Once upon a time, my dear son, there existed a place called the stock exchange. It used to be the place where people of all sorts, rich for the most, would gather to buy and sell almost everything they had, from shares to live cattle and from bonds to financial instruments. It was clear from the beginning that you didn't need to own something to sell it. In other words, a magic place where richness could be created out of a dime was there to live and prosper. As you can imagine, the investors and speculators started to investigate how this wonderful place worked. They invented all kinds of studies and analyses, ranging from numerical to astrological. Some of them actually worked, or did they really? Some brokers knew what to expect from the market because of the noise the jobbers made when running on the wooden floor, rushing to the pits to get their orders filled. Others looked at charts and were sure to find an answer to their quest for money and power. The chartists, as they were called, used funny words and often gave more credit to their studies than they deserved. But sure enough, at times, they would strike it rich, not understanding their strategies were worthless; little did they know of the existence of the Mistress, the mysterious lady that comes when the data are no use and fear and hope dominate speculators' minds. She is patient indeed. The Mistress is capable of hiding behind your profits, and then jumping out from the dark corners of your brain, ready to take away from you what you have, by luck, taken from her. Beware my son. Always ask yourself if it's you or her doing the work, as I often find myself cornered and incapable of moving a muscle, not understanding any longer where the borderline was. As I'm talking to you, the stock exchanges don't exist any longer. It's a world of beeps and flashing lights on your flat screens; no more foot noise from the running jobbers, and no more buy and sell tickets flying in and on the pits at the end of the trading days; yet, you can still make a more than honest living out of this crazy job. But remember to look at yourself in the mirror in the morning: at times, you will see the Lady laughing at you. When that happens, just rush to your terminal and close your positions, even at loss, or the Mistress will not stop her scorning until you are totally and helplessly broke.

Adrea Ravano adds: 

Concerning my recent post: I'm happy it stirred a good debate. I didn't know, that my idea was being discussed on a national Italian newspaper(Corriere della Sera). This morning's financial section carries a very interesting article by professor Matteo Motterlini of the San Raffaele University. The article (published this morning, Feb. 5, 2007) talks about a recent study published by a group of researchers at Yale University, titled, How basic are behavioral biases? Evidence from Capuchin monkey trading behavior.

The study confirms for animals what behavioral studies have shown for human beings, that to offset a loss of 1 you must have a profit 2.5 times as big. In other words the perception of your pain is greater than that of your pleasure. Interesting.


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