What a long, strange year 2020 has been. It’s too early to write a meaningful retrospective, but I think it’s fair to say this has been a challenging year for everyone – and it’s not over yet.
For most, this has not been a productive year
When the quarantine started, most people seemed to have plans: what a great time to learn to paint or learn a new language! So much time and so many things to do … well, it turns out for many of us (myself absolutely included) that this was not a fruitful time. With all the psychological stress and unknowns, it was surprisingly difficult to use all this “additional time” sensibly. I think my message is this, if you are having problems and feel like you have missed the opportunity, maybe you shouldn’t be doing this difficult.
My wife and I both have parents who are in the high risk category so we haven’t traveled to see them in almost a year. So many things that happened this year would have been unthinkable a year ago. We had a death in the family relatively early in the year and we didn’t travel to a funeral. Who would have thought this was possible? I also had several close friends who signed COVID-19 with a variety of results, just like you’ve heard in the media. For some it was “just a cold” and not even a bad one. For others, it resulted in weeks of severe fatigue and an inability to do so something.
And many of you reading this will know that in late 2020, the trading community lost Gilberto Mendez, my friend GMAN from SMB Capital, to COVID. Words fail me here and we just join his family to remind us and the pain of loss.
Some thinking lessons from 2020
Personally aside, this has been a tough year for the US (and the world) politically. The division seemed to widen with each turn, more and more attention was directed to the extremes on both sides, and a rational discourse about similarities and compromises was rare.
For those of us who participate in financial markets, I see at least three clear lessons from the weaknesses of human thought. First, I have always tried to avoid political discussions and thinking. For one thing, my views are pretty moderate and just not that interesting! But I also knew that political discussions usually revolve around tribal thinking (ie about belonging to a group) and that this tends to suppress rational analysis and at the same time heighten emotions. If you’re a trader or an investor, that’s a dangerous combination.
The second lesson is that if we could add a different understanding to our beliefs and opinions, we would all be better off: How sure are we about this thing we believe in? As a long-time trader, this thinking is natural to me – I assume that I never really know anything for sure, and even things that I’m very confident about are immediately revised. However, in discussions that I have participated in or just watched, it has been very clear that most people do not. What is even more damaging is that people tend to associate their emotional belief with security. This is especially dangerous as emotional thinking often contradicts rational analysis.
The third lesson is how amazingly counterintuitive static thinking is, and how easily it can be adapted to our pre-existing views and opinions. This is of course a recurring theme in all of our interactions with the market, but I’ve had several conversations over the past few weeks that highlight how many gaps in our thinking about statistics naturally appear and what numbers tell about the real world . For traders and investors, these are also gaps in our own thinking that we need to be aware of.
Despite the challenges of this year, there have been some very rewarding aspects and I will have some exciting things to share with you in the future.
First of all, I’m working on a new book on the subject of trade psychology. I hesitated to write this book partly because the market is already flooded, but I think, given my life experience as a trader, as an artist, after coaching hundreds of traders at all levels and doing several decades of honest research, like people make decisions – I think I have something important to add to the discussion. I have thought about what is missing in the existing literature and I will be able to share something very interesting with the world when the book is finished.
There is so much more to say, but 2020 provided an ideal setting to reconnect with my meditation practice. I don’t think meditation is the panacea that some people think, but it is certainly a powerful tool to shape some aspects of our mental space. I’ve also developed a series of exercises to help traders find problems with their thinking about risk and probability – imagine that ?! Actual, concrete things you can do to fill some of these gaps in our thinking! I will work very hard on the book in early 2021 and already have a small group of traders ready to test the protocols and exercises I have created. I’m excited to see what this book can mean for the dealer community.
Second, we will be making some important changes to Talon Advisors, our institutional advisory service. There’s a good chance you’ll have free access to this material for much of 2021. So stay tuned for updates there. (The focus will be on longer term investments and direct trading over longer periods of time.)
Third, in 2020, I seriously returned to composing music. I used a large part of this year to delve into rebuilding and connecting with some skills I hadn’t used in over a decade, but I was also surprised to find out how much of my musical brain was busy and just waiting to be used. Perhaps dealing with the patterns, variations, and proportions of financial markets on a daily basis has kept that part of my brain in good shape, and perhaps there is more overlap there than we know.
Finally, for all of us who may have trouble this year, a word of encouragement. This 2020 experience will have positive aspects. It won’t go on forever, though it may stretch into at least a decent part of 2021. Strength is forged in adversity. Perhaps we can come out of this with a renewed appreciation for the community, for the worth of other people and other viewpoints, and to strive to be the best we can be.