Tharp's Thoughts Weekly Newsletter (View On-Line)
Four Financial Paradoxes as May Comes to a Close by D. R. Barton, Jr.
Our First Workshop Video for Systems
Insight Entry: One-Ness
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Our mission at the Van Tharp Institute is transformation through a trading metaphor. Today I want to share some thoughts on what that really means.
First, let's look at the roots of the word transformation. The center of the word is form and to me that refers to the physical form. You might call that the body you inhabit. When you identify with your body you do a number of things. You limit yourself because you restrict yourself to a three dimensional form.
Let me give you a great example of a form statement — perhaps the ultimate form statement. Someone wrote us a letter criticizing one of the articles in the Trading Beyond the Matrix contest. In it, the person described the limitation of form perfectly by saying something like, “This stuff is total garbage. I used to be into things like manifesting and abundance, but they never work. Moreover, there was a huge cost to doing that. It got me away from reality, from realizing that I am just a limited being living on a rock hurling through space.” When I read that I thought, “Wow, if that’s what I believed, I would be really depressed.” But that's what happens when you totally identify with form. You become very solid, very isolated, and very much into the limitations of the physical.
The second part of the word transformation is “trans” which means “to go beyond.” And taken together we now have, “to be beyond form.” How do you do that? You do it through your beliefs. The first level of transformation is to realize that you create your reality and your experience through your beliefs. For example, you only trade your beliefs. In fact, that’s part of the title of the book I'm currently writing. As soon as you understand that, you start to move beyond form. The transformation process starts with the markets becoming much less real as you realize they are created by your beliefs. Your entire experience is created by your beliefs and that includes your experience of yourself.
In my upcoming book, I am interviewing people who have never traded — both young and near retirement. Their beliefs about the markets, money, and themselves show why they have never traded.
I'm also interviewing several active traders who are not very successful. Again, their beliefs show why they have never been successful.1 Why? Because they have many non-useful beliefs about trading and the markets. That's why the first level of transformation is to adopt Tharp Think, a set of much more useful beliefs that lead toward success in trading.
Finally, the last part of the word transformation is the “ation” part which implies action. As you begin to realize that you are a lot more than “a limited being on a rock hurling through space” — then you must take action. That action then enables you to go through deeper levels of transformation.
Here are the levels of transformation—
- Level 1: Realize that you don't trade the markets, you trade your beliefs about the markets and you can adopt a much more useful set of beliefs that we call Tharp Think.2
- Level 2: Realize that you are not a limited being, but rather that you create who you are by your beliefs. And as you believe that, you really move away from form because you understand the formless part of you can change with a simple thought.
- Level 3: Realize that as you begin to go through massive change, you will raise your level of consciousness. This really means you become much happier as you move further and further from form. People who complete the first phase of the Super Trader program (ST1) usually have happiness scores above 70, and often in the 80s. That means that they completely understand that they are so much more than a limited being on a rock hurling through space. At this point you will no longer be trading from a mental state like fear or greed, but from consciousness level of acceptance or possibly even love.
- Level 4: Realize that everything is one. You are not separate from anything. When you really understand this, everything changes and you experience the ultimate transformation. You will even understand what it means to be one with the markets. As an example of what this can be like, read Chapter 16 of Trading Beyond the Matrix.
Originally, I had written an article on some new regulations that the US government recently enacted which have the potential to devastate the economy. I believe the impact of that article, however, would have had the opposite effect of transformation – it would have moved people towards form and solidity. Notice what happens when you think of something fearful - you move toward judgment which produces solidity in you. On the other hand, someone who has done massive personal transformation work might realize that “what is” is perfect and may even present an opportunity to profit. That kind of realization requires several levels of transformation for most people, so start by working on your beliefs.
1. I will probably do five interviews and select two for the book. These will be anonymous interviews about your beliefs. If you are fairly new to Tharp Think and would like to be interviewed, please let me know. Doing the interview is actually a transformational process because you start to look inside at how you create your life.
2. We are planning to have a new two-day Tharp Think intensive, September 6-7. The workshop will be two days, and combine Tharp Think with laughter yoga and brain-heart coherence. More information to come.
Combo Discounts available for all back-to-back workshops!
See our workshop page for details.
Four Financial Paradoxes as May Comes to a Close
"How wonderful that we have met with a paradox. Now we have some hope of making progress." —Niels Bohr, Nobel Laureate
In this hallowed space, I have written articles that debunked a number of myths proposed by others. Keep in mind that many such myths have been trotted out by those with a financial incentive to hang on to your money (mutual fund companies, money managers, etc.). One of those from long ago was a Fidelity article that touted buy and hold citing the old fallacy of “the ten best days”. To refresh your memory, this myth says that you shouldn’t get out of the market when it is dropping (or at any time according to the “buy and hold” dogma) because if you were to miss just the ten best days of gains over a decade, just look at how far your returns dropped… The truth of the matter, however, is that if you missed the ten best and ten worst days, your returns are actually higher than the market’s returns because the market drops faster than it rises.
Before I jump into my first paradox, let me first provide a useful definition of the word (according to Merriam Webster):
Something (such as a situation) that is made up of two opposite things and
that seems impossible but is actually true or possible.
The First Paradox — Fidelity?
So today’s first paradox is that I’m going to reference a recent article from Fidelity — without debunking any market myths. Actually. the article is well written, concise and draws some reasonable conclusions. The article’s author is Jurrien Timmer, Director of Global Macro for Fidelity — so kudos to Mr. Timmer.
The Second Paradox — Bond Rates
Oddly enough, Mr. Timmer’s notes that U.S. bond yields are falling despite the Fed tapering. I won’t dig too deeply into Timmer’s points here since I covered most of them in my article last week.
Timmer notes that bonds have acted paradoxically, or in the opposite manner than one would assume, throughout much of the qualitative easing program most likely because of the mindset of bond traders. They are taking positions based on where they think rates will wind up at the end of the trade rather than reacting to the latest news. Mr. Timmer makes this point and references academics who project that the bond equilibrium rate (the rate that is neither accommodative nor restrictive) will end up being much lower than historical rates. Bond traders’ actions seem to reflect this belief.
The Third Paradox — Stock Breadth (Participation)
While the stock market indexes make new highs, Timmers points to the paradox of this happening with a low level of participation or weak breadth. This means that fewer stocks than usual are actually moving to new highs or multi-year highs.
Mr. Timmers makes this point by using some numbers from Haver Analytics showing the average drop in all the stocks in the S&P 500 during some recent memorable pullbacks. Let’s look at the Haver data from Timmer's article and then we’ll see what useful points we can glean:
As you see here, during the recent 5.8% pullback from Jan. 15th to Feb. 5th, 84% of the component stocks had a greater drop than the index average. This is actually a very surprising number. The table also shows that this underperformance rate was much greater than the big pullbacks from 2013, 2012 and 2011. Haver Analytics included the 1994 drop to reference another pullback when so many S&P 500 stocks underperformed during a significant drop.
As a quick explanation as to how this could happen mathematically, recall that the S&P 500 is a market capitalization weighted index (a point omitted in Timmer’s otherwise thorough article) so anomalies like this can happen if “the troops aren’t following the generals”. Or in this case, the troops are dropping much more than the generals.
The Fourth Paradox — Global Growth
Timmer’s last paradox is that global growth has bifurcated. Europe and the U.S. seem to be recovering from winter doldrums while China struggles. Chinese imports of raw materials are down. The emerging markets and the raw material exporters (Australia, Canada to a lesser extent) have felt China’s softening economy very directly while Europe and the U.S. are hardly feeling the effects at all.
Timmer winds up this section with a discussion on the Chinese debt bubble and shadow banking woes (for a more complete look — see my article from last year).
Conclusions We Can Draw
So let’s summarize briefly:
- Low bond rates are good for short-term economic growth.
- Lack of breadth participation in the market’s run up is concerning.
- Global growth problems will eventually make their effects felt in the U.S. and Europe. (This fits with a thesis of a broad market correction sometime in the second half of the year - my thesis, not Timmer’s).
The bottom line — enjoy the stock market run-up and continue to participate until we see some signals that it’s time to move some cash out of the markets and to the sidelines. In future articles, we’ll look at some signposts that could warn of a correction.
As always, your thoughts and comments are always welcome — please send them to drbarton “at” vantharp.com
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Matrix Insight Entry:
The most important insight I have noticed from Trading Beyond the Matrix is the concept and application of one-ness. This idea seems to be different from the concept of oneness described in the book, but maybe not. Reading the book several times and doing some of its exercises helped me understand this concept.
To me, the concept of one-ness means to start with “one.” Perhaps “one” is all I need. If not, the next idea is to just “add one” until my life and my trading is complete. Here are some examples.
Goals are important…but what is the most important, most useful goal? To me, right now, that is to “trade well.” Perhaps that is all I will ever need as a goal. I must know when I am trading well or not, and that deals with having rules, trading according to them, and mistake-proofing. My trading journal helps me determine over time if I am trading well or less well. My one-page business plan and one-minute scorecard also help me define “trading well.”
A trading system that fits me is also important. That system consists of “ones:” one entry, one protective exit, one profit-taking exit, one market condition, one operator, and one governor. I may be both the operator and the governor, but I tend to do better if I am doing only one of them at a time.
Having trading systems that fit me and market conditions is important, too. In fact, there seems to be a unique one-ness to the combination of me, a market condition, and a trading system. Perhaps I can have one methodology that fits me, that I trade on one instrument and one time-frame and has no more than one indicator. If that methodology allows me to determine market conditions, and if it has trade entry and exit rules for each market condition, and if it allows me to meet the living standard I need, then perhaps that is all I need. If I need more, I could add an instrument or a time-frame or a different exit—one of which may be sufficient—one at a time. Perhaps if I am trading well I am not only accomplishing my goal but getting all I need and deserve, not only in terms of financial results but also in terms of market and self-knowledge.
So far, having one position sizing method—the one that accomplishes my goal—works very well for me.
Working on myself seems to consist of one-ness, too. If I am aiming to achieve Oneness ultimately in my life, then perhaps one path may get me there. That path, right now, might be through examining my beliefs. Or it might be through regular Transformational Meditation, or feeling-release, or having a written conversation with God, or each of the techniques in the book. Maybe that one path isn’t enough, and I need to add one more. Maybe that isn’t enough and I need to add an additional one more, one at a time.
It could be that one-ness is just my illusion, the obstacle I dance with, that I must do more if not all of what is written in Van’s book. Maybe it is because I am a guy (and an older one at that) who is lucky if he can think or do one thing at a time. Maybe I’m just lazy and don’t want to do or think about even one thing at a time, and two or more things simply overwhelm me.
So far, thinking and acting in terms of one-ness, one thing at a time, is working pretty well. I’ll keep taking it one thought, one trade, and one day at a time, as much as I can.
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