A stock operator's thoughts and ideas about market principles
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Oct/29/2007
Accept Pain for Success
Life is full of pain, and only through accepting this fact can success be reached. The key to a good return in the market is no different.
Academics say that risk gives higher expected return. Under the assumption of risk aversion, this is just the same as what I wrote above. A bit more questionable is the way to measure the risk, which is often through the standard deviation of an asset's price fluctuations. A bit more complicated is the CAPM's Beta, which is the covariance between an asset and of the market, divided by the market's variance.
Enough of market theorization, and back to life.
I want you to think back to all the pain you have gone through in order to grow. Learning to walk, talk, bicycle, swim, read, calculate, socialize, and just about anything is painful before learned - but will forever be of great benefit. I further think that every stage in life should include at least one painful learning process. Hopefully you see my point, and please mail me if you don't or wonder what I'm really referring to.
"Show me a thoroughly satisfied man and I will show you a failure."
- Thomas A. Edison -
Pain's role in both life and markets
Evolution gave us the gift to pursue happiness for a reason. What generates happiness is as close to evolutionary success as possible, and any large deviations in this matter is likely because the environment has changed faster than the pace of natural selection.
Happiness without pain would be impossible. One thing is pain in itself, but being at some degree of happiness when you could be at a higher one, should generate some opportunity-cost-pain. My point is that evolution gave us happiness and pain so that we, through whatever opportunities life has to offer, are free to maximize the expected difference between the accumulation of the two during the rest of a lifetime.
Which pains you are willing to go through during life depend on the happiness you expect it to yield. While happiness comes from the results of your increased skills, the results are of course dependent on others' skills, thus also what pains others go through.
Some pains are quite obvious that are worth the efforts, such as the first you go through during life. Learning all the basics skills during childhood is crucial for a general good life, yet at a later stage choosing skills that compliments your talents relative to others, are essential moves of speculation.
The key in all I've written above is that going through pain is important for happiness, and the right kind of pains must be chosen relative to others. The market is a game no different, only here you can buy and sell the pain. It is not a price itself, but the fluctuation in stock prices are often based on how much pain or pleasure it is to hold a stock.
I know the words I've come up might seem vague and too philosophical. I promise to mathematicalize my point for the sake of making my arguments clear.
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