Some Commentary on the Psychology of Speculation by Henry Harper

作者:Victor Niederhoffer
日期:2011/09/17

Theories propounded by market experts are sound but very few people profit by them because when once caught in the maelstrom of stock speculation, the average man becomes more or less mesmerized and at critical moments his conservatism, his resolutions, and his theories all take flight.

One doesn't agree that the theories of market experts are sound. Most of them relate to meals for a day, and selective memories of things that seem reasonable. They don't take account of ever changing cycles, and the fact that whatever worked 3 years ago, which is the average minimal time for a theory to hit a book and become popular, and reported by the services, is very likely to have an opposite effect at the current time.



People become mesmerized by overtrading against their ability to lose. When they lose too much, they get stopped out by their brokers or their partners. Holidays are particular times that people get stopped out of or mesmerized because they don't wish to ruin their holiday, wait for the extra day of risk, or their partners tell them such things as "are you going to ruin another July 4th by watching the market every second of the day, and worrying about paying the bills?". It's happened to me.

The real secrets of stock market success remain locked up in the bosoms of a few who are too busy to write, and too rich to feel the need of writing.

The secrets of stock market success are to have a good foundation, strong at the base with heavy capital supporting it. The banks can have stock market success because they are able to leverage themselves 100 to 1 and borrow at the funds rate, and be bailed out by their current, former, or future colleagues but most don't have that ability. Thus, the market is a series of highs and lows with the weak getting extricated by lack of a proper foundation at each gyration.

One of the worst things is to read about the best great things I did in trading as if the trades were recurring, they wouldn't be written about or if they aren't recurring then probably you should do the opposite the next time. Even if I had a method that worked, I couldn't reveal it because my partners and family would be upset with me. I don't have a method that works, although if so many of my former colleagues didn't borrow my methods of using statistical interrelations of multiple time series varying ever hour of the separate days, I believe that such a method might have had legs. There are doubtless other methods of making money in markets, but one finds that the edge that HFT boys with their better equipment and capital have on individual stocks precludes such methods for short term in individual stocks, and the long term purchase of stocks requires deep insights above and beyond the average that it is unrealistic to expect one person or group to sustain over different market times.

Many of the rich people I know are happy to be interviewed on television as they can talk their book and get people to follow them so they can increase the wave they started by talking to their colleagues and brokers after they put their position on. Also, to show that they are common people, supporters of the masses, in favor of redistribution, so that their natural adversaries at the legislatures and the service will realize he's a fellow traveler. The others who know how to make money are careful never to reveal a thing as information flows so quickly and it just takes a few big funds or traders to turn something profitable into oblivion.

The gyroscopic action of the prices recorded on the ticker tape produces a sort of mental intoxication which foreshortens the vision by involuntary submissiveness to momentary influences. It also produces in some minds an effect similar to that which one feels after standing for a considerable time intently watching water as it flows over Niagara Falls. Dozens of people have committed suicide and been dashed on the rocks below after so watching.

I am not familiar with the research that supports this tendency to suicide but I have experienced similar sensations. And there does appear to be some contagion in suicides. As prices go against one, I believe that the latent self hate of many people for their sins is manifested and they achieved their desire to go broke to atone for their sins. The tendency to suicide when watching a trend is something that would seem to have market implications as new contrarians are drawn in to be thrown into the abyss by going against the flood time after a certain mesmerizing flow. To be continued. Only on p.13 of my notes on book so far.