Posts Tagged ‘Greed’

Is It Greed or Something Worse?

Thursday, January 20th, 2011

Danielle Chiesi: Greed or Worse?

Danielle Chiesi: Greed or Worse?

Yesterday’s plea agreement by former Galleon Group consultant Danielle Chiesi who admitted to being involved in insider trading raises an important question….

No matter how you slice it, trading is a game. It has rules, lines and boundaries. Some are clear and some, not so clear. Unfortunately, when playing a game, the people looking to win, sometimes lose sight of where the lines are.

Commonly, the outside observer assumes that because trading involves money (and sometimes large piles of money) that it has to be about greed. Well, I don’t believe it is. I believe it is about winning. About competing. About finding an advantage and beating your competitors. The money is just a way of keeping score. It is a byproduct of the function of the markets.

Machines produce things. Markets produce money.

And the traders and hedge funds that are looking to get the machine to produce the most it can possibly produce are not focusing on the money, they are singularly committed to winning and that can mean winning at any cost. Sometimes they forget where the boundary lines are or ignore them all together. Athletes (Marion Jones), coaches (Bill Belichick) and politicians (take your pick) have been known to skirt boundaries from time to time as well.

Are those who cross the lines or even flout the rules evil? Maybe, but it is not my place to judge. I am not defending those who break the law or operate in grey areas.  I am simply trying to shed some light on what really goes through their heads. Is it greed? Maybe, but I’m inclined to think that some of these people are trying to compensate for something that’s missing in their lives. Love, respect, fulfillment? In my opinion, that emptiness is something much worse than greed.

Greed Does Not Compute

Tuesday, January 18th, 2011

Greed is Good? Not according to principles of investment psychology.

Greed is Good? Not according to the principles of investment psychology.

Did you think that you “got too greedy” after your winner turned into loser? If so, join the club. But if you dwell on that point, you are missing one of the keys to successful trading.

The trading gods are not out to get you. There is no rule that says you are only allowed to make a given amount of money on a given day. And the markets, for sure, do not know your current positions. Yes, I know, sometimes it feels that way though.

At its core, trading involves “Expected Value” –simply put, the combination of probabilities and potential payouts. EV = (Probabilities)(Payouts). When the EV is in your favor, then you have a definable edge. And great traders trade only when they have an edge. It has nothing to do with greed. It has everything to do with simple math.

Great trading is about following a consistent and objective decision-making process. Money is simply a function of what happens when a trader consistently makes trading decisions when he or she has a mathematical edge.

If you are questioning the validity and power of this concept, then look no further than the casino industry. The reason casinos are money machines is because they have the edge and gamblers don’t. If we play their games, over time, we are all guaranteed to become losers. Trading is not about gambling. It’s about edge and process. Great traders have little patience for greed. If you are still one of those people who think that “greed” is a reason great traders hold trades - then you clearly don’t understand what makes a successful trader.

Remember, great traders are made, not born.

Greed has nothing to do with it…it is only about FEAR!

Friday, November 20th, 2009

Today I am here to tell you that the Age Old Belief that Fear and Greed are what moves the markets is just plain wrong.

There is only 1 thing that moves the market. FEAR.

Either a Fear of Losing Money or a Fear of Missing Out on an opportunity to make $.

This Week, the Trader Temperature is “Fear of Missing Out to Make $”

Here are 3 ways to get over your “Fear of Missing Out”

1) Get Over Yourself
• Accept the reality that you are always missing out on some trade somewhere. Markets were here long before you traded and they will be here long after you are done

2) Know What You are Good At
• Instead of chasing current hot markets (comodites) or styles (technicals) know what and where your competitive advantage is and stick to it.

3) Know Your Job
• Contrary to popular opinion, a traders job is NOT to make money
• That is the market’s job…..Your job is to do the following:
1st) Figure Out Your Competitive Advantage
2nd) Execute it when it appears
3rd) Manage the risk as the market moves

Do all of these and you wont have to worry about chasing the market because you are Afraid to Miss Out.

Trade well.

Dr Doug