming obstacles, what must be done. Courage is getting out of denial, admitting you made a mistake and taking personal responsibility. Courage is freeing yourself from the shackles of lies, hopes, dreams and white picket fences which are built on shifting sands. Courage is listening to the voice inside of you and following your heart which never lies to you. Only in knowing what is false does one come closer to the truth. Courage is the eternal and heroic struggle to find and face your authentic self, look it squarely in the eyes, and know that you are now becoming the person you want to be.

Many of you spend your entire life running from the mistaken belief that you cannot bear the pain. But you have already borne the pain. What you have not done is feel and see everything you are beyond that pain - Kahlil Gibran



A hero is an ordinary individual who finds the strength and courage to persevere and endure in spite of overwhelming obstacles — Christopher Reeve

Seasons come and go, markets change and evolve, but human behavior which is hardwired into the brain has not really changed much over many generations. Each of us looks and acts differently, but these are outward manifestations which are subject to societal pressures and ever-changing cycles of fashion and trends. Inwardly, we are all classic, fragile and captivating human beings. We have wants, needs, hopes, dreams, fears, joys and tears. Even now, when we have come so far in time and space of evolution, we are still enchantingly and ever-fascinatingly human. It is simply wonderful!

Every one of you who is reading this wants to learn how to make money from the markets. Over the years, I have provided a number of guidelines, and principles to put you on the path to trading mastery. While simple, they are certainly not easy. Take personal responsibility for your trades, cut your losses quickly, stay healthy in mind and body, always practice good risk management , plan your trade and trade your plan, master your emotions, strengthen your neuropsychological capital, learn patience, stay with what is working, and take profits on a regular and radical basis. That sounds all well and good, but the majority struggle daily to figure out how to do it. Most continue to search for this or that method or this or that indicator or newsletter which will give them the answer they seek.

I cannot emphasize too strongly that there is one immutable fact which underlies all successful trading: The answer is within you. It is not out there somewhere. It is about your brain (your true trading system) and how, not what you think. Traders, with few exceptions, are made not born. Anyone, given the passion, determination and willingness to work hard, lose, fall down and keep getting up, can learn to trade successfully. I assure you, if I can do it, you can do it. Now I will tell you secret that only a few know. I have two Ph.D. degrees: one in Brain Anatomy and one in Futures Market Losses. I had to get the latter in order to get a true grip on who I was as a person, and turn myself around completely onto a path of success and consistent profitability. Long story, but it took five years and was the most gut-wrenching and painful period I can recall. Would I change one single minute of the excruciating process? Absolutely not! Not one second of it, because all of those seconds brought me to where I am today. The point is this…If I can do it, you can do it.

How? You must totally believe that you are called to trading, that it is the one thing about which you are completely passionate and that you are willing to forego many things in order to succeed. If you can take these steps, you will make it. Not easy. If it were, everyone would be doing it. But, it can be done and it is within the reach of every one of you who is reading this. You can do it, but you must be willing to sacrifice everything you are for everything you can and will become. You must be willing to change key elements about yourself, particularly the way you think and act in real time when bombarded with conflicting information in an environment where you have total freedom of choice and where the only thing you can control is yourself. Moreover, you must learn to make decisions involving varying degrees of risk in an atmosphere of real time and total unpredictability. You must learn to change the way you think and what you have been taught about right and wrong and good and bad. You must entrain the qualities of being counterintuitive and peripatetic. You must become a chameleon, and a great actor, an acrobat on the largest and most intimidating stage in the world. Most of all, you must be absolutely determined and passionate about it.

Courage is more exhilarating than fear, and in the long run it is easier. We do not have to become heroes overnight … just one step at a time, meeting each new thing that comes up, seeing it not as dreadful as it appears and discovering we have the strength to stare it down — Eleanor Roosevelt

And then what? What do you have left in your life once you have made it. What happens when you finally do "get" it , trading becomes relatively effortless and you are consistently making more than you are losing. What is up with the trader who is wildly successful, has all the stuff he or she needs and yet keeps trading? Why is that? Is it greed, and the need to keep making more and more money in the face of abundance? Yes, in part it is.

But there is much more and on an intensely deeper level.

Why do we trade? Why do successful and wealthy traders keep trading, some of them into their 80's or until death? Passion. Challenge. Continual striving to be better and better with each passing day. Mastery. Freedom. And what do most of these great traders have in common besides the ability to amass (and keep) large amounts of money?

The answer may surprise you as much as it delights me. They have in common: an attitude of gratitude, humility, manifestation of kindness to themselves and others and an intense understanding of their personal neuropsychology and the mass neuropsychology of the markets. They have learned from the greatest and most brutally honest psychotherapist in the world … the financial markets. They have suffered, been beaten down, brutally battered, lost money ,but kept the therapy going because they knew that somewhere inside of them was the person they wanted to be. After intense personal pain and internal searching, they found out who they really are and embraced it without fear. They went to the darkest recesses of their soul and emerged as their own hero. Now, they bring flowers to themselves instead of waiting for someone to send them flowers.

Their wants have been met, so they work on their needs. For them. trading becomes an activity which nourishes and uplifts their spirit. They approach the markets with humility and passion yet can be total ambushing wolverines while in the trading moment. They can be sharks, waiting to feed on the poor little fishes. Yet, they are chameleons. For the master, trading is a game to be played to the ultimate scope of his or her ability. They never forget the ones the got away, the Ph.D. in losses, the missed opportunities, the times when they were the little fish. They remember these bitter, gut-wrenching times and have them etched in their hippocampal memories so as to never forget.

They have rich and full lives outside of trading, especially those who took the time to keep family and friends in some degree of intactness. They cherish relationships and put people before money. People first, money second and "stuff" third. They value and reward those who have supported and loved them. They cherish and love themselves. They are kind to themselves and others and recognize that kindness the greatest gift we give to each other. Even the most successful traders and investors with the highest degree of longevity approach the markets with humility. They are non confrontational and go flexibly with the flow. They are in sheer joy with the moment. It is the perfect moment, and they are always in it. They are in gratitude for the privilege to partake of the gifts which they receive from the market. For them, trading is a spiritual activity!

My greatest hope for each of you is that you never forget this. In the end, it is always about gratitude, humility, kindness and love. Love what you do and those who nurture and sustain you. Focus on yourself, who you are and what you want and need and then practice and keep practicing. Do what you truly love, and the money will always follow. In the process, you will begin to see that you are evolving and growing your capital: financial capital, mental capital, emotional capital, and — as the topic of this essay — spiritual capital.

Thank you for the opportunity to share with you my experience, strength and hope. I wish each of you everything and more that you wish for yourself.

When you feel like all is gone, look inside you and be strong. And you'll finally see the truth, that a hero lies in you — Hero, Mariah Carey



Not being a technical analyst I do not know what the correct term for exhaustion is, or whether it can be tested, or even how to generalize it or if it is bullish or bearish, but it looks worth considering in both the long and short run.

Dr. Janice Dorn adds:

Pring described a number of technical bars, all of which I cannot recall, but included exhaustion bars. There is also the phenomenon of exhaustion gaps described by Farley. Certainly there are others too.

GM Nigel Davies adds:

The phenomena of exhaustion for a chess player is usually seen as moments of mustered strength (usually pride) amidst a gradually deteriorating performance. Yet how does one measure it?

One thought might be to consider again the Ryder Cup teams. What happens if we have a 'weaker' (various ways to measure this) team but with a couple of stars (e.g. Woods and Mickelson)? I figure we should bet against the weaker team just after the stars have played their matches.

Jay Pasch offers:

One might also test for predictive measures for exhaustion using a 3rd clearly articulated gap, especially on individual equities, as demonstrated by opwv:



A phrase that comes to mind when looking at the fate of the original Jack Schwager’s Market Wizards, is ‘A pat on the back is a few small vertebrae away from a kick in the rear end.’ Countless times no one sees the ass whoopin’ coming due to the warm feeling they feel for being on top or the taste of success, resting on laurels.Every time someone is mentioned in an article, book, or put up on a pedestal for the World to emulate and trade after, the edge vanishes, the trader goes bust or has his first down year, standard deviation increases dramatically, his wife leaves him with half of his wealth. When does Vic suggest to Count or test those strategies of our colleagues? After the pat on the back or the kick in the rear?

Do these things happen simply due to the fact that they happen to everyone in life and we are just forcing a correlation? Maybe. Is it because a pat on the back is the magic formula to hoodoo someone, the abracadabra of forced failure?

I do not know, but I do know that one of the most powerful principles that Mr. Bill espoused was anonymity. It is a word in the namesake of A.A.. Anonymity keeps one out of the light and focused on current affairs, wax still clinging to wings. Want to quit smoking, do not tell a single soul! The more people you tell you are going to quit, the more people you will have asking you if you are thinking about a cigarette, which triggers a craving. It is the same thing with positions taken during the day, week, month or quarter. You know the significance points, the edge, but if you share your new found trade with everyone then they call you on the down ticks, adverse headlines and such and once again trigger your ’switching’ cravings.

I would just rather keep my name and face out of the books, TV, award ceremonies and stadiums and stick to doing what got me there anyways. It is easy for me because I suffer from fear of success, but anonymity is powerful in so many ways. Principles before personalities.

How many CTAs, Hedge PMs or Speculators do you know that run from the press, keep below the radar, do not accept awards, and donate and give anonymously or without fanfare? Are they always doing it to conceal and protect positions, net worth, personal information and liberties? No. I say they know and fear a little bit, the fear that comes from that ‘kick in the butt’ after the ‘pat on the back.’ There is no upside from being a part of financial pornography, but discretely sharing and learning amongst friends who practice the same principles as you do is priceless. That way we grow as speculators and individuals and maintain our edges for the most efficient amount of time.

Rudolf Hauser adds:

Part of the problem is the tendency to engage in grand projects or take greater risks to keep up the reputation established by publicity, but I suspect that to a greater extent this is just a symptom of overconfidence in one’s ability as a result of great success. This leads to exaggerated expectations of what one can get away with in terms of risks, grand assumptions, and a reduction in the fear that keeps one sharp and trying harder. These attitudes can exist without the publicity as well, and of course, it is a natural human tendency to attribute success mainly to one’s abilities and insufficiently to luck when one is doing well, and the reverse when one is doing poorly.

Dr. Janice Dorn comments:

It is posts such as this one that elevate the spirit, give pause, put so much into perspective, and remind us to be, always, in gratitude and humility. Thank you, J.T..

In his early writings on market psychology, circa 1912, Selden said that the man with a million dollars is a silent individual, the time when it was necessary for him to talk is past, and now, his money does the talking. The one thousand men with one thousand dollars each however, are conversational, fluent, verbose to the last degree.

Steve Leslie offers:

Here are my two cents:

I heard Lou Holtz the great football coach once say “Things are never as good as they might seem, nor as bad, they are always somewhere in between.”

‘Pride Goeth before a Fall.’ Pride is considered by Pope Gregory to be the the most severe of the Seven Deadly Sins.

I saw an interview with Greg Raymer WSOP Champion of 2004. He said that when he won the WSOP bracelet he did not let it go to his head. He realized that it was more a reflection of great fortune and luck for one week, than the fact that he was that much better than the field. He did not want to be one of those who won the title and then went broke the following year, so he plays within himself.


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