Preparing for a podcast interview with Victor Ricciardi.
Some excerpts from his book regarding trader “W” and trader “Q” that caught my eye:
Trader W manages a small hedge fund involving more than $ 10 million of assets under management. Several years ago he received the industry accolade of fund manager of the year. He subsequently closed that event-driven fund and opened a new fund using a “global macro” strategy. W is highly intelligent and analytical: “I was in the 99.9th percentile of SAT scores.” He comes from a family of high achievers and his wife has a doctorate from an Ivy League university. Struggling with performance in his new fund, W sought help. “My analysis is spot on, but I need help following through and executing trades based on it. Even if it’s a high conviction idea and I am confident in it, I end up doing trades that are impulsive.” “How can I control myself?” he asked. W explained the success of his previous fund as follows: “My analysis led me to the right market position. I was a hero to my investors and I need to be a hero again. I want to bask in the glory again.” W’s new fund uses a discretionary approach requiring many more decisions about market entries and exits , whereas his previous event-driven fund required fewer decisions. W routinely held losers well beyond his predetermined stop-loss and averaged down on losing positions. Taking a loss frequently resulted in a sequence of impulsive trades. W stated, “I have a strong need to be right, being wrong is difficult to tolerate.” When asked to explain his need to be right, he replied, “It’s as if loss is unacceptable to me; it’s an existential threat; I’ll do anything to avoid this existential threat.” When asked to describe what the existential threat feels like, he was at a loss for words, saying only, “It’s extreme.” Source: Baker, H. Kent; Ricciardi, Victor (2014-02-06). Investor Behavior: The Psychology of Financial Planning and Investing (Wiley Finance).
“I need the market to talk to me […]. I need to know it, I need to just look at it and know which way it’s going to move, the eyes, the legs, you know, I want to move the way the market goes; I’m trying to get that extrasensory perception.” So began a three-year coaching relationship with Trader Q, who traded at a proprietary trading firm. He sought help for both his quantitative and discretionary trading. Q was a PhD physicist with multiple additional academic credentials including a master’s degree in financial engineering. Q wanted to increase his ability to access his intuition to improve his trading performance. This case highlights using interventions for increased psychophysical awareness designed to help Q to better execute his decisions confidently in the midst of financial market uncertainty. Q was implicitly displaying the realization that the ability to envision the thoughts and feelings of others–a construct called Theory of Mind—could improve his performance. According to Q, the market is “an object with tons of people implementing something in that software; they are debating within themselves; probably their emotions are incorporated in that chart.” Source: Baker, H. Kent; Ricciardi, Victor (2014-02-06). Investor Behavior: The Psychology of Financial Planning and Investing (Wiley Finance).
Q’s personality tended toward anxiety, obsessive thinking, interpersonal insecurity, and a compulsive drive for control. He managed his anxiety through elaborate analysis that ironically tended to obscure the phenomena he was trying to understand. Spontaneity was lacking as deliberate routines were his strong, even debilitating, preference. When gripped with self-doubt, as was frequently his situation, he resorted to acquiring more intellectual knowledge, believing it would settle emotional turmoil. Nevertheless, no matter how many mathematical models he used to make sense of his world, they always seemed to produce a repetitious conclusion and feeling state: I’m not safe. Source: Baker, H. Kent; Ricciardi, Victor (2014-02-06). Investor Behavior: The Psychology of Financial Planning and Investing (Wiley Finance).
Interesting. You can see Trader W and Trader Q get some of it, but are clearly lost on other parts of it.
You need to figure that out.