Promises are made to be broken and lies are meant to be kept

February 17, 2004
Sol Palha, Alan Lunt & John Tyler

Lying is not only excusable; it is not only innocent; it is, above all, necessary and unavoidable. Without the ameliorations that it offers, life would become a mere syllogism and hence too metallic to be borne.

H. L. Mencken 1880-1956, American Editor, Author, Critic, Humorist

Promises are made to be broken and lies are meant to be kept. If you examine the above phrase you will find out that 9 out of 10 times it is true. Hence the saying broken promises.  At this stage you might be tempted to ask the question what does this have to do with investing. If you bear with me, the answer will be provided to you shortly.

Lets take the first part of the statement. Promises are made to be broken. First of all let’s examine the state one usually is when one makes a promise or vows to do something. 90% of the time one is in an emotional state of frustration, despair, anger and or in a euphoric state. What is the theme here, each of these states of emotion represents an extreme deviation from the norm, either an extreme positive or an extreme negative deviation from the mean. The first thing an investor learns after losing some money in the market is that doing anything based on emotion is a recipe for disaster. So following that principle is it not more then obvious that promises rather than lies will most likely be broken, as one did not sit down to logically evaluate all the information before making the promise.

When it comes to lies on the other hand, the person is usually thinking in a devious manner. It is more likely that the person is in more control of his or her senses when a lie is going to be told, simply because one spends time thinking about how one is going to go about telling this lie. So the process of telling a lie involves some thought, while usually the process of making a promise usually involves none.

Now lets get to the part of investing. Many of us make promises to ourselves that we are going to change the way we invest or we are going to be more careful in our investment selections.  When do we make these promises, immediately after we have been financially decapitated (Suffered a huge financial loss). This simply means that most likely we are not going to keep this promise, because we took the easy way out. When one makes a mistake the easiest way out is to simply promise oneself that one is not going to repeat that mistake. Look at your own investing experience and re call how many times you have and are still breaking those empty promises you have made.  Ironically look at the way we chose to describe promises that are broken or might be broken. Empty promises, broken promises, etc we never say empty lies, or broken lies, since by nature lies are already full of BS and are already empty to begin with.

The hard thing to do would be to sit down and write down what you did in a journal and then slowly but surely examine where it was that you erred. Now instead of promising yourself that you will not make the same mistake, instruct your mind to remember the mistake and drill that mistake into your memory. If you remember clearly what your mistake was, it is very unlikely that you will repeat it again. One does not need to promise one self that they will not put their hand on a hot plate again. The reason is simple, not only was your hand seared but you seared that mistake into your memory banks and hence you will never repeat it again. 

The key to better investing is to simply remember your mistakes and victories and embrace them both. There is nothing wrong with making a mistake as long as you learn from it.

So if you were a bear during this serious bullish run up in the market, do not curse yourself, do not look down on yourself. You did nothing wrong, the mistake you made was first to trust other advisors opinions fully and the second one was that you looked at the markets too rationally. If you realize your mistakes you have nothing to be ashamed of. In fact you should actually be proud, because in all likelihood, you will not repeat these mistakes. It is the person who fails to realize that he is to blame for his actions that carries on repeating the same action he seeks to blame others for. Everything we do in our lives can be only blamed or credited to one person and that person is the image that stares back at us when we look in the mirror. As they say a bad carpenter blames his tools and not himself.

Lets take this one step further. A true contrarian investor should therefore not believe any services that explicitly guarantee them that they will make a certain minimum.  There are many such  services claiming that its so easy to double or triple your investment

Lets look at logic here. If you start with 10 then at the end one year you will have 20K second year 40k, third year 80k and fourth year 160k, pretty soon you will have a million bucks. Well if it was so easy to do, why the hell are they wasting time charging you only 600-4000K a year. If on the other hand they said we are looking to make 100% a year but if we do not we will refund you 50% of your money back or so, then that sounds more credible. Why does it sound more credible?

  1. They are telling you there is a risk,
  2. They are telling you that they are after all human
  3. They are also telling you that they are willing to share some of the risk with you.

 

So now lets take it to the extreme step. From a contrarian perspective it might actually makes sense to believe someone who lies. Liars generally have a consistency about them. While people that make promises usually go way overboard. So in reality the people that make promises are usually liars and liars are in advertently actually telling the truth because they actually do what they really wanted to do. The person making the promise not only breaks his word to others but also more importantly breaks it to himself. Which is far more important, because this shows that the person has no self-respect. If someone has no self-respect then how can you expect him or her to respect you?

A liar has a trend and we all know that the trend is your friend, so we can take information from a person who is a known liar and then take opposing positions. Are you starting to see how lies and contrarian investing are connected? Why is it contrarians always tell you to take positions that oppose the masses. Look at CNBC they indirectly promise to bring you unbiased and top-notch investment info and all they do is lie to you day and night. However they are consistent with their lies so one can profit by taking positions that are contrary to their outlooks.

One thing you can do immediately is stop making empty promises to yourself and instead stand up and be a man or woman and tell yourself the following. “ From today I will examine each and every mistake I make in detail and sear it into my memory banks”. If you do this you will never have to make any stupid promises to yourself.

Once again remember there is nothing wrong with making a mistake in fact there is something good about making one, it gives us the chance to learn something that we might not have, had we not made the mistake. So lets stand up and dust ourselves and congratulate ourselves for having the foresight to even recognize that we made a mistake. Most people do not even realize they are making a mistake or mistakes. Then take it to the next step, study your mistake and ingrain into your memory. When you do, your mind will automatically look for ways to prevent you from repeating the same mistake.

Some interesting finishing thoughts, I will expand on these in some future update.

Why is it that we say we walk down the path of life, I would prefer if one would say I am walking up the path of life? 

Interesting outcomes when you spell certain words backwards

Love= Evol    which is strikingly close to evil      lived= Devil       God= Dog   (I do not mean any disrespect, and for the record I am catholic, I am just examining the facts) and finally live= evil

We have everyone telling us that we should either fall into two categories, pessimist or optimist. Why is it they forgot the most important one, A realist.

Glass is half full or half empty, if you say half empty you are supposedly a pessimist and if you say half full you are an optimist. My response to both answers is that anyone who attempts to label you based on that response needs to have his or her head examined. The best answer is “who cares”

The more important question is, Are you thirsty or not. If you are thirsty you could do not give a dam if its half full or half empty you just want some water and if you are not thirsty you could not be bothered with wasting your time analyzing a glass of water.

Hope for the best, why should we hope for anything, hope indicates one has resigned ones fate to another power or another person. Its better to plan and fight your way up to get what it is you want. Hope has only one place and that is in a deep hole.

Why is it that so many people look forward to retiring? Lets expand on this, to them retiring is doing nothing but sitting on their rear end while their front end (stomach) grows at unbelievable rate. Would it not be better to say I cannot wait for the day I can get rid of these shackles that bind me to a 9-5-slave life and finally do the things I want to really do. Never retire always look to keep your mind and body busy.

Another interesting factoid, why is it when someone is lucky we say he or she has the luck of the devil when they get out of a tight spot and not the luck of a God. Or why do we also say I had devilishly good time, why not a Godly great time.

One can be absolutely truthful and sincere even though admittedly the most outrageous liar. Fiction and invention are of the very fabric of life.

Henry Miller 1891-1980, American Author

 

FROM JOHN TYLER

“Experience is the name everyone gives to their mistakes”- Oscar Wilde

The very nature of any investment carries risks. Risk implies an increasing certainty of loss the more you trade, and if you are an advisor, the more pieces of advice you offer. It is no surprise that the top advisory service last year had a grand total of 10 recommendations throughout the whole year!

Lets say you have a 90% success rate. Your chance of getting 2 winners in a row is is 81%, of three winners in a row,  73%, and 4 winners  66%.In other words, there is a high chance you’ll have to deal with loss.

Confession time: I have a vast experience of loss. In fact this is one of the main reasons why we feel the urge to write , to not only help others in imparting methods to try and minimize loss, but to exorcize the demons that want us to believe that they weren’t necessary, that we should have known better, that we were greedy, or indolent, or just plain not smart enough.

Perhaps any or more of these were true. However the fact remains, should we ever reach the state of perfection where none of these weaknesses of human nature afflict us, the intrinsic nature of the markets and risk remains: we will continue to have losses.

I would like to present a simple approach to dealing with losses. I have great faith in our inability to change patterns that have been hard-wired into us. Those who claim otherwise are usually on the sidelines of academia or giving advice only. Ask “Trader Vic” who wrote some great stuff on trading- wiped out with 50 million.

The approach is this: choose your trading style based on what you can do; don’t try and force yourself to do what you can’t.

Eg 1.Claudia can’t  admit to and cut short a loss. She has even seen a therapist, and tried every system. Solution : trade stocks that have made a base and are now accumulating.Result: eventually 90% became winners that Claudia had no problems selling. She spring cleans her portfolio every year of non-performers.

Eg 2. Max loves the excitement of trading. Several times he has had runs of winners only to blow it all later. Despite numerous attempts at help, he soon reverts back to his reckless behaviour. Solution: told to go wild with 10% of portfolio and turn it into a million. The rest, go conservative. Result: Having been freed of pressure to perform, almost made a million, then lost most when started to worry about the amount; overall  had a great time, conservative portfolio doing well. Next run we will work with Max to set aside a proportion of each win to go into his conservative portfolio. Not too much to take away his fun, but enough to make him seriously rich over the years.

In both of these examples, “weaknesses” are turned into strengths, and losses are redefined and dealt with in a productive manner rather than being fed with emotion energy.

John Tyler  CEO www.infognome.com      consultant    www.trader007.com  

 

From Alan Lunt

"Experience is when you can recognize that you have made the same mistake before"

Ian Frame, farmer, friend and amateur philosopher.

When I became interested in the market just over a year ago, I promised myself riches, who did I lie to the most? I did have a plan and a direction but no knowledge or experience. I also knew that I needed serious help if I was to succeed. I was lucky, I stumbled upon Sol and John who both advocated taking time out and  examining  my mistakes thoroughly

The first mistake I made was the classic doosie, buy high. Boy did I take some acid. I had no stop in place or even in mind, so I sat and waited through the correction. It took 5 months before I began to get towards even, then it started to correct again. I got out. That is now etched in my memory. What did I learn? I am not always right!!!! So with some expert tuition I set to and learned all I could about technical analysis in the fastest possible way.

During that process I was still invested, but I had a very fast trigger finger, at the first sign of trouble I was gone. Problem was I was being scared out of good investments. So I had to learn the difference between gambling and investing. I had to learn about fundamental, bottom line product and business plans. There was getting to be too much to know. Was I still telling myself "you can do this!"? I was beginning to have my doubts.

I also had a fair degree of knowledge about the Kondratiev seasons, so I had a leaning towards commodities and gold, also biotech. No one had told me that in a true bull market the beast does it's best to buck you off. It did. Twice. But I was getting the hang of buying low.

Because I don't live in the USA, I also have currency risks to monitor. I made a conscious decision not to invest in US stocks, all my shares are Canadian but I have still taken a hit in the conversions, albeit not so bad.

Would I have been better off after one year if I had left my money in a bank in NZ? I am not going to lie to you. You decide.

All I will say is this, if you are making mistakes GET HELP.

© 2004 Sol Palha
TACTICAL INVESTOR

www.tacticalinvestor.com
info@tacticalinvestor.com

17 February 2004

The term “carat” comes from “carob seed,” which was standard for weighing small quantities in the Middle East.