Zen and the Art of Investing

I knew that would grab your attention. Nowadays you can pretty much attribute a spiritual element to anything by simply attaching it, just type in a google search “zen and the art of . . . ” and see what you get. There need not be any validity to it. If Madonna can dabble in Kabbalah (an ancient form of secret Jewish mysticism reserved only for Jewish men over the age of forty-five and can only be taught by a rabbi), certainly I can make a case for the enlightenment of the trader class, it’s not like I’m selling blessed water. Just think about it, a cult of traders-Buy, sell, send me your first born . . . uh, okay I’m starting to freak myself out, but there is something to this, it may not be worth a post on a blog, but maybe?

I’ve spent many hours studying early Christianity, Gnosticism, Jewish traditions and their history. I’ve read the Mahabarahta and the Ramayana, I’ve studied the principles of Buddhism.I’ve studied Doonesbury (made the most sense to me). I also spent a few years while I studied Aiki-Jutsu in sitting meditation. I’m not sure what experiences you may have had with meditation, but I had always thought of meditation as a peaceful, relaxing, rejuvenating process, until I actually sat down to do it. I found it anything but relaxing or peaceful. I felt like a heroin addict coming off junk while listening to Zamfir’s pan flute standards. Not peaceful, not relaxing. Think about this for a sec, meditation at its core whether it is a sitting meditation (what I was doing) or a breathing meditation or a Mantra, at its core is one thing and one thing only (dramatic pause . . . )single mindedness. Now when I was younger, my girlfriends said I was single minded, but that’s not what we are talking about here. **drum roll, cymbal crash-thank you! **
I can remember sitting as still as possible, trying to keep my posture erect, motionless and there was a bead of sweat slowly making its way, millimeter by millimeter down my brow, tormenting me, I wanted so badly to wipe it off, but I couldn’t-I was being watched. Uh, by the way-that didn’t happen in meditation, that happened in an old chapel inside of a castle in Budapest during our wedding. It was about an hour long ceremony in Hungarian with a priest who had a horrible speech impediment, in the middle of summer with no air conditioning. A lisping Hungarian priest doing the “short” version in 90+ degrees whether with no airflow wearing a silk shirt! There are some other funny bits to that story I’ll share another day – suffice it to say “my wife is worth it.” Back to meditation, same concept there too, you are trying desperately to think of nothing but your posture and you’ve got a bead of sweat, you’ve got an itch on your nose that is getting worse by the nanosecond, you’ve got Iron Butterfly’s In-A-Gadda-Da-Vida stuck in your head and then, when you least expect it (dramatic pause . . . ) Nothing! And you think to yourself “I’ve done it, I’m not thinking of anything” and in that one little thought, “Oh Damn it!” That’s right, single mindedness is hard. Our “monkey mind” doesn’t want to give up control, it’s always there providing an itch that is insatiable, a song you hate but can’t stop singing, an obsession with a bead of sweat. Whatever it is, the “monkey mind” won’t SHUT UP!

And this has what to do with trading? Well it probably has as much to do with trading as it has to do with: the SAT, Falling in love, Knitting, and Motorcycle repair (which is by the way what you will get when you do that Google search). I’ve found in my experience that trading, much like meditation, is about peeling back the layers of “self” to uncover . . . whatever it is you’re supposed to find-I didn’t get that far. Really though, I mean it. If this is not you, or hasn’t been you at some point in time, then it is certainly someone you know: You buy a stock, it goes down below your stop, you hold it anyway because earnings are coming out in a week and your analysis suggests that this baby is about to fly. The stock goes down some more before earnings, you are considerably below your stop level. Earnings come out and the stock gets CRUSHED! What do you do? Buy more of course! Average down and if the stock goes down some more, well . . . buy more. Most of us have done it. It’s human to do it. We don’t want to be wrong. It takes a zen-like experience to come to the realization that you can be wrong and make money in the market and that’s okay, I’m okay, your okay. We don’t want to get beat, not by a dispassionate non-thinking entity like a stock. It is hard to say-“I’m wrong” and take your small loss. The monkey mind will always chime in and say “Yeah, but earnings are just around the corner and they are going to blowout expectations” or “Come on, you’ve been in this stock for six months, you are going to sell today and tomorrow the train is going to leave you at the station, in the rain!”. That monkey mind has got us and just when you strip away that layer and you come up with a system or a rule, you find your next challenge and you start all over again. If that is what happens to you, you deal with one layer and find another-then good. In meditation, the sitting in silence is not progress, the sitting in torment and not getting up is progress. I suspect this is much the same as trading, that whole “whatever doesn’t kill ya makes you better” and if that’s true, you better have money management skills under your belt if you intended to go through whatever doesn’t kill you and not get wiped out. A very successful trader said something like “people get what they need in the market.” The implication here of course is they may not get what they want, but they get what they need. And maybe what some trader needs is to self destruct at a certain level of success. You probably know someone like this, they are great at what they do, a natural. They can do whatever they do from the ground floor up and put it together in record time and when they get to a certain point, they self destruct. It’s as if they can handle this much and no more. They seem to have a mechanism built in that derails them from going past a certain point. It’s that fear of stepping out and building your own business because your mind is painting pictures of poverty and being unable to provide for your family. It’s saying “this trade could be really great, I think I’ll watch it and see what it does”, but never jump in. It’s perhaps a part of the equation with that guy in all of us who says “I lost this money in XYZ and I’m going to make it back in XYZ” and maybe XYZ isn’t the best place to do that. Perhaps it’s a part of the guy who has to walk out in front of busses or as we call it in the vernacular of the market “trying to catch falling knives.” Whatever it is, however it manifests itself, we are best served understanding that it is there and when we uncover it, we’ve just begun. It is like as Donkey in Shrek would say “Onions got layers” or “Parfait’s got layers, everybody loves parfait!”.

Here’s a recent example: I’ve been short ATI, RACK and TIE. My opinion is the market is in trouble, the trend is down. I’ve expected a rally, I’ve anticipated the dilemma and I’ve made a decision-I’m going to hold my short positions through a counter trend rally which can be a scary experience. I’m prepared and I believe I’m well positioned. One of my trading concepts is, if I’m cold I cut back the size(risk) of my positions. When I’m hot, I swing for the fences. I’ve had a good streak lately and I’m pressing my positions pretty hard. I’m about 50% bigger than my max risk position should carry ( a sort of violation in a grey area). We get this big rally on Thursday and all three positions are still under the area I consider to be a stop and they didn’t have huge volume so I interpret the action to be an opportunity. What did I do? I swung for the fences, I doubled down all three positions-fully leveraging my account. I also 1) didn’t wait for confirmation of a reversal or even a loss of momentum. 2) I put my account at a much higher level of risk than I’m comfortable with. 3) I created a dilemma for my self. Following this concept of “know thyself,” I must ask “was swinging for the fences part of pressing my position when I was hot and therefore acceptable?”, “Was entering the trade before the reversal a reckless thing to do or was it the bold initiative of intuition, the risk taking that I get paid for?”, “Do the answers depend on the outcome?”, “Am I asking these questions at this point because I’m secretly at a level of success that is comfortable and I’m afraid to take on more?”. “Am I thinking too much about this?”. “Am I asking questions that I already know the answer to?”. I think I don’t know the answers to all the questions. The end should not justify the means, in other words-the success of this strategy shouldn’t validate the strategy. Sound reasoning and logic should validate the strategy. It’s like that captain in the army who came across a mine field and decided to close his eyes and walk across-he made it out unharmed, so every time he came across a mine field he knew what all good soldiers know-of course you just close your eyes and walk across. For my answer to be free of bias-the kind of bias I think I am not susceptible to, I need to answer the questions before I see the results. Good trading, as in good meditation is about the “doing,” it’s about maintaining the erect, motionless posture and when your mind starts singing “New York, New York” you bring it back to the posture. You do what is right and let the results take care of themselves. Just like anything else in the world, becoming good at it means pushing the limits of what you are comfortable with, but it doesn’t justify being reckless even if it has paid off. It is a dangerous thing when you succeed with bad habits. I know I have to come to terms with these questions and soon, but a part of me really wants to wait to see the results. That part of me that wants to wait to see is the monkey mind, the one whose very existence necessitates the need for a rule. And so goes another layer, and the next layer awaits.

I do believe in the trinity of mind, body and spirit. Just as the body needs nourishment and exercise, just as the mind needs activity, creativity, challenges-the spirit needs to be protected, nurtured and uncovered. I think it is impossible for a trader to become excellent at what he or she does and not have explored and uncovered their spirituality. It doesn’t mean we have to call ourselves guru and sell bottled water or in our case “news letters.” We don’t have to let our spirituality be a shallow well used to fill an empty vessel. But, we do become better traders, better spouses, better friends and more fulfilled people in nurturing our spirituality in whatever way we chose, even if it is only trading. And in the end, and as the point of this massive book-like post, trading requires that we look at ourselves in an honest, unbiased, humble way and realize there are still things that we don’t yet see. There are still layers that trip us up and we must be vigilant, we must be dedicated if we are to bloom. Thanks for reading, now print it out and tear it up . . .