A blog to share my thoughts about trading, frugal living, money and the economy. Occasionally I might even throw in a few things about better living, technology, futurism, and science but these are always in some way related to finances or speculation.

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Location: Phoenixville, Pennsylvania, United States

"I have become all things to all men so that by all possible means I might save some."

Thursday, September 21, 2006

The Persuasive Personality Enemy to Traders [PPET]

The speculator faces many enemies. Once you have overcome the basic enemies: fear, greed, & hope, you must learn to overcome equally dangerous enemies. One of these is the persuasive personality. Many traders do not realize that throughout the history of speculative markets there has always existed an enemy known as “the persuasive personality”. You cannot graduate to the higher levels of successful speculation until you can easily identify this enemy.

The following are some of my observations and generalizations concerning PPETs. This is a composite taken from many examples and is not intended to describe any one person in particular.

Common characteristics of the PPET:

1) Typically male. Specifically, a man with a magnetic personality.

2) He has a history of financial failure. Usually has at least one outright bankruptcy on his record or a total trading capital wipeout. Frequently will have a string of catastrophic failures or near total wipeouts.

3) Could not achieve lasting success as a speculator and has a strong desire to live though others’ success. This is manifested in offering opinions and commentary to others under the delusion of trying to help or “give back” to the investment community.

4) Distorted self image. Delusions of grandeur and irrationally inflated ego (sometimes this comes and goes in spurts). This ego is maintained at all costs, particularly manifesting itself in the burial of past failures and the incessant trumpeting of successes even when trumpeting is not warranted (i.e. success was highly illusory).

5) Failure to admit mistakes or take losses when appropriate. Sometimes revises history (either consciously or unconsciously) to “improve” record of past performance.

6) Failure to correct misjudgments when evidence arises that indicates they were wrong in conclusions reached and touted to others as unquestionable.

7) Inability to grow. Rejects all criticism out of hand. Discards all arguments, no matter how rational or well formed if they disagree with an already stated conclusion. Lacks maturity.

8) Has no objectivity. If the evidence does not agree with preconceived conclusions, the evidence is wrong. There is no room for debate.

9) Is reactive, often jumping on trends just as they have peaked and are ready to change direction. Also known as “piling on”. Thinks his odds of impressing other people are increased by jumping on recent trends and boasting about how they have “been right all along”. They are rarely early on a new trend because they wait for a trend to be established first before jumping on.

10) Has a background in a trading related industry and enough knowledge and wisdom to offer such that audiences are attracted. This is a key attribute that PPETs need in order to gain the widespread attention they seek. If they do not sound authoritative, convincing, rational, and wise, they will not meet their subconscious desires.

11) Their true character is often revealed when seriously challenged publicly. This can be manifested with anger, spite, or censorship.

12) They get a high from media attention (radio, television, print). Likewise, they get a high from industry attention, and try to surround themselves with industry experts and proven successes. Experienced traders on the other hand often recognize them as a PPET and will have nothing to do with them much to the bewilderment of the PPET.

13) While they often pretend to be emotionally detached, they are often HIGHLY sensitive people that live for positive affirmation which is one reason they get involved in the media.

14) Pattern of personal relationship failure. Typically has been divorced at least once. Often has had multiple failed marriages, and estranged family members. Sometimes the PPET himself has done jail time or has close friends or relatives who have. PPETs often fail to take responsibility for their own role in their volatile relationships. They push people away rather than take time and energy resolving relational issues or putting others first. This leads to bouts of loneliness, which serve to perpetuate the vicious cycle of seeking new followers.

15) They inevitably lead their blind followers to the slaughter. It’s not in any way intentional, just inevitable. While they feel bad about it, they will do everything in their power to hide the facts and often make new attempts to gain trust after such incidents, making every effort to censor critics.

I have found that occasionally PPETs who are bullish will make television appearances. When they are bearish they tend to flourish only in print or on the radio (traditional home for most big-time PPETs). Financial history is littered with PPETs and the carcasses of speculators they have destroyed. This is why I always teach people to develop and nurture their own critical thinking skills. Question everything and everyone. Know your enemies or be destroyed by them.

In closing I’d like to quote from the greatest book on speculation ever written, Reminiscences of a Stock Operator by Edwin Lefevre, copyright 1923.

[Select quotes from Chapter 12]
“[The persuasive personality] was a thinker… an unusually well-informed man… He loved to hear and to express ideas and theories and abstractions… he had traded for years and had made and lost vast sums…”

“When I said to you some time ago that a speculator has a host of enemies, many of whom successfully bore from within, I had in mind my many mistakes. I have learned that a man may possess an original mind and a lifelong habit of independent thinking and withal be vulnerable to attacks by a persuasive personality. I am fairly immune from the commoner speculative ailments, such as greed and fear and hope. But being an ordinary man I find I can err with great ease.”

“I ought to have been on my guard at this particular time because not long before that I had had an experience that proved how easily a man may be talked into doing something against his judgment and even against his wishes…”

“It was always a pleasure for me to listen to him, he knew so much and he expressed his knowledge so interestingly. I think he is the most magnetic man I ever met.”

“We talked of many things, for he is a widely read man with an amazing grasp of many subjects and a remarkable gift for interesting generalization. The wisdom of his speech is impressive; and as for plausibility, he hasn’t an equal. I have heard many people accuse him of many things, including insincerity, but I sometimes wonder if his remarkable plausibility does not come from the fact that he first convinces himself so thoroughly as to acquire thereby a greatly increased power to convince others…”

“He kept at it until I no longer felt sure of my own information… That meant I couldn’t see the market with my own eyes. A man cannot be convinced against his own convictions, but he can be talked into a state of uncertainty and indecision, which is even worse, for that means that he cannot trade with confidence and comfort.”

“I cannot say that I got all mixed up, exactly, but I lost my poise; or rather, I ceased to do my own thinking. I cannot give you in detail the various steps by which I reached the state of mind that was to prove so costly to me.”

Needless to say, the protagonist (Jesse Livermore) went broke following this persuasive personality and learned his lesson so as not to repeat it. It is my hope that others can learn these lessons WITHOUT going though the pain. I’ll leave you with Jesse’s conclusion:

“To learn that a man can make foolish plays for no reason whatever was a valuable lesson. It cost me millions to learn that another dangerous enemy to a trader is his susceptibility to the urgings of a magnetic personality when plausibly expressed by a brilliant mind. It has always seemed to me, however, that I might have learned my lesson quite as well if the cost had been only one million. But Fate does not always let you fix the tuition fee. She delivers the educational wallop and presents her own bill, knowing you have to pay it, no matter what the amount may be. Having learned what folly I was capable of I closed that particular incident. [The PPET] went out of my life.”

If you happen to have a PPET in your financial life, do not attempt to rationalize keeping these influences in your life. PPETs will be correct for a time, but ultimately cloud your judgment and lead you to financial ruin. Be objective and seek input from objective sources. There will always be a host of suckers to satisfy the PPET, don’t be one of them. If you happen to be a PPET: do not attempt to change your format, just get completely and permanently out of the media altogether if you really care. Focus on making an honest living and rebuilding damaged relationships. It may be the hardest thing you have ever done, but it will be well worth it.


Blogger Wilson said...

Very interesting post, Gordo.

Many of the points hit home for me, although ironically not because I follow any PPET's per se, but because I could relate to the characteristics, being a blogger and forum participant myself, as well as having worked with/for a PPET. I think one of the reasons why there is an abundance of PPETs and even people who make a living being PPETs (think of people who sell systems/seminars, etc.) is that people continue to pour their money into it. While I frown upon it in principle, and definitely encourage people to do their own research in trading, I am not sure that I can argue against the results for those who are professional PPETs. Are these types of 'cottage industries' or side industries not a feasable way to profit if both parties are willing participants? Some of them must at least provide valuable information for people to be willing to continually spend money on them...

5:41 AM  
Anonymous Anonymous said...

"5) Failure to admit mistakes or take losses when appropriate. Sometimes revises history (either consciously or unconsciously) to “improve” record of past performance."

Sounds like the guy from the White House.

12:33 PM  

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