The Battle Between Emotion and Reason in Financial Markets | Hacker News Reader

The Battle Between Emotion and Reason in Financial Markets

call-levels.com

72 pointsCall-Levels22 comments

My favorite saying about markets is: "The market can stay irrational for longer than you can stay solvent."

Learned that the hard way trading Ether.

I'd like to hear your story if you'd care to share.

I searched around for any strategies for trading ether and other cryptos, and came away with the conclusion that anyone successful keeps their cards close to their chest.

Instead I built a mining rig and hold ETH for the longer term (day to day mining is unprofitable currently due to high electricity costs where I live).

Please elaborate on you Ether trading.

Ether is being heavily manipulated for a long time by the Ethereum Foundation, so having the "normal" altcoin/crypto speculation is enough to drive you nuts, but having some a team of bag holders coordinated to manipulate price is a "retail" trader killer.

That was illustrated quite well in Greatest Trade Ever / Big Short / [insert other books about housing meltdown here], but in that case it was more that the market stayed both irrational and criminally manipulated too long.

It's worth noting the context: You shouldn't make any highly risky bets based on the assumption that market irrationality will correct itself soon.

This article on the other hand, is describing irrational behavior/beliefs by individual investors, that will only ever hurt their investment performance in the long run.

In the long run we are all bread.

Classic John M Keynes.

A good seller, sells to buyers emotions, a good buyers buys based on sellers reasons (sort of).

Trying to come up with a one liner, I hope you get the gist. Seller should have good EQ and buyers should be dispassionate.

Only half of your equation, but how about Baron Rothschild's "The time to buy is when there's blood in the streets."

or buffett, "be fearful when others are greedy, and greedy when others are fearful."

So, good sellers appeal to bad buyers.

The key takeaway that I got from this article: overcoming your emotional biases as an investor is a full time job. If you're willing to spend 20+ hours per week on this, more power to you. Otherwise, you'd be better off buying & holding index funds for decades.

your response intrigued me, because on the one hand you said we needed to spend endless hours overcoming our mental weaknesses, then described how you'd overcome it by devoting next to no time to it at all. most professionals in the money management business (i happen to be one) work awfully hard and add no value at all.

I think the point is that becoming sufficiently dispassionate isn't something you can do in a few hours a week.

If you have the time to dedicate to doing so, great, but realistically so many people are better off using that time to get better at what they're already good at, and just buy the broad market.

The people that are best at at, are genetically wired for it. I'm one of those people for example. It takes almost no effort for me to keep emotion out of decisions on investments. I am extremely difficult to influence and have very low susceptibility to the opinions of others. That has been the case since I was young, I didn't have to learn anything to do it and I don't have to work at keeping it that way. I watch in bewilderment as other investors routinely fret, panic, get angry, get euphoric, in frequent wild swings with their investments. They let the price and its movement dictate their emotion and confidence in their decisions; they let the behavior of other investors dictate how they calculate the value of the underlying business. One minute a stock is $30 and two weeks later it's $22; at that point most people emotionally think it's a disaster and start to panic, regardless of consideration for the underlying fundamentals of the business. I got so annoyed by the extreme emotionalism that rules most investors that I decided to write a book on the subject, which I'm working on now (optimistically hoping I can find something original to add to the numerous pre-existing writings on the subject).

/r/iamverysmart

That actually sounds like an interesting premise for a book. If you ever finish the book, or are looking for someone to read it and offer you feedback, my email is listed in my profile.

I am much happier when I have cold hard cash at the bank than when I am owning shares. The moment I buy shares, I watch my portfolio like a hawk. My happiness starts to depend on how the portfolio is doing. When the numbers go down, my happiness level drops. Vice versa. It becomes an obsession.

Instead of thinking about coding and other things that occupies my thoughts on a normal day, I start to think about markets when showering, sleeping, eating, driving etc. When I am investing in index funds, I don't experience such. That's why I only invest in index funds these days.

Nothing too surprising here. It's like when you play poker you're playing the other players, not your cards against their cards. Same cards can win or lose.

Curious what will happen when general intelligence becomes better at managing money than humans + supervised algorithms . I am guessing volatility will drop with less chance of flash crashes. And will be able to better judge a company performance based on their stock . Right now none of that is 'rational'.

Financial markets depend on how much value we assign to things, and that's very subjective and at times, irrational.

That's the reason Kim Kardashian is richer than Woz.

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