Archetype meets an Australian Cricketer – Phillip Hughes

“Love is a force of destiny whose power reaches from heaven to hell. We must, I think, understand love in this way if we are to do any sort of justice to the problems it involves. They are of immense scope and complexity, not confined to any particular province but covering every aspect of human life.” C.G. Jung, CW 10 para. 198

“Psychologically … the archetype as an image of instinct is a spiritual goal toward which the whole nature of man strives; it is the sea to which all rivers wend their way, the prize which the hero wrests from the fight with the dragon.” C.G. Jung, CW 8

This week Australia came together like no other time I have seen in the 7 years I have lived here; united in the love for a young cricketer Phillip Hughes who died after being hit in the neck by a “bouncer”. Not only has Australia been in mourning but we have witnessed a collective outpouring of love and compassion across the globe. I ask why has this singularly tragic event touched so many and resulted in grown men verbalizing the vulnerable words, “I love you”, as a farewell.  

In the late 17th century an English philosopher John Locke put forward a theory about the human mind. He postulated that, at birth, the mind was a blank slate or tabula rasa and that through each experiential sensation the mind developed. This theory was to find some lasting application amongst later economists and philosophers, Hume and Kant but flew in the face of my boy Plato.   

Plato’s theory of forms or ideas asserts, and I quote from Wikipedia, “that non-material abstract forms, and not the material world of change known to us through sensation, possess the highest and most fundamental kind of reality.” 

In the 20th century C.G. Jung was to build further on Plato’s theory of form in his discovery of the collective unconscious as represented by the archetypal image. In the case of the death of Phillip Hughes this past week, the ancient archetypal form of love has connected with the collective psychic energy of millions of people at home and around the world. One cannot explain this phenomenan in conscious rational terms, this is a far greater force tapping into the collective unconscious sea of thousands of years of civilization.

The reason I bring this up in a letter to traders, is that this seamingly irrational, overpowering force is often expressed in the market place when we experience the archetypal force-field of greed and envy. It is amazing how the great ideas of our intellectual hero’s formulated 100’s and sometimes 1000’s of years ago still play a direct meaningful role in our lives. As King Solomon said, “there is nothing new under the sun.” For those of you interested in this line of thinking, I have started writing a book called, The Market Complex, which is a Jungian approach to analyzing the markets where I go into much greater detail as to how this all works on a practical level and how it can be applied by the market practitioner. 

Others Success

If you assume the markets are random have you noticed that you don’t mind a smart money manager enjoying success in the markets as much as a monkey.
If you truly believe the markets are random why does it make difference to you.
I think the answer stems from the fact that we all deep down want to believe the markets reward superior intellect and insight and are not exactly random.
I need to think some more about this if it is a big deal or not.

Self-Deception

We all go through life acting out some form of Self-Deception. Jean-Paul Sartre the French Philosopher describes it as “a legitimate way of life” he writes about self-deception in his work (Existentialism), “It cannot be either a cynical lie or a certainty – if certainty is the intuitive possession of the object. But if we take belief as meaning the adherence of being to its object, when the object is not given or given indistinctly, then self-deception is a belief”

If you think about it in psychological terms self-deception is very much at the core of self-preservation. We are all imperfect beings, we feel this from the depths of our unconscious psyche; but coming to terms with this is part of a life long journey of self discovery. If we were to confront all our “issues” in one go the chances are we will be overcome with neuroses and suffer a mental break-down. We aren’t meant to drop all our intellectual dishonesty at once. Instead those committed to self discovery slowly discover these denials/deceptions at moments of existential crisis and confront these lies as part of the process of becoming whole.

The next time something goes wrong for you in trading or in life, use the situation to see if you can discover the self-deception that you are probably operating under, and try and find the hero within to confront the lie.     

S&P500 Drawdown Recovery Profile

I wanted to do a little analysis on the drawdown and recovery period on the S&P500 I would like to do this over even more data than the past 65yrs. Lets first take a visual cue on how this market has performed and then follow it with a table for some added statistics. If I could highlight one point which already knew but it is worth mentioning. The recovery usually takes 2 to 3 times the length it takes to form a trough. I love / hate trading that asymmetry. So much worry, pain and discomfort, and then very quickly it is “I love this job”.

Rplot03Rplot01

The R code I wrote is really very simple and I thought I would add it for completeness.

library(quantmod)
library(PerformanceAnalytics)
library(gridExtra)
 
getSymbols("^GSPC", from= "1900-01-01") # it only goes back to 1950
spret<- ROC(GSPC[,6], type = "discrete", n = 1) # want to create a % return of the adjusted close
t<-table.Drawdowns(spret)
charts.PerformanceSummary(spret)
grid.newpage(recording = FALSE)
grid.table(t) # I like the look of this table to the standard R print.

Created by Pretty R at inside-R.org

Second Chances

I know there isn’t a person reading this letter who hasn’t made a mistake (intentional or otherwise) and wished they could start over again. Often the guilt we bare debilitates us and holds us back from achieving our goals.

As traders, as parents, as friends ……. we may trade too big a position with little or no research, we might lose our tempers, or we may simply say or do something we regret. This is part of life, but it affects us and as much as we might try to forget it the stain remains within our psyche/soul. Feeling bad is important as without the discomfort there will be no energy driving us to change. What if I told you a way to always get a second chance.

The 12th century Spanish Jewish philosopher Maimonides provided us with a simple formulae to correct the mistake and return (teshuva) to the person we were before our transgression, some may argue we return as a greater person than before:

  1. You have to verbally confess your “sin”. Say what you did wrong aloud, even if it is to yourself. If the transgression was done to another person, tell them you are sorry.
  2. Promise yourself in your heart and mind that you will never do it again.
  3. At this stage the scene is set and you have done the prepatory work but repentance is only complete when you are faced with the exact same situation and you don’t make the same mistake, at this point you have returned.

I see it all the time with traders and I see it in myself. Trading has many similarities to gambling, often disguised within the cloak of sophisticated research, we read and know of stories how peoples lives are destroyed by gambling their livelihood away and many traders see these “ugly” gambling tendencies in their trading. If you feel you are making mistakes that make you ashamed of yourself then keep following the 3 step formulae until you break the habit.

Good luck there is always a second chance, and in some cases a third or fourth …. if thats what it takes.

Sores beneath the surface

I read the paper and the anticipated growth in sales for black Friday tomorrow. The markets are at record highs there is growth in the economy and interest rates are the lowest in history it all feels so good. Does it?

For this Austrian economist things beneath the surface could not be further from the rosey outlook. Government and central bank intervention has destabled world economies by mispricing interest rates and the valuation discount rate. Just like an internal infection out of the line of site is hard to pinpoint what it really is, so is this debt fuelled central bank monetization. Economists have felt unwell for some time but nobody could put their finger on it. Now there is a sense that the medicine applied has done it’s magic but it has done nothing but numb the pain the root cause of the disease remains.

I know I am sounding like a broken record and I accept it. I also know governments will throw QE10 at the problem if they need to. Everyone (majority) thinks that QE works in a vacuum and there are no side affects or that they can be contained. They are wrong in the big picture scheme there is a natural threshold where the economy will say no more. I have no clue when that is but I certainly will not fall into the deadly trap of embracing a sick festering disease and call it cured.

MESSAGE TO SELF JUST REMEMBER NO SHORTING MICHAEL.

Boring Markets

I am finding the markets intolerably boring. Each day it creeps up a little more and the long only crowd reinforce their one dimensional take that markets always go up.They are correct the markets have an upward bias at least over the very long term.

Yesterday I found myself having an interesting conversation with my brother in law about my mother’s super fund allocations.

She has a very defensive portfolio and a cash deposit representing less than 5% of her portfolio has matured and her advisor wants to put it to work in some growth equity stocks. While I am ok with the suggestion I initially told him to hold off because I am uncomfortable allocating to a market at new highs. While this seemed sensible to me and to the advisor. When discussing it with Dani we quickly realised the mistake in our approach. We were debating the economic landscape looking at various phasing in allocation methodologies all for about a 3% allocation.

It then dawned on the both of us the very reason we chose a good financial advisor was because we wanted to strip our emotional biases out of the equation.

Just found this to be a very interesting take on the human need to control everything even the unknown.