“You are never dedicated to something you have complete confidence in. No one is fanatically shouting that the sun is going to rise tomorrow. They know it’s going to rise tomorrow. When people are fanatically dedicated to political or religious faiths or any other kinds of dogmas or goals, it’s always because these dogmas or goals are in doubt.”
Zen and the Art of Motorcycle Maintenance
Today in the spirit of the upcoming American election, we’ll talk about politics and dogma. <<Screeech>>1.
No, the words that stick out to me from Robert Pirsig’s two wheeled philosophical quest are about how it takes uncertainty to be truly dedicated. Facts are dry and uncontroversial, there is no point in debating the size of your margin account.
As we spend our most valuable resource of time and effort, it is the nagging doubt that propels the grinding effort. Zealous rituals of learning, exercise, and building are all motivated by the delta between what is and what can be. Closing that gap is doing everything you can to increase the p(success).
A passionate gardener does not wake before dawn concerned about the dimensions of the plot or average annual rainfall. It’s what temperatures will come next, when is the first frost? Has the deer population swollen, leaving them hungry and ambitious? My hydrangeas are toast.
Uncertainty is what keeps us coming back for more. The dopamine hit of something new. Another one. Just the potential for a notification is what turns a quick time check into hours of doom scrolling.
Travel heightens our senses, where a trip to the supermarket is filled with novelty, and the mundane act of breakfast has been spiced with new smells and flavors. A proper voyage enlivens the definition of self because you are now reflected against a differently shaped mirror.
There are plenty of times when we’d prefer that things were certain. Health, wealth, or center fielders catching pop flies in World Series elimination baseball. While there is a warm coddling comfort in a sure thing, it’s not what keeps passion burning or sharpens our minds.
The meme (originally a sci-fi novel quote) about how hard times create strong men and good times create weak men resonates because we instinctively know that progress and learning only come from effort and a bit of suffering. Climbing the peak of Mount Stupid and suffering the ego blows in the Valley of Despair.
When uncertainty is quantified in mathematical terms we call it probability. The gargantuan effort that man and machine put through the even more tremendous infrastructure of the market every day is an effort at better assigning values and probabilities. Trading is a massive learning exercise that requires belief, commitment, and total fear of loss.
Which stocks to buy or how many options to sell is a perpetual question because no one has the answer. Nothing tunes me out faster than when someone says I know a stock will do X based on Y. You’re not a trader, you’re selling discount crystal balls.
As an organic being, the market itself is always learning. Voting, weighing, pricing risk for all the various participants. Not perfectly correct at any given moment, but roughly accurate across most time dimensions. Every lesson from March 2000 CSCO we thought we could apply to NVDA has yet to play out. Update your inputs.
Estimation is a very good way to learn about uncertainty. This simple exercise of hypothesizing, validating, and adjusting is a short form scientific method. And the beauty of this is that it can be done anywhere, by anyone with enough gumption and integrity to dedicate themselves to something where they will always lack perfect confidence.
The quote at the start of this piece comes just after the narrator describes his former self delivering the Church of Reason lecture that ultimately led to his termination as a professor. The Montana state legislature is already angling at the university English department, and he directly snubs their authority.
It starts with an anecdote about a local church that has been deconsecrated and turned into a bar. Despite a pulpit and pews, this is no longer a place of (holy) worship. It’s not the building that makes the Church, but the congregation’s shared ideals. The university is much the same. With a capital U, it’s not the state officials who control the purse strings or ivy covered bricks that define it. The University is a spirit of thought and pursuit of reason.
So too is Trading. You are not a trader just because you sit behind a desk in Chicago or Amsterdam. You are a Trader because you have committed yourself to finding opportunities. Continuously improving your methods, analysis, and implementation. Winning bigger than you lose.
Traders are not bound by a specific technology or product, they are animal spirits. It is a specific approach to problem solving that defines this unique breed.
Anyone can earn that capital letter. There are many different games in the market. Across products, time spans, and methods, there’s enough edge for all who come. You simply need to be dogmatic about getting just a little bit better every day, with a ravenous thirst for a consistent drip of bps.
The markets change as participants evolve. Who you are playing against will always shift; yesterday's queue jumpers are today's dispersion pods. We must refract this against our own core competencies and risk tolerances to deliver performance. Know thyself, but also thy surroundings.
The spirit of the Trader is constantly doubting that alignment. Feedback forces us to see errors and question whether the result was the function of a good or bad process. It’s never enough - not from bottomless coffers - because there’s always a better way and improvement to be made.
In spite of this persistent questioning of self, we put Capital C on the line every day. You must. To take risk is to have the highest and best of expectations, with a stark perspective on what can and will go wrong. If you don’t doubt a trade, go for a delta walk.
I am a strong believer in the efficiency of markets. I’ll sell your claim of mispricing most days of the week. It should be the default reaction to any supposed alpha or hypothesis. Fama’s doctrine is easy to wield against basic market charlatanism.
But it’s not perfect! The equity and volatility risk premium deserve a lot of faith too. Asterisked by varying degrees, scenarios, and other qualifications. Louder doubts.
Those doubts are the opportunities that keep Traders moving forward. The motivation to believe there’s money on the table, but knowing you might lose it too.
I’m really confident that markets do their job of allocating resources well, but I have seen true risk managed edge from retail, institutional, and professional strategies. No matter what seat they operate from, the capital T is earned through dedication.
If you do want to read something about the election, I couldn't recommend this piece by Quantian any more. Prediction markets are fascinating, but they’re not the same as capital markets.