With computerized global trading of U.S. government bonds at $150 billion daily, investors worldwide can sell enough bonds within 24 hours to wreak havoc in the fixed income markets in the U.S. and around the world. Meanwhile, in the currency markets, the worldwide volume in foreign exchange transactions is an astounding one trillion dollars per day, or approximately eight times the daily volume in U.S. government bonds and 200 times the daily volume on the New York Stock Exchange. Industry observers estimate that about $50 billion of speculative capital is devoted to short-term currency arbitrage. The market for currency trading has expanded to hundreds of trading rooms around the world, all joined by high-tech telecommunications. Consequently, a sustained long-term decline in the value of a currency signals a fundamental problem in the economy, or at least a realignment of the economy relative to its major trading partners….The market has intelligent and sophisticated investors who make decisions quickly. Moreover, the widespread use of derivatives creates a leveraging effect that accelerates sharp market movements. The global markets render judgements on every currency and financial instrument every hour of the trading day. The convergence of computers and telecommunications link international investors in real time, creating a force more powerful than any government or central bank intervention. In this new era, the relentless pursuit of higher investment returns manifests itself in accelerating capital mobility. Capital – both financial and intellectual – goes where it is wanted and respected. The economies that recognize this market reality will be best positioned for long-term prosperity, whereas those that cling to protectionism, narrow national interests, and statist bureaucratic controls will be the ones left in the ash can of history.
The Mind of the Market
Spiritual Lessons For The Active Investor
(Fraser Publishing Co., 1999)
F. J. Chu is a professional investor and a published author of two books on investing, The Mind of the Market and Paradigm Lost: The Psychology of Money and Investing. The above quote is from his first book. I had never heard of the gentleman before reading a quote from this book published by Jack Crooks in one of his daily “Currency Currents” updates. It was this:
Successful trading requires a systematic approach. The complexity or theoretical underpinnings of any system is less important than the practical fit between the trading system and the personality of the trader which enables the trader to have some kind of an edge.
This quote intrigued me because it has only been recently, I am embarrassed to say, that I have awakened to the critical importance of a systematic approach to my trading and I figured if Jack Crooks thought enough of the gentleman to quote him and was evidently reading his book that it might be worth a look-see. So I went to Alibris and found a good used copy in perfect condition for about $11, I ordered it and five days later it was in my hands.
I found it to be a very, very well-written book. In fact, beautifully written. And I always respond positively to that. Although Mr. Chu’s rhapsodic love affair with the Capitalist Spirit and the Free Market Economy falls a wee bit to the right of my own personal cosmology, I find that I do not necessarily have to agree totally with an author’s point of view or ultimate conclusions to profit greatly from his work. I find that even in books whose conclusions or underlying philosophy I may disagree with in whole or in part, I may find observations that are truthful, truth-like, informative and educational, sort of like finding nuggets in an intellectual gold mine, and that was definitely my reaction to Mr. Chu’s book. I do not know if the beautiful and highly crafted writing is the product of Mr. Chu’s own personal literary accomplishment or that of a highly skillful editor or in part both and it doesn’t really matter to me but the book is filled with nuggets like these:
The history of the stock market is the history of forgetting. Problems and events once examined are ignored and then forgotten, only to resurface at a later datge as something innovative and new. The generation that experienced the Crash of 1929 and the subsequent Depression was scarred for life. The trauma of 90% stock price declines, and the economic deflation that followed, shadowed them like unconscious pieces of shrapnel embedded in their psyche. (p. 5)
Why do otherwise smart investors make dumb decisions? The answer is that they are human, subject to emotions from within and from the crowd that leads to irrational choices. Whenever an investor is depressed by a sudden drop in the price of his shares and sells at a level below “fair value,” he has lost any advantage he otherwise might have had. Instead of buying at a bargain price, he has become a victim of crowd psychology by selling at a bargain price. Yet if he knows this, why does he continue to behave in this manner? The overwhelming majority of investors mimic their peers: stampeding out of a stock when its price is declining and stampeding into a stock when its price is rising. People tend to view their investments over short time horizons, and they feel the pain of financial loss far more acutely than the pleasure of financial gain. For example, psychologists have shown empirically that the pain of losing $100 offsets the pleasure of winning $250. As a point of reference, modern portfolio theory states that one should be indifferent to an increment of pain and an increment of pleasure. This kind of financial myopia can breed excessive caution that diminishes investment returns. (p. 11)
Implicit in the rules of free markets is the right to reap private gain from the dynamic forces of the marketplace. But the privilege of generating wealth and income from the use of capital by its owners is not generally resented by the masses because capitalism is a far more open system than other forms of society. A large percentage of the population participates in this holy quest, and there are sufficient examples of individuals who bootstrap themselves up the capitalist ladder to persuade the majority that the system is functional. The markets may not always be fair but at least they seem to operate under the governance of impersonal natural forces. (p. 16)
Through its self-regulation and inherent ability to incorporate and adjust to the unknown, it dispenses the seductive elixir of economic freedom along with the threatening whip of economic ruin. The mind of the market, with its respect for unintended consequences coupled with a moral sense of sin and redemption, has become more than just descriptive of an economic system but, ultimately, suggestive of a better way of life. (p. 17)
Throughout financial history, the pursuit of money has often reached religious proportions. The Marxists have argued that the hoarding of money, beyond that which is required to enjoy life, reflects a deep-seated avarice bordering on the pathological. Indeed, this acquisitive behavior has been burdened throughout history with an intense moral ambivalence. Even in capitalistic circles, money-making as a life work was barely tolerated, viewed disapprovingly as a form of heresy. Curiously, the wealth of many rich people upon death was bequeathed to churches and charities as a form of conscience money, a diffident gesture of possible salvation. (p. 18)
In many parts of the world, money and capitalism still evoke a sort of demonic hatred. Although money-making may mobilize the energies of society, it has rarely captured our enthusiasm or our imaginations. In short, its positive virtues as well as its instinctive inevitability have been overlooked. Despite two centuries of prodigious accomplishments, it has rarely been able to appeal to the human spirit. It has been left to the passionate advocates of free markets such as Ayn Rand and others to argue that free market capitalism is not only uniquely efficient but also capable of being uniquely moral. (p. 18)
The creation of greater and newer forms of leverage, via debt in name or in substance, lies at the heart of all speculation. (p. 51)
Nuggets like these are to be found on almost every page of the book; observations that stand alone and are susceptible of the interpretation the reader wishes to put on them and which may support the conclusions the reader wishes to draw from them which well may differ from Mr. Chu’s in whole or in part.
The last, I think, is particularly relevant to us as currency traders, enjoying, as we do, the most incredible leverage available in any market anywhere any time we wish, ranging from 100-1 as a default to as high as 400-1, if requested.
The Mind of the Market was published in 1999, just before the dot.com bubble burst and the market took a serious nose-dive that ruined the retirements and life-savings of many small, and, alas, ignorant investors. But it is apparent from the quote with which I began this review at top that Mr. Chu was alive to the emerging importance of the foreign exchange market. When he wrote, the volume was 1 trillion dollars daily. Today, it is more like 1.9 trillion.
I enjoyed and am still enjoying his book very much and I recommend it highly.
Respectfully submitted,
Yr. Fellow 4X Trader,
hiyo
F.J. Chu
The Mind of the Market
Spiritual Lessons For The Active Investor
(Fraser Publishing Co., 1999)
F. J. Chu is a professional investor and a published author of two books on investing, The Mind of the Market and Paradigm Lost: The Psychology of Money and Investing. The above quote is from his first book. I had never heard of the gentleman before reading a quote from this book published by Jack Crooks in one of his daily “Currency Currents” updates. It was this:
Successful trading requires a systematic approach. The complexity or theoretical underpinnings of any system is less important than the practical fit between the trading system and the personality of the trader which enables the trader to have some kind of an edge.
This quote intrigued me because it has only been recently, I am embarrassed to say, that I have awakened to the critical importance of a systematic approach to my trading and I figured if Jack Crooks thought enough of the gentleman to quote him and was evidently reading his book that it might be worth a look-see. So I went to Alibris and found a good used copy in perfect condition for about $11, I ordered it and five days later it was in my hands.
I found it to be a very, very well-written book. In fact, beautifully written. And I always respond positively to that. Although Mr. Chu’s rhapsodic love affair with the Capitalist Spirit and the Free Market Economy falls a wee bit to the right of my own personal cosmology, I find that I do not necessarily have to agree totally with an author’s point of view or ultimate conclusions to profit greatly from his work. I find that even in books whose conclusions or underlying philosophy I may disagree with in whole or in part, I may find observations that are truthful, truth-like, informative and educational, sort of like finding nuggets in an intellectual gold mine, and that was definitely my reaction to Mr. Chu’s book. I do not know if the beautiful and highly crafted writing is the product of Mr. Chu’s own personal literary accomplishment or that of a highly skillful editor or in part both and it doesn’t really matter to me but the book is filled with nuggets like these:
The history of the stock market is the history of forgetting. Problems and events once examined are ignored and then forgotten, only to resurface at a later datge as something innovative and new. The generation that experienced the Crash of 1929 and the subsequent Depression was scarred for life. The trauma of 90% stock price declines, and the economic deflation that followed, shadowed them like unconscious pieces of shrapnel embedded in their psyche. (p. 5)
Why do otherwise smart investors make dumb decisions? The answer is that they are human, subject to emotions from within and from the crowd that leads to irrational choices. Whenever an investor is depressed by a sudden drop in the price of his shares and sells at a level below “fair value,” he has lost any advantage he otherwise might have had. Instead of buying at a bargain price, he has become a victim of crowd psychology by selling at a bargain price. Yet if he knows this, why does he continue to behave in this manner? The overwhelming majority of investors mimic their peers: stampeding out of a stock when its price is declining and stampeding into a stock when its price is rising. People tend to view their investments over short time horizons, and they feel the pain of financial loss far more acutely than the pleasure of financial gain. For example, psychologists have shown empirically that the pain of losing $100 offsets the pleasure of winning $250. As a point of reference, modern portfolio theory states that one should be indifferent to an increment of pain and an increment of pleasure. This kind of financial myopia can breed excessive caution that diminishes investment returns. (p. 11)
Implicit in the rules of free markets is the right to reap private gain from the dynamic forces of the marketplace. But the privilege of generating wealth and income from the use of capital by its owners is not generally resented by the masses because capitalism is a far more open system than other forms of society. A large percentage of the population participates in this holy quest, and there are sufficient examples of individuals who bootstrap themselves up the capitalist ladder to persuade the majority that the system is functional. The markets may not always be fair but at least they seem to operate under the governance of impersonal natural forces. (p. 16)
Through its self-regulation and inherent ability to incorporate and adjust to the unknown, it dispenses the seductive elixir of economic freedom along with the threatening whip of economic ruin. The mind of the market, with its respect for unintended consequences coupled with a moral sense of sin and redemption, has become more than just descriptive of an economic system but, ultimately, suggestive of a better way of life. (p. 17)
Throughout financial history, the pursuit of money has often reached religious proportions. The Marxists have argued that the hoarding of money, beyond that which is required to enjoy life, reflects a deep-seated avarice bordering on the pathological. Indeed, this acquisitive behavior has been burdened throughout history with an intense moral ambivalence. Even in capitalistic circles, money-making as a life work was barely tolerated, viewed disapprovingly as a form of heresy. Curiously, the wealth of many rich people upon death was bequeathed to churches and charities as a form of conscience money, a diffident gesture of possible salvation. (p. 18)
In many parts of the world, money and capitalism still evoke a sort of demonic hatred. Although money-making may mobilize the energies of society, it has rarely captured our enthusiasm or our imaginations. In short, its positive virtues as well as its instinctive inevitability have been overlooked. Despite two centuries of prodigious accomplishments, it has rarely been able to appeal to the human spirit. It has been left to the passionate advocates of free markets such as Ayn Rand and others to argue that free market capitalism is not only uniquely efficient but also capable of being uniquely moral. (p. 18)
The creation of greater and newer forms of leverage, via debt in name or in substance, lies at the heart of all speculation. (p. 51)
Nuggets like these are to be found on almost every page of the book; observations that stand alone and are susceptible of the interpretation the reader wishes to put on them and which may support the conclusions the reader wishes to draw from them which well may differ from Mr. Chu’s in whole or in part.
The last, I think, is particularly relevant to us as currency traders, enjoying, as we do, the most incredible leverage available in any market anywhere any time we wish, ranging from 100-1 as a default to as high as 400-1, if requested.
The Mind of the Market was published in 1999, just before the dot.com bubble burst and the market took a serious nose-dive that ruined the retirements and life-savings of many small, and, alas, ignorant investors. But it is apparent from the quote with which I began this review at top that Mr. Chu was alive to the emerging importance of the foreign exchange market. When he wrote, the volume was 1 trillion dollars daily. Today, it is more like 1.9 trillion.
I enjoyed and am still enjoying his book very much and I recommend it highly.
Respectfully submitted,
Yr. Fellow 4X Trader,
hiyo