``A good trader has to have three things: a chronic inability to accept things at face value, to feel continuously unsettled, and to have humility.” -Michael Steinhardt, American investor and Philanthropist
If there are any traits that need to be emulated from Wall Street savants are the ability to think objectively and independently, to engage in process analytics and most importantly to refrain from indulging in cognitive bias traps.
As Warren Buffett once observed, ``A great IQ is not needed to do well as an investor, what is needed is the ability to detach yourself from the crowd.”
Esteemed Trader and prolific newsletter writer Dennis Gartman also has the same insight in his 22 trading rules, ``An understanding of mass psychology is often more important than an understanding of economics. Markets are driven by human beings making human errors and also making super-human insights.”
This simply means instituting successful market positions requires the discipline of Emotional Intelligence (EI) over the façade of knowledge.
That’s because investors of all discipline essentially never get the markets always right.
And if the objective is to maximize profits and minimize losses, then damage control extrapolates to admitting wrong decisions which subsequently mean accepting the emotional angst of financial losses.
And that’s where emotional intelligence counts more than economics or financial analysis.
And that’s where most of Wall Street didn’t get it right during the recent meltdown.
Organizational behavior Professor Philip Tetlock in an interview at CNN Money expounds (underscore mine),
``But hubris may have played a bigger one. Remember Greek tragedy? The gods don't like mortals who get too uppity. In this case the biggest source of hubris was the mathematical models that claimed you could turn iffy loans into investment-grade securities. The models rested on a misplaced faith in the law of large numbers and on wildly miscalculated estimates of the likelihood of a national collapse in real estate. But mathematics has a certain mystique. People get intimidated by it, and no one challenged the models.” (Hat Tip: Gully)
So yes, hubris founded on the context of pretentious “technical” knowledge has immensely exposed the vulnerability Wall Street from which many has suffered from the recent collapse.
After all, success in investing would all be about the probabilities in terms instituting discipline over trading positions. As the legendary Peter Lynch once said, ``Six out of ten is all it takes to produce an enviable record on Wall Street.”
