UNDERSTANDING OUR NATURE
“A man’s character is his fate” --Heralatus
What actually is man, why does he think and act in the way that he does? What is the
relationship between mind and body? What influences his behaviour? Since the ancient
Greeks defined Psyche as the Goddess loved by Eros, philosophers have produced numerous
conflicting theories of human nature.
In 1762 J.J. Rousseau wrote his famous test “Emile”, which introduced a revolutionary
theory of childhood and human nature that is still relevant today. Rousseau argued that man’s
nature was essentially good; however, his nature was influenced and corrupted by society.
Rousseau believed that a child’s mind was “Tabula Rosa” or a clean slate when the child was
born, and it was at this stage that the child has the potential within itself to develop almost
unlimited talents. The clean slate has experiences and rules written upon it as the child learns
and develops. As a child moves from birth to adulthood, he effectively becomes a reflection
of his experiences.
Rousseau’s theory is very idealistic and perhaps naďve; however, he does pose two very
important questions. First, how much of human behaviour is learned and how much is
genetic? Secondly, how much influence does society have upon us? There are undoubtedly
instincts and primary needs that we are born with, and no two infants are exactly alike, i.e.
children have different responses to stress. However, it is the environment that is the major
influence on our behaviour. Children take on the attitudes, behaviour and opinions of those
around them. With investment there is no doubt that all aspects of investment behaviour can
“It’s the psychosomatic form in which man experiences his estimate of the beneficial or
harmful relationships of some aspects of reality to himself.” --Definition of Emotion
As we have stated earlier, method and knowledge by themselves are simply not enough. If
there is one crucial factor that makes an investor a winner, it is emotional discipline, which
gives the will and ability to execute knowledge. In order to acquire it we need to look at our
desire and motivation, and how these two conflicting emotions need to be reconciled in order
that we can trade successfully.
All of us, at certain times, lack motivation. We may desire a whole host of different goals, yet
we lack that spark of motivation to get us there. To fulfil our desires and reach our goals, we
need to channel our desire through positive motivation.
Positive motivation is needed to get us to our goals. Without it, all our knowledge and desires
are useless. Consider the area of weight loss. You can go into any bookshop and you will see
countless scientifically proven methods of losing weight. Yet out of every 100 people who
start a course, only 10 succeed in losing weight, and only 2 in 100 keep it off for more than a
year. The success rate is less than futures trading! Ever seen those step-by-step language
courses - just follow the tapes and in no time at all you will be speaking your desired
language with fluency. Now everyone can learn a language, yet the success rate here is about
the same as in the area of weight loss.
“People who deal with stress believe that an increase in the pain and strain must happen
before the pain will go away. Their approach to stress and life is similar to Nietzche’s
statement ‘whatever does not kill makes me stronger.” --Salvadore Madd
There are two fundamental emotions that stand in the way of positive motivation. The two
emotions are the need to avoid pain and the desire to achieve pleasure. In order of
importance, the need to avoid pain dominates. If our desires remain unfulfilled we will,
however, feel empty, depressed and dissatisfied. Our motivation to reach our goals is
continually undermined by conflicting emotions.
To achieve our desires and feel fulfilled, we need to suffer some pain. It is the ability to see
this pain in a positive way that will help us reach and fulfil our desires and give us happiness.
In the case of the language course, it is working with boring repetitive material; with the diet
it is the pain of being deprived of food we crave. If you think of the pain/pleasure relationship
in trading, you should consider the fundamental rule of trading: cut your losses and let your
profits run and you will see why the majority of investors find it so difficult.
Taking a loss, however small, is painful and ego deflating. It means an admission of being
wrong. Rather than take the loss, people hold on and hope that it will turn around and become
profitable, and therefore pleasurable. In the world of trading this very rarely happens - the
result is normally a bigger loss and greater pain. Similarly, when we see a profit in the
market, the pleasure we derive from this means that most investors take it before it has the
chance to turn around and cause pain. To be successful, it is clear that one needs to be able to
positively accept short-term pain to reach our ultimate goals and desires.
“Let me tell you the secret that has led me to my goal: my strength lies solely in my tenacity.” --L. Pasteur
To achieve positive motivation you need to set clear, long-term goals and motivate yourself
towards them. An acceptance of short-term pain, therefore, is inevitable. If you make a
complete honest commitment on what you want from life, why you want it, and how you
intend to fulfil your desires and goals, this personal honesty will release you from the
pain/pleasure paradox that most investors suffer from.
I have worked in several commodity brokerages, introducing accounts, and now write books
and newsletters in addition to running my own commodity brokerage. I have probably
introduced around 6,000 investors to trading over the years, and have encountered a broad
cross-section of investors. In his book “Beyond the Investors Quotient” J. Bernstein puts the
investors he has come across into categories. I have done a similar exercise below, and tried
to put investors into six main categories. They are not etched in stone and some categories
The Universe is governed by law There is a huge marketing campaign in futures trading
based around Holy Grail systems that are able to accurately predict future price movement
based upon scientific law. They normally claim fantastic results and yet will only cost you a
few hundred dollars.
Many systems are based around investors who are dead, and two of the most famous are R.
Prechter and W.D. Gann. These two are promoted by a number of books, courses and
software companies as two of the most successful investors of all time. The fact that they are
dead means that they cannot answer some basic questions like if they were so good at
predicting price movements, why did they not make much money? The reality is, Prechter
died a pauper and W.D. Gann, who allegedly amassed a $50 million fortune, had to sell
courses and books, as he could not support his family by trading. When he died, his estate
was valued at a modest $100,000. You will see all types of scientific systems, many are based
on astrology - how accurate are they - probably as accurate as your horoscope. It amazes me
how people fall for this hype. Clients who fall for sure fire systems vary from highly
intelligent traders to newcomers. Alas, they don’t last long, normally the first couple of trades
shatter the illusion and it’s back to the reality of working for a living. There are some good
mechanical systems around however. Just like any good trader, they suffer periods of
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