November 2013
Ivan Obolensky

Many people want to get rich.

Starting out, the young man or woman who wants to be wealthy figures the money is in either being a lawyer, a doctor, or working for a financial powerhouse like Goldman Sachs. Starting a technology company might also be a good idea. CEOs earn huge sums, and Wall Street traders can make fortunes and often do.

The difficulty is that there are very high barriers to entry into these select groups. Not only had one better test in the top percentage of students in college, but also one had better place in the same echelon in graduate school, and that institution had better be one of the best in the world.

Yet even with that amount of edge, success is not assured, just more likely.

Those barriers are there for a reason.

One of the adages that I grew up with was to be wary of ways to make a living with few barriers to entry. After all if the business really is a good business, those that are profiting from being in that line of work will have erected barriers to prevent others from coming in and stealing their lunch. High barriers to entry usually mean there is a successful business at the other end.

But what if there are few barriers to entry?

In the game of poker, if you do not know who the mark is at the table, you are the mark.

In a businesses where there are few barriers to entry, be prepared for some serious competition at the least.

More than a few people have looked over the money-making opportunity landscape and figured investing and trading for a living suits their lifestyle: minimal effort, minimal barriers to get started, all that is needed is seed money and a trading account. How hard can it be?

Consider the following idea:

Markets exist to take money from the many and give it to the few.

On the surface this seems a rather cynical view, yet logically it makes sense.

What if markets existed to take money from the few and give it to the many?

If this were the case, the few would stop playing. There would be no point for them to keep shoveling money into the markets only to have it taken from them and passed out to the majority. They would eventually have none left, or refuse to play anymore. Markets would cease to exist.

Contrary to this, there are now more markets and exchanges than ever before trading everything from stocks, government bonds, currencies, to commodities, and options. The list goes on.

The majority do lose money. Perhaps it is because the few wish to make it seem so easy.

Perhaps they would like to continue with minimal barriers for entry, as the majority is certain to lose, but that does not seem to be all that is involved. It is not just a handful of successful traders and investors fleecing the majority. It seems to be something about what the majority of traders lack, and the winners seem to possess.

Case in point: The best U.S. Stock fund over the last ten years rose 18% per year, yet the average investor in the fund lost 11% annually. Let me repeat that: it is not that they made 11% as opposed to 18%; it is that they lost 11%. ¹

There seems to be more at work here than simply making a poor investment choice.

The majority of the investors in that fund chose an outstanding investment vehicle that should have 5Xed their investment in ten years. Nonetheless, the majority of investors lost money.

Investor psychology has become more and more a point of interest to economists. How a person thinks and reacts to adversity and highly emotional situations has a marked influence on investment results.

In the case of those who lost 11% in a winning fund, the mechanics of their losses are simple. The majority invested in the fund when its annual returns were shown to be spectacular and dumped it when the returns they experienced were poor. They invested when the fund was hot usually after a long time of good performance just before it peaked, and sold it when it had lost money usually just before it roared back.

One element seems to be the ability or inability of the majority of investors to control both their personal greed and fear which might be related to something called self-sabotage.

Self-sabotage takes many forms. If one has watched sports for any length of time, one has seen players trip just before they were about to score. I saw one person race in three separate Olympics. Each time, the athlete managed to fall. Not once, not twice, but three times. I have seen others blow the start of a race and disqualify themselves when they were the favorites. Yet this kind of behavior is not restricted only to sports.

How many people have you heard about who finally achieved success, only to blow it completely by going on a bender and getting arrested? Success vaporized never to be seen again.

From my experience, the place this type of behavior shows up the most is in investing and trading.

I have seen traders make a fortune and then lose it all in a few bad trades, or watch  traders who figure out a brilliant strategy such as buying gold at the perfect time but they freeze when it comes time to put the order in. They can’t pull the trigger, and by the time they finally work up the courage after huge internal conflict, the opportunity is lost. Would have, should have, could have.

I have experienced self-sabotage. Perhaps we all have. It seems to show up either just before one is about to finally succeed, or just after one has finally made it and is living one’s dream only to throw it all away in a move that in hindsight can only be classed as monumentally stupid.

So why do we do that?

Self-sabotage can take many forms.

Usually it affects those who either suppress emotions and feelings, or those who are compulsive and crave action such as compulsive gamblers.

I am more familiar with the suppressed emotions and feelings type.

The mind contains not only images but emotions and feelings. Emotions may in some ways be one of the brain’s methods to make decisions. We know this because those who have had portions of their brain that develop emotions become impaired by either accident or birth defect have a very hard time making decisions. They take forever, and in some cases this is about simple things.

Those that can access emotions easily can also decide quickly.

As an example: Which do you like? I like that one. Decision made. It is quick. It is the opposite of paralysis by analysis. One likes something, or does not like it. It’s a feeling which takes no time at all.

Of course, decisions can be made too quickly or not fast enough depending on how one views and handles emotions that are generated on a day-to-day basis, in which case the learned behavior is to suppress emotions and feelings as being untrustworthy.

Some researchers believe that feelings may be the organizers of the mind and personality. If the mind is considered a collection of modules that are competing with different points of view, emotions and feelings may be the way that the different modules or points of view vote and make decisions. The result when consensus is reached might be a very sophisticated collection of feelings that is then distilled into a decision. The more diverse and far-ranging the viewpoints, the more sophisticated and accurate the result as well as the more nuanced the emotional state will be. Well developed and trusted, these nuanced emotions can give one an extraordinary sense of intuition that is almost magical.

Suppressing how one feels can have the opposite effect on that mechanism. One can lose a vital skill in the process: the ability to be intuitively correct.

In trading, it seems that it is an unwritten rule to not feel any emotions. A Trader can decide that feeling fear is undesirable. The trader then works at suppressing fear and any other strong emotion.

Suppose you decide to hold a big currency position overnight in the face of a lot of market moving news. One is scared to death, but analytically you have decided to keep holding the position anyway. One suppresses the fear. The trade works out.

Now, since this was successful, suppose one keeps suppressing any and all fear as a continuous handling to taking a big position. What will eventually happen? That fear will start leaking out. One has as much attention on the trade as on handling and suppressing the fear. ²

If one goes along with the modular model of the mind, one might observe that one is suppressing some of the voices that could help one in the future. One is cutting back on one’s intelligence in the same way that the head of a corporation decides he is not going to ever listen to “Bob” because he just gives “bad news”. Bob might not always be right if ever, but he is at least balancing the yes men on the other side of the table who the CEO would end up listening to exclusively as the business goes over a cliff.

Most decisions are made on an emotional level below the awareness of the person making the decision.³ If more and more fear is suppressed and more of the consensus below one’s awareness is in the “watch-out” category that is expressed as fear, the point will come when one will no longer be able to operate smoothly let alone confidently. One will see things to be afraid of everywhere. I know. This has happened to me.

For me it was a type of self-sabotage. I despised fear and wanted no part of it yet in truth, I was afraid most of the time. For all my efforts to control it, fear ruled my life. It was only after I decided to embrace my fears by allowing them to exist and listening to the parts I had kept suppressed that I was able to eventually relax and achieve a more harmonious way of living.

Fear is only one of many strong emotions. There are others such as anger and grief as well as passion.

In trading one has to learn to master one’s emotions but that does not mean one should suppress them.

The feelings and emotions we experience are as much a part of us as our limbs. Why get rid of them? Learning to experience how we feel and exploring our emotions will allow us to discover we can be more brilliant, more accepting, and better able to live with ourselves, and self-sabotage less.

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1. Best Stock Fund of the Decade: CGM Focus. (2009, Dec. 31) The Wall Street Journal. Retrieved November 20, 2013 from http://online.wsj.com/news/articles/SB10001424052748704876804574628561609012716.
2. Tharp, Van K. (2005) How to Develop Discipline to become a More Successful Investor, The Peak Performance Course. Cary, NC: IITM, Inc.
3. Eagleman, D. M. (2011). Incognito, The Secret Lives of the Brain. New York, NY: Pantheon Books

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© 2013 Ivan Obolensky. All rights reserved. No part of this publication can be reproduced without the written permission from the author.