Being in the Market

Quotable

“A few years from now, strange as it may sound, we might all find that we are hungry for more capitalism, not less. An economic crisis slows growth, and when countries need growth, they turn to markets. After the Mexican and East Asian currency crises—which were far more painful in those countries than the current downturn has been in America—we saw the pace of market-oriented reform speed up. If, in the years ahead, the American consumer remains reluctant to spend, if federal and state governments groan under their debt loads, if government-owned companies remain expensive burdens, then private-sector activity will become the only path to create jobs. The simple truth is that with all its flaws, capitalism remains the most productive economic engine we have yet invented. Like Churchill's line about democracy, it is the worst of all economic systems, except for the others. Its chief vindication today has come halfway across the world, in countries like China and India, which have been able to grow and pull hundreds of millions of people out of poverty by supporting markets and free trade. Last month India held elections during the worst of this crisis. Its powerful left-wing parties campaigned against liberalization and got their worst drubbing at the polls in 40 years.”

Fareed Zakaria



FX Trading - Being in the Market!
Some days I struggle for things to rave or rant about in this morning missive. Often, after bleeding at the keyboard for an hour or two, something seemingly worth saying pours on to the screen; but there are those days when only the keyboard is stained. Today is one of those days.

So, my guest columnist, if you will, is F.J. Chu. Mr. Chu wrote a wonderful little book titled “Paradigm Lost.” It’s a real gem of a book that I often return to, and consistently find increasing amounts of wisdom each visit. I was re-reading his section on “Being In the Market,” and thought you might enjoy it, especially as we start our week in the market. Here is an excerpt:

“We find it upsetting that the market, or at least the rational and quantitative aspects of it that are explained to us by the experts, only describe the surface of our investment world. But the truth is that market prices are determined by a set of complex variables that resist precise quantification. Beneath that appearance exists another world that is disclosed to us by volatile stock price movements and by direct experience. Unlike the familiar language of precise financial data, dry economic analysis, and quantitative rankings, this other world is increasingly throbbing and moving, driven by the basest emotions, and fed by rumor, misinformation, and fantasy. The investor is told that the first world is ‘objective,’ rational and real; while the second world is ‘subjective,’ irrational, and alien. For comic relief, a sage once suggested that someone who is skeptical of the reliability of his physical senses should by whipped until he is convinced of its certainty.

“Since we have already split market reality in two, which one is the one that predominates? That answer is that they both do, although the timing and the degree to which they determine actual market prices is refractory to investors’ power of anticipation. As a consequence, the investor is shunted between these two worlds, feeling like an anonymous and unwitting cog in the great game of the markets. Is there a way out? Now if this were merely an academic argument between university professors, we could dismiss it as the cogitation of overly refined intellects. But this duality infects the whole of our investment world and reaches deep into our portfolios.

“The unique and fascinating nature of the markets is due to the centrality of Being—the mind of the investor, many investors, and in its totality the mind of the market. Its uniqueness has to do with the way the investor stands out within time and in relation to time. In every trade (or every click of the mouse) the past, present, and future all converge in on instant in one physical space. The unique character of each investor’s mind—in infinite variations of reason and emotion, fear and greed—finds its expression in the cascade of market prices. What is suggested is no less than the Socratic ideal of an individual, intelligent, and informed investor who thinks for himself, uses independent judgment, and acts with deliberate choice. It is the real of—Being-in-the-Market—where extraordinary power of ideas takes shape.

“The fundamentals of our financial markets have been well explored by others, to the full accompaniment of graphs, charts, and statistical minutiae. But all the quantitative attempts by the technician are merely seeking to describe an emotional state of the market. The stock market is really too multifaceted and complex to be sufficiently captured by any single methodology or ideology. But all this discussion will probably have little ‘cash value’ for the economists and market technicians. They will continue to look through Being—Being-in-the-Market—because it is so transparent that they cannot see it. In the end, however, Being is what the market technician cannot account for. “And Being is what points the way toward a real comprehension of the markets as a whole.”