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Best Articles I Read this Year…
The Power of Negative Thinking
If you are an American your true religion isn’t Christianity, Judaism, Buddhism, Islam or even atheism. It’s Positive Thinking. I still remember the hand printed poster in my high school football locker room that stayed taped to the door for four years. Conceive. Believe. Achieve. As Americans, we are indoctrinated into the cult of Positivity with no less fervor than I was indoctrinated into the wonders of Communism as a Young Pioneer in Russia.
And it is perhaps because that I am Russian and therefore naturally skeptical from birth, that I always suspected that this American obsession with positive thinking was pure bullsh-t. This article opens your eyes not only to the mindless stupidity of always being positive (putting that pasted Tony Robbins smile on your face can actually be counterproductive -- in fact, Tony Robbin’s whole act (much as I love it) is pure bulls-t. Turns out that coals are terrible conductors of heat, so anyone can walk over them as long as they do it quickly -- no special mindset required) but also shows the value of thinking negatively.
Don’t get me wrong. I hate Debbie Downers. I am “American” to the core. I am always willing to try new ideas. But this article teaches you that you shouldn’t fear negative thoughts, but embrace them. It notes, “The Stoics recommended “the premeditation of evils,” or deliberately visualizing the worst-case scenario. This tends to reduce anxiety about the future: when you soberly picture how badly things could go in reality, you usually conclude that you could cope. Besides, they noted, imagining that you might lose the relationships and possessions you currently enjoy increases your gratitude for having them now. Positive thinking, by contrast, always leans into the future, ignoring present pleasures.”
One of the greatest joys of aimless Net surfing is that you get to stumble across some brilliant fresh voices that can help you understand reality with a much clearer and more accurate perspective. Tim Hanson is one such writer I will be following in 2017 as everything he writes is remarkably insightful. This year, however, one blog entry stands out. In Value at Risk he shows not only the need but the absolute necessity for overconfidence. Yes -- overconfidence -- because without it we would never achieve anything. Also, this article is a nice counterpoint to the one above. But please take a look at the Teacher’s grading table and tell me that it doesn’t remind you of the 1 by 10 trading method I wrote about last week.
Lastly here is a story that should make all of us who day trade feel good. Efficient markets? Bulls-t! In How Behavioral Biases Lead To Hard-To-Capture But Sustainable Alpha Michael Kitces shows how investors make the same mistakes over and over again and how savvy traders can take advantage of these mispricings to achieve Alpha. Reading the story on recency bias I realized that most of our Boomer strategies are basically designed to take advantage of that common flaw in human behavior. Note the article doesn’t say profitable trading is easy. Only that it’s possible.
All the best to everyone in 2017.
Peace, joy and love and happy trading