Category: Market Insights

1. Happiness does not just make you enjoy life more; it actually affects how successful you are in both your personal life and your professional life.

2. Regardless of the method used, the overall result was clear—happiness doesn’t just flow from success; it actually causes it.

3. When people can afford the necessities in life, an increase in income does not result in a significantly happier life. So why should this be the case? Part of the reason is that we all get used to what we have very quickly. Buying a new car or a bigger house provides a short-term feel-good boost, but we quickly become accustomed to it and sink back to our pre-purchase level of joy. As psychologist David Myers once phrased it, “Thanks to our capacity to adapt to ever greater fame and fortune, yesterday’s luxuries can soon become today’s necessities and tomorrow’s relics.”

4. The bad news is that research shows that about 50 percent of your overall sense of happiness is genetically determined, and so cannot be altered.7 The better news is that another 10 percent is attributable to general circumstances (educational level, income, whether you are married or single, etc.) that are difficult to change. However, the best news is that the remaining 40 percent is derived from your day-to-day behavior and the way you think about yourself and others. With a little knowledge, you can become substantially happier in just a few seconds.

5. In short, when it comes to an instant fix for everyday happiness, certain types of writing have a surprisingly quick and large impact. Expressing gratitude, thinking about a perfect future, and affectionate writing have been scientifically proven to work—and all they require is a pen, a piece of paper, and a few moments of your time.

6. The results from both studies clearly indicated that in terms of short- and long-term happiness, buying experiences made people feel better than buying products. Why? Our memory of experiences easily becomes distorted over time (you edit out the terrible trip on the airplane and just remember those blissful moments relaxing on the beach). Our goods, however, tend to lose their appeal by becoming old, worn-out, and outdated. Also, experiences promote one of the most effective happiness-inducing behaviors—spending time with others.

7. Those who spent a higher percentage of their income on others were far happier than those who spent it on themselves…Ask people whether they will be happier after spending money on themselves or others, and the vast majority will check the “me” box. The science shows that exactly the opposite is true—people become much happier after providing for others rather than themselves. The good news is that you really do not have to divert a huge proportion of your income to charity, friends, family, and colleagues. In fact, the smallest gifts can quickly result in surprisingly large and long-lasting changes in happiness.

8. People behave in highly predictable ways when they experience certain emotions and thoughts. When they are sad, they cry. When they are happy, they smile. When they agree, they nod their heads. So far, no surprises, but according to an area of research known as “proprioceptive psychology,” the process also works in reverse. Get people to behave in a certain way and you cause them to feel certain emotions and have certain thoughts.

 

Source: Wiseman, Richard (2009-12-15). 59 Seconds: Think a Little, Change a Lot. Knopf Doubleday Publishing Group. Kindle Edition.

 

Marty Schwartz is an independent trader, who was a legend in the 1980s. He was featured in the first Market Wizards book. Here’s Jack Schwager’s description of Schwartz:

In nine of the ten four-month trading championships he entered (typically with a starting stake of $400,000), he made more money than all the other contestants combined. His average return in these nine contests was 210 percent—nonannualized! (In the one remaining four-month contest he witnessed a near breakeven result.) In his single entry in a one-year contest, he scored a 781 percent return.

5 notable quotes from Schwager’s interview with Schwartz:

1. I always take my losses quickly. That is probably the key to my success. You can always put the trade back on, but if you go flat, you see things differently. The pressure you feel when you are in a position that is not working puts you in a catatonic state.

2. Learn to take losses. The most important thing in making money is not letting your losses get out of hand. Also, don’t increase your position size until you have doubled or tripled your capital. Most people make the mistake of increasing their bets as soon as they start making money. That is a quick way to get wiped out.

3. Most people would rather lose money than admit they’re wrong. What is the ultimate rationalization of a trader in a losing position? “I’ll get out when I’m even.” Why is getting out even so important? Because it protects the ego. I became a winning trader when I was able to say, “To hell with my ego, making money is more important.”

4. I always check my charts and the moving averages prior to taking a position. Is the price above or below the moving average? That works better than any tool I have. I try not to go against the moving averages; it is self-destructive. (in his book Pit Bull, Schwartz says that he is using a 10-period exponential moving average).

5. What was your experience during the week of the October 19, 1987 stock crash?

   I came in long. I have thought about it, and I would do the same thing again. Why? Because on October 16, the market fell 108 points, which, at the time, was the biggest one-day point decline in the history of the stock exchange. It looked climatic to me, and I thought that was a buying opportunity. The only problem was that it was a Friday. Usually a down Friday is followed by a down Monday.

   The high in the S&P on Monday was 269. I liquidated my long position at 267.5. I was real proud of that because it is very hard to pull the trigger on a loser. I just dumped everything. I think I was long 40 contracts coming into that day, and I lost $315,000.

   One of the most suicidal things you can do in trading is to keep adding to a losing position. Had I done that, I could have lost $5 million that day. It was painful, and I was bleeding, but I honored my risk points and bit the bullet.

   I thought about going short, but I said to myself, “Now is not the time to worry about making money; it is the time to worry about keeping what you have made.” Whenever there is a really tough period, I try to play defense, defense, defense. I believe in protecting what you have.

   

   Source: Schwager, Jack D. (2012-01-09). Market Wizards: Interviews with Top Traders. Wiley. Kindle Edition.

   Related reading: Size Matters

1. All markets look liquid during the bubble (massive uptrend), but it’s the liquidity after the bubble ends that matters.

2. Markets tend to overdiscount the uncertainty related to identified risks. Conversely, markets tend to underdiscount risks that have not yet been expressly identified. Whenever the market is pointing at something and saying this is a risk to be concerned about, in my experience, most of the time, the risk ends up being not as bad as the market anticipated.

3. Traders focus almost entirely on where to enter a trade. In reality, the entry size is often more important than the entry price because if the size is too large, a trader will be more likely to exit a good trade on a meaningless adverse price move. The larger the position, the greater the danger that trading decisions will be driven by fear rather than by judgment and experience.

4. Virtually all traders experience periods when they are out of sync with the markets. When you are in a losing streak, you can’t turn the situation around by trying harder. When trading is going badly, Clark’s advice is to get out of everything and take a holiday. Liquidating positions will allow you to regain objectivity.

5. Staring at the screen all day is counterproductive. He believes that watching every tick will lead to both selling good positions prematurely and overtrading. He advises traders to find something else (preferably productive) to occupy part of their time to avoid the pitfalls of watching the market too closely.

6. When markets are trending up strongly, and there is bad news, the bad news counts for nothing. But if there is a break that reminds people what it is like to lose money in equities, then suddenly the buying is not mindless anymore. People start looking at the fundamentals, and in this case, I knew the fundamentals were very ugly indeed.

7. If you don’t understand why you are in a trade, you won’t understand when it is the right time to sell, which means you will only sell when the price action scares you. Most of the time when price action scares you, it is a buying opportunity, not a sell indicator.

8. Normally, I let winners run and cut losers. In 2009, however, as a result of the posttraumatic effects of going through the September 2008 to February 2009 period—talking to clients who are going out of business and seeing 50 percent of your fund redeemed is all very wearing—I got into the habit of snatching quick 10 to 15 percent profits in individual positions. Most of these positions then went up another 35 to 40 percent. I consider my pattern of taking quick profits in 2009 a dreadful error that I think came about because I had lost a degree of confidence due to experiencing my first down year in 2008.

9. As an equity trader, I learned the short-selling lessons relatively early. There is no high for a concept stock. It is always better to be long before they have already moved a lot than to try to figure out where to go short.

10. Now that you have switched from net long to net short, what would get you long again? – Buying. If all of a sudden stocks stopped going down on bad news that would be a positive sign.

Source: Schwager, Jack D. (2012-04-25). Hedge Fund Market Wizards. John Wiley and Sons. Kindle Edition.