This is the second installment in a series dedicated to exploring the concept of mindful trading.
Read the first one here: The High-Water Mark
If you’ve ever had the misfortune to be involved in a Facebook ad campaign, you’ve likely seen the moth to a flame way in which they attract the attention of the worst sorts of people.
It’s hard to say what would possess a full-grown adult to take time out of their day to write an obnoxious comment or post an obscene GIF in response to an admittedly targeted, but definitely impersonal, digital ad.
However, Facebook engineers and product managers are well aware of this phenomenon, and in adapting to it, have shown a deep understanding of human nature – as well as a touch of latent sadism.
Two of the options they provide for dealing with social media malcontents are fairly straightforward – delete and block.
Find an inappropriate comment, simply delete it. If the offending commentator insists upon repeating the infantility, select “block” and you're done with them.
It’s the third option, hide, that’s slyly sinister in its construction.
You see, with those first two options, the perpetrator knows what’s happening by the disappearance of their comment and/or the inability to post a new one.
But while “hide” removes the comment from public view, it deceives the author by allowing them to continue viewing it in its original form, as if live for the whole world to see.
I’ve seen cases where people have replied ten deep to their original comment, with no idea that it - and all the responses attached - now exist in a world for their eyes only.
Labeling these people as self-centered, delusional, egocentric, or narcissistic is too simplistic and doesn’t accurately capture what’s really going on.
A better description of what we’re dealing with here is cognitive distortion; thoughts that cause an individual to perceive reality inaccurately.
In this case, a belief that the actions they’re taking are recognized by the world and have impact.
Cognitive distortions manifest in many different ways and we all engage in them in some form or another.
For most of my life, I suffered from a particularly odd version, in which I believed that nobody ever said anything bad about me, except to my face.
I laugh as I write this, not only at the sheer audacity of this belief but at its objective impossibility.
In fact, if someone had ever directly posed the question to me, “do you really think nobody has ever said a bad word about you behind your back?” every logical bone in my body would have screamed, “of course not.”
Therein lies the rub.
Cognitive distortions exist because they rarely if ever get challenged.
They are in fact formed explicitly for the purpose of avoiding challenges, putting off tough choices, and cloaking oneself in a contrived reality built on the illusion of control.
And nowhere is there more fertile ground in which to plant the demon seeds of cognitive distortion than in the stock market, where they manifest in a variety of flavors.
“THEY downgraded the stock so that their clients can get in cheaper.”
“It’s so obvious that XYZ is being manipulated by market makers/shorts/hedge funds.”
“That 50% drop on earnings is actually bullish long-term because it will get rid of all the sellers.”
But for traders and active investors, the most harmful distortions are the ones that are self-referential.
“That stock just keeps going higher, but the moment I buy it, it will tank.”
“I’m losing my ass in this position, but as soon as I sell it, I know it will rocket higher.”
“Right after I put my stop in it got hit, then the stock rebounded.”
Many of us who laugh at the image of a sad loner having a Facebook war with himself are guilty of equally egregious and delusional thinking in the market.
We’re particularly susceptible because by its nature trading is an isolating activity, allowing us to take full credit for our successes while leaving unchallenged the cause of our failures.
About ten years ago I was on a call with an elderly couple, family members, whom I’d always been able to count on for support during tough times, and whom I thought the world of.
We discussed a number of things, one of which was an idea I had for a new business venture.
While talking, I put my phone on top of a dresser in my closet with the speaker on so that I could talk hands-free while hanging up some clothes.
As the call wound down, we exchanged the normal pleasantries, then said our goodbyes, upon which they must have replaced the handset slightly ajar of its cradle as I continued to hear them talk to each other in the background.
“Did you hear that business idea he has?” said one of them incredulously.
“Yes,” the other replied. “There’s no way he’ll ever pull that off.”
I was stunned.
A core belief challenged - and exploded into bits.
But then it was good.
Because I realized this wasn’t about them, it was about me.
It inspired me to search out and challenge other cognitive distortions in my life, none of which, by the way, were of any benefit to me or those around me.
It’s the same in the market.
We have to constantly challenge ourselves.
Ruthlessly, honestly, and relentlessly challenge the way we think.
The war isn’t with the market.
It’s with ourselves.