Tag Archives: greed

Your Life Sucks? Here’s Some Good News

Creative Commons -- Flickr

Creative Commons — Flickr

Don’t blame the media. Don’t blame the government. Blame Darwin and the occasional saber-toothed tiger.

We are surrounded by bad news because of evolution. Our brains developed to deal with an overwhelming amount of stimuli, mostly in the forms of threats to our safety and acquiring food and shelter. We watched for bears and worried about our next meal. Good news, quite frankly, wasn’t important.

This affects us today. When you’re on the freeway, do you stop and gawk at the motorist who successfully exits the highway? Or, do we slow down and gawk at the car accident at the side of the road? The media promotes the unusual and trends that threaten us before it shows us the common and trends that benefit us, even though, as we’ll see, there are far more opportunities than threats out there.

I believe this gives us a distorted picture of the world — and, in fact, may keep us mired down psychologically. We focus on the bad and ignore the good. (Although, to play my own devil’s advocate, it may also keep us from being complacent.)

Anyway. This week, I’m passing on links to prove my point.

Good things are happening, even if you believe your life, your world, and your reality sucks.

From Reuters, data indicate growing economic momentum.

There’s good news about job growth on Yahoo News.

Global poverty is shrinking — Pro Bono News.

From working in a sweatshop to being a billionaire, on the Good News Network.

Leukemia cure in one study — may just be the beginning, according to story at ABC News.

Quantum computing researchers are making impressive discoveries, according to one of the companies on the forefront of this new industry.

Exoskeletons can increase worker productivity. That’s from Next Big Future.

3D Printing? Yeah, that’s coming to, says the Wall Street Journal.

And lots more…

 

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Why Emotionless Investing Doesn’t Work

Flickr--Creative Commons

Flickr–Creative Commons

The whole philosophy of using machine learning and artificial intelligence in investing is that machines can make trades quickly and without being burdened by emotions.

It’s the last bit that I’ll talk about today. Emotions — like fear and greed — skew the decision-making processes of the investor, causing him or her to but too high or sell to low based purely on feelings. A good example: you would probably pay more for food if you’re hungry than if you just had a big dinner.

Therefore — and this conclusion is inescapable — machines that do not have emotions can trade better.

Except, this logic is totally wrong. Well, not wrong. But it forgets the most important variable. The market and the economy runs on emotions. Even if every investor was an emotion-less cyborg, the rest of the economy, which underlies all stocks and commodities, runs on desires and emotions.

A successful investment system can not possibly rule out emotions. In fact, the most successful investment system would totally understand emotions, but not ruled by them. This system would understand how desire for something quickly turns to the desire to not lose something — fear. Likewise, it would be able to sense when the momentum of fear turns into a buying opportunity. It could sense that the greed in the real estate market was becoming too frothy, or that the fear of a recession was starting to bottom out.

In short, the best investment system understands emotions. It just isn’t ruled by them.

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The Death of Investing. Long Live Investing!

King Arthur's round table. (courtesy Creative Commons.)

The last decade has been marked–perhaps pockmarked–with extreme volatility.

Even more irksome, the cause of this volatility is out of the hands of most investors. Nobody can predict when religious nuts are going to crash planes into buildings or when politicians decide budgets are for the little people.

The conclusion most financial experts come to is that investing–at least good, old, solid, Buy-It-Like-Buffet-style investing is passe.

Antiquated.

Old news.

Done for.

Dead.

You can’t invest anymore, you have to trade.

Actually, I disagree.

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Human Traders Meet Their Computer Overlords

Photo Courtesy Creative Commons

Humans can do a lot of things better than computers–but that list is shrinking.

Once, investing and trading solely belonged to humans. Computers were number-crunching machines that helped investors and traders make decisions.

Then, algorithmic trading came along. Trading strategies designed and maintained by computers saw more and more action in the market. Although,there were always people nearby monitoring those trades.

Now, computers have taken another step toward mastering the market.

At a recent conference in Barcelona, Spain researchers released their findings that showed computer model trading agents beat human traders and other computer trading systems.

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When Genius Failed: The Story of Long Term Capital Management

Last week I read When Genius Failed, the fascinating story about the rise and fall of Long Term Capital Management (LTCM). This neat book offers us many important lessons.

For those unawares, LTCM was one of the largest, well funded and “smartest” hedge funds ever launched. In fact, two Nobel Prize winners for their work on options brought their brains. They were Myron Scholes and Robert C. Merton. How much smarter can you get?

There was one small problem. No amount of intelligence could save the fund from its traders, and their Achilles heel: their desires. Like a kid in a candy store, better judgement and moderation were overrun by greed. And it ended in the most spectacular hedge fund blow up in history.

What can we learn from this?

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Keeping The Joneses Down: How Envy Can Hurt the Economy and Your Financial Picture

pic by chesterfan1230

Personal finance adherents know about the danger of keeping up with the Joneses. It relates to people competing with each other to have the nicest, newest, biggest, baddest, stuff on the block.

It’s a pretty accurate description.

Ever take a walk around your neighborhood and notice a new car–and, then suddenly, there’s another new one? And another. And another.

This type of financial one-up-manship leads to high debt in the struggle to gain high self-esteem.

But there’s another negative way we handle those damn Joneses. We try to keep the Joneses down.

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Greed Is For Losers

 www.photos8.com @ Flickr

www.photos8.com @ Flickr

You can’t discount rational thought and hard financial figures, but lets face it: emotions and desires create and drive our markets–from baseball card auctions to exotic derivatives.

Even those economic numbers that we all say we monitor are filtered through the lens of emotions.

Of the emotional factors, greed and fear are the greatest contributors–or detractors, as the case may be–to moving the market. Greed can cause booms and bubbles. Fear can cause busts and depressions.

But, when you analyze your trading motivations closely, you might be surprised. Greed is just a twist on fear.

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Are Humans Programmed To Lose: The Greed Factor

BeauB@Flickr

BeauB@Flickr

Yesterday, we talked about social proof as one program that hinders your success as a trader. Social proof is the tendency to rely on others to validate one’s actions.

But there are other programs that can cause you to lose at trading and investing. One of the most common is greed: an unrelenting desire for more.

I know what you’re thinking: But isn’t everyone in the market seeking more money? When you make a trade, aren’t you trying to make more money?

Isn’t greed good for traders?

Actually, greed is based more on the feeling of lack and limitation. We have to make a distinction between a healthy attitude toward abundance and a blinding greed that becomes fixated on losing positions.

Greed serves as blinders for investors.

Here’s a scenario:

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Seven Emotions Investors Can Do Without

hjl@Flickr
hjl@Flickr

The market is run by emotions. It’s also ruined by them.

Despite what the financial world wants to think–and especially wants us to think–most financial decisions, from the casual investor to the commodities trader at Goldman Sachs, are emotional trades. It’s a gut feeling, or instinct, that prompts the trades.

And, in a way, that’s OK. After all, if most people invest with emotions, that should put you right in the pack of the trading action. It’s when investors become blinded by their emotions that things go awry. They fall behind the pack. They bet too much. They sit on the sidelines too long. They hold when they should fold, and fold when they should hold.

To avoid this, you need to know which emotions are most likely to mislead your investment actions Here are the seven most deadly emotions for investors.

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Why use an Automated Trading System?

Since most people have never even heard of an Automated Trading system, I thought it would be a good idea to take a moment and explain some of the benefits.

An Automated Trading system is a computer program that buys and sells stocks, options, futures or currencies based on specific rules. These systems are also known as algorithmic trading systems. Since they use a specific set of rules (the algorithm), they have some benefits over human traders.

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