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Einstein’s Beliefs
To really jump into how Einstein might think about the markets, it’s important to explore his fundamental beliefs—those beliefs that shaped his reality. Remember that beliefs are not reality. Instead, they are just your filters to reality. In fact, one of Einstein’s most famous quotes was: “The real nature of things, we shall never know, never.”
Our main criterion for evaluating beliefs is “how useful are they?” with “useful” meaning how useful are they to adopt. In fact, adopting some of Einstein’s beliefs will totally change the way most people think about the universe, life, and the markets. While this article cannot begin to explore all of Einstein’s key beliefs, we can make a start with some of the most significant. My goal here is to explore five of Einstein’s most useful and interesting beliefs and then to show how they apply to the markets.
I’m not asking you to accept any of these beliefs. Instead, just act like you are already a genius and try another perspective. Ask yourself, “Is it useful?” And, when you try on these beliefs, ask, “What are the implications for the markets?”
First we will summarize key beliefs of Einstein and then begin to look at what their implications might be for the markets.
This topic will span two articles over two weeks. In part one we will look at 3 beliefs and market implications and next week we’ll finish up with the remaining 2 beliefs plus an exercise for you to try.
Belief One: The Universe is a Friendly Place
I am fond of using an Einstein quote to illustrate how important beliefs are to us. Thanks to Robert Dilts, I can now present to you that entire quote which occurred when a reporter asked him, “What, in your opinion is the most important question facing humanity today?” Einstein replied:
“I think the most important question facing humanity is, ‘Is the universe a friendly place?’ This is the first and most basic question all people must answer for themselves.
“For if we decide that the universe is an unfriendly place, then we will use our technology, our scientific discoveries, and our natural resources to achieve safety and power by creating bigger walls to keep out the unfriendliness and bigger weapons to destroy all that which is unfriendly—and I believe that we are getting to a place where technology is powerful enough that we may either completely isolate or destroy ourselves as well in this process.
“If we decide that the universe is neither friendly nor unfriendly and that God is essentially playing dice with the universe, then we are simply victims to the random toss of the dice and our lives have no real purpose or meaning.
“But if we decide that the universe is a friendly place, then we will use our technology, our scientific discoveries and our natural resources to create tools and models for understanding that universe. Because power and safety will come through understanding its workings and its motives.”
As Einstein was so fond of saying: “God is subtle but he is not malicious and God does not play dice with the universe.”
Belief One Implications for the Markets: The Universe is a Friendly Place
One well-known joke is that Einstein would have never said that the universe is a friendly place if he had played golf or invested in the markets. Nevertheless, if Einstein’s logic is sound and the universe is basically a friendly place, then the markets must also be friendly. My belief is that the markets are a very friendly place. Whatever you want in life, the markets will find a way to give it to you. I’m not being facetious here.
Ed Seykota was fond of saying that people usually get whatever they want in the markets. They are very accommodating. Whatever you seem to be getting from the markets, that’s what you probably want from them. If you want excitement, the markets will give it to you. If you want to justify a lot of emotions such as fear or anger, the markets will find a way to help you do that. If you want to play silly emotional games with the market, then the markets will help you play those games. On the other hand, if you want to have discipline and are willing to commit yourself to making handsome profits, then the markets will be friendly in that way as
well.
“Don’t you see what you’re doing here? You’re making up the rules as you go along!”
“And don’t you see something else? That’s perfectly okay. It’s what you’re supposed to be doing! …All of life is a process of deciding Who You Are, and then experiencing that.” (p. 33)
Later, He goes on to say:
“No one comes to you by accident. There is no such thing as coincidence. Nothing occurs at random. Life is not a product of chance.” (p. 50)
When you realize the “truth” of how this applies to the market, the whole process of trading becomes entirely different. Yet I have no doubt that Einstein would be willing to begin his approach to the markets with this viewpoint in mind. But just think about it. What if the markets are just made up of people totally getting what they really want? What would this say about what the real force and rationale behind the markets is?
Remember that these are just beliefs, not reality. But also remember that your current beliefs are not reality either.
Belief Two: It’s Important to Learn God’s Thoughts
Einstein’s second key belief reflects what he considered to be his purpose in life—to learn God’s thoughts. As a result, Einstein has one primary goal driving his research and his work. He states that goal so eloquently in the following paragraph:
“I want to know how God created this world. I am not interested in this or that phenomenon, in this spectrum of this or that element; I want to know His thoughts; the rest are just details.”
Einstein goes on to say that,
“ . . .the scientist is possessed by the sense of universal causation. The future to him is every whit as necessary and determined as the past . . .His religious feeling that’s the form of a rapturous amazement at the harmony of natural law, which reveals an intelligence of such superiority that, compared with it, all the systematic thinking and acting of human beings is an utterly insignificant reflection. This feeling is the guiding principle of his life and work, in so far as he succeeds in keeping himself from the shackles of selfish desire.”
Begin to think about the implications of these spiritual beliefs for your perceptions of the market. What do they mean about purpose and what might be going on in the universe? And, what are the implications for trading?
Belief Three Direct Sensory Experience is the Key to God’s Thoughts
In the case of the fundamental laws of the universe, the closer we get to the actual patterns that created the universe, the further we get from anything that we can directly sense or experience. Consequently, many of the concepts we use such as “gravity,” “atoms,” “energy,” “electromagnetic force,” “time,” “space,” and even the notion of “cause and effect” are in many ways arbitrary concepts that we use to make sense of our sensory experience.
According to Einstein, our senses do not directly perceive things like “causes.” Instead, all our senses can perceive is that first one event happens and then another event happens. Thus, we are likely to perceive something like “first I type on my computer” and then “letters appear on the screen.” You may then assume that typing on the computer “causes” the letters to appear on the screen. However, you are really assuming the concept of causation.
Now, as a trader, start thinking of the implications of these beliefs on the market. What are the concepts you believe about the market? How much are those concepts related to direct sensory experience?
Beliefs Two and Three Implications for the Markets: It’s Important to Learn God’s Thoughts and Direct Sensory Experience is the Key to God’s Thoughts
By these statements Einstein is basically saying that most of our constructs and concepts are totally man-made. Through his thinking, Einstein concluded that concepts most of us consider quite basic such as time, space, causation, simultaneity, motion, gravity, etc., are merely concepts that we’ve made up to explain things. Furthermore, all of them are relative concepts.
Since most of these are concepts we take for granted as reality, think about what Einstein might say about time and price—two concepts that most people use to describe the markets in their entirety. Of course, he would say, both are man-made concepts and quite relative to the unique moment and situation. You probably can accept Einstein’s logic about time being relative since that’s part of relativity. In addition, all you need to do is compare the value of the dollar now with the value of the dollar twenty years ago (or the value of the dollar-yen relationship to its value thirty years ago) to realize that price is quite illusory and relative. And that means that
most of us are just playing games in terms of our perceptions of the market.
So what would Einstein say the market is? The market is the direct sensory experience of all of the players immediately involved in the trading arena—especially those involved at the level of directly making the market. If you’ve ever been to a trading floor—be it the New York Stock Exchange or one of the futures pits in Chicago (when there were a lot of floor traders), you know that there is a lot of emotion in the air. You see expressions on people’s faces. You can hear the tone of their voices. You can also hear the overall volume of activity. Those direct sensory experiences are probably a much better representation of the overall market at any given moment. And
the direct interchange of a product between two people (i.e., between a broker who must get your order off in the manner you have directed and a floor trader or specialist who is making that market) constitutes your market at any given instant. Most people don’t even think about the market in those terms—at least until now.
What about the sensory experiences of every individual who is holding a position in that market? Their beliefs about the market’s activity dictate their feelings which dictate their action or lack of action. Their actions influence the trading arena (with the quantity of influence a direct relation to the size of the position(s) that must be traded at any given moment in time) which influences other people both in and out of the arena. The strength of a trader’s beliefs about a market, combined with his position size relative to the market’s capacity, can have a dramatic influence on the price of the market. For example, if the biggest market player(s) decide that
they must sell RIGHT NOW, the market’s violent reaction to those decisions will ripple through all of the minds of each participant, stimulating new feelings or actions based on their beliefs and the process continues on and on.
Profits tend to be made from the flow of the overall market (as I’ve described it) and numerous individual reactions to that flow. The closer you can get to being “here and now” observing that flow, the more likely you are to be able to become part of that flow and be successful in the market.
The more you are caught up in the emotions and memories of the past, the less likely you are to be able to go with the flow of the markets.
There are two other significant beliefs held by Einstein. Next week we will explore those and market implications.
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