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LOSING MONEY WITH METAPHORS

  
  Education
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Freud’s psychiatric conclusions have largely been discredited but he rightly maintains praise for understanding the central role of metaphor and narrative in human thought. Professor Cowen HERE, is only the latest to build on this theme although importantly, he concentrates on the negative, blinding aspects of the tendency. Nowhere is this more clear than in the “stories” that surround investments.

Choosing a metaphor presupposes a conclusion. For instance, there’s no way to hear “the Chinese economy is a bubble” without unconsciously associating the country’s outlook with fragility and inevitable disappearance of a soap bubble. If we describe China’s GDP as similar to a hot air balloon on the other hand, our subconscious will immediately become more suceptible to the argument that upcoming government stimulus will right the economic ship. (You see what I did there – the use of the word “ship” is insidious.)

Good metaphors are a double-edged sword and their ubiquity in stock pitches suggests investors remain on their guard, never accepting one outright no matter how successfully it seems to communicates the situation.

9 Lessons from Jesse Livermore

  
  Education
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J-LMUST READThere are those who would convince you that it is somehow smart or in your best interest to be manically switching your investments around, back and forth, long and short, on a daily basis. To pay attention to this kind of overstimulation is the height of madness, even for professional traders.

The most storied and important trader who ever lived, Jesse Livermore, would be tuning these daily buy and sell calls out were he alive and operating today. Because while he was a trader, he was not of the mindset that there was always some kind of action to be taking.

Jesse Livermore’s legacy is a bit of a double-edged sword…

On the one hand, he was the first to codify the ancient language of supply and demand that is every bit as relevant 100 years later as it was when he first relayed it to biographer Edwin Lefèvre. Livermore himself sums it up thusly: “I learned early that there is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again. I’ve never forgotten that.”

On the other hand, Livermore’s undoing came at precisely the moments in which he ignored his own advice. After repeated admonitions about tipsters, for example, Jesse allowed a tip on cotton to lead to a massive loss which grew even larger as he sat on it – violating yet another of his own cardinal rules.

And of course, other than for a few moments of temporary triumph in the trading pits and bucket shops of the era, Jesse Livermore was not a happy man. “Things haven’t gone well with me,” he informed one of his many wives by handwritten note, before putting a bullet through his own head in the cloakroom of the Sherry-Netherland Hotel.

But he did leave behind a wealth of knowledge about the art of speculation. His exploits (and cautionary tales of woe) have educated, influenced and inspired every generation of trader since Reminiscences was first published in 1923. (more…)

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