Michael Gibbons of Gibbons Trading adds to the “price”:

Michael,

Best,
Michael Gibbons

Hi Mike,

Thanks,
Michael Marchese

I have developed a friendship with an old pro trader who sends me regular insight. A recent email in:

Hello again everyone-due to other commitments today will be my last “morning market comments”. As most of you know several months ago I was invited to be a ghost analyst for a well-respected daily newsletter writer in the futures industry. For a number of reasons I decided not to get involved but in my trial period I found a number of things about myself I had never recognized before. Some things I learned are not necessarily about me per se but more about trading and I learned a few things about some of you. My readers included two successful commodity trading advisors, a surgeon, a real estate developer, a successful businessman, a successful salesman, and a federal law enforcement agent. The point here is that people from all walks of life have an interest in trading on some level.

Good trading to everyone!

A reader sent me this excerpt from John Mauldin. He touches on analysts’ propensity to offer explanations for every market move:

“To trace something unknown back to something known is alleviating, soothing, gratifying, and gives moreover a feeling of power. Danger, disquiet, anxiety attend the unknown - the first instinct is to eliminate these distressing states. First principle: any explanation is better than none… The cause-creating drive is thus conditioned and excited by the feeling of fear ….” Friedrich Nietzsche

“Any explanation is better than none.” And the simpler, it seems in the investment game, the better. “The markets went up because oil went down,” we are told. Then the next day the opposite relationship occurs. Then there is another reason for the movement of the markets. But we all intuitively know that things are far more complicated than that. As Nietzsche noted, dealing with the unknown can be disturbing, so we look for the simple explanation. “Ah,” we tell ourselves. “I know why that happened.” With an explanation firmly in hand, we now feel we know something. And the behavioral psychologists note that this state actually releases chemicals in our brain which make us feel good. We become literally addicted to the simple explanation. The fact that what we “know” (the explanation for the unknowable) is irrelevant or even wrong is not important to the chemical release. And thus we look for reasons. And that is why some people get so angry when you challenge their beliefs. You are literally taking away the source of their good feeling, like drugs from a junkie, or a boyfriend from a teenage girl. Thus we reason the NASDAQ bubble happened because of Greenspan. Or a collective mania. Or any number of things. Just like the proverbial butterfly flapping its wings in the Amazon that triggers a storm in Europe, maybe an investor in St. Louis triggered the NASDAQ crash….

What’s the difference between the junk mail below and CNBC?

Seriously.

There is none in my mind.

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Jaron Lanier recently wrote an essay called The Hazards of the New Online Collectivism. A summary:

“The hive mind is for the most part stupid and boring. Why pay attention to it? The problem is in the way the Wikipedia has come to be regarded and used; how it’s been elevated to such importance so quickly. And that is part of the larger pattern of the appeal of a new online collectivism that is nothing less than a resurgence of the idea that the collective is all-wise, that it is desirable to have influence concentrated in a bottleneck that can channel the collective with the most verity and force. This is different from representative democracy, or meritocracy. This idea has had dreadful consequences when thrust upon us from the extreme Right or the extreme Left in various historical periods. The fact that it’s now being re-introduced today by prominent technologists and futurists, people who in many cases I know and like, doesn’t make it any less dangerous.”

I would argue the hive mind in some way or another has always been there. I would also argue that the hive mind is what allows traders like trend followers to profit in the zero sum game.

A good piece of wisdom from Bill Eckhardt:

“If you make a bad trade, you have money management, you have a whole bunch of things that will come to your aid, and you’re really not in so much trouble if you make a bad trade. But if you miss a good trade there’s really nowhere to turn. If you miss good trades with any regularity you’re finished, you’re doomed in this game.”