Decoding Market Behavior: The Influence of Motivation and Determinism
Going on "tilt", a term borrowed from the world of poker, refers to a state of mind in which an individual loses emotional control and makes impulsive or irrational decisions that can have significant implications. In the context of trading, this can manifest as a trance-like state where an investor becomes fixated on losing hands and disregards established strategies. This leads to a downward spiral and the eventual loss of all their money. In the world of investing, we often witness and wonder why some traders consistently make poor decisions that ultimately lead to significant losses.
In a hypothetical scenario, let us imagine someone scoring 0% on a hundred true-or-false questions. It is understood as either a rare instance of exceptional knowledge or astronomical luck. At Highmoon, we embrace the philosophy that luck is simply a manifestation of underlying factors yet to be understood Consequently, everything that occurs is the result of our deepest desires, be it positive or negative. In the case where an individual “intentionally” obtains a failing score on a hundred true-or-false questions, it can be inferred that they possess a comprehensive understanding of the subject matter. In such a scenario, it becomes crucial to understand the reasoning behind why choosing to fail may be a more advantageous strategy than scoring perfectly.
Determinism is a philosophical and scientific theory that states that all events, including human actions, are ultimately determined by previous causes and conditions, and that everything that occurs can be traced back to prior events and causes in a necessary and unavoidable chain of events. This means that given a complete understanding of the present state of the universe, it would be possible to predict all future events and actions. The human brain is capable of remarkable feats of pattern recognition and analysis. It is believed that deep within our subconscious, we possess the knowledge of all major world events such as when the next world war will take place, at what age we will pass away, and the name of our third grandchild. Perceptions of good and bad are often relative and subjective. What may seem advantageous in the short term may not prove to be the optimal outcome in the long run. Conversely, experiences that initially appear to be negative or unfavorable may serve as a valuable sacrifice leading to exceptional results.
The concept of intentionally incurring losses in order to motivate oneself to greater gain is not a new one. In fact, many historical kingdoms and empires have employed similar strategies, starting wars or royals criminalizing themselves in order to destabilize their own economies as a mean to unify their citizens. Today, many successful individuals and organizations view losses not as setbacks, but as opportunities for growth and improvement. The correlation between countries that were involved in the last world war and those that currently boast high GDPs is not coincidental. This outcome of human history is ingrained in our collective consciousness and reflects the belief that sometimes, chaos can be a necessary component for eventual peace and prosperity.
Our observations suggest that obtaining wealth through unethical means, such as stealing, robbing, or gambling such as betting children’s tuition money on out-of-money calls, only results in a limited amount of success, which is not typically sustainable. This success often comes at the cost of sacrificing important aspects of life, including relationships, personal fulfillment, and quality time with loved ones. The reality is that most people who attain wealth in such ways eventually lose it, whether during their lifetime or through future generations. Evidently, we must recognize that the lavish lifestyles of our ancestral emperors pale in comparison to the basic comforts and necessities enjoyed by the lower class of today, such as a car for transportation, air conditioning, heating, and a refrigerator for food. The pace of our technological advancement really makes living like a king now quite irrelevant in time. Understanding this, the pursuit of a lavish material lifestyle becomes less competitive when compared to those aiming to build better institutions, create jobs, and develop new technology for future generations.
This post serves as the base to evaluate what investors are going through during this Fed’s QT environment. Those who saw significant gains during the Fed’s QE period, are now slowly giving the gains back either through the market or via lavish spending. While the Fed's QE has provided economic benefits domestically, it is not globally accepted as a favorable event, morally. Cathie Wood, Nancy Pelosi, Bill Ackman, just to name a few, benefited from the post-Covid QE rally. They generated capital they don’t morally agree to obtain, as a result, just like everyone else who has made significant gains, we are all finding our own ways to give back either via a series of losing trades, starting a company, or give it to a charity. These behaviors and thought patterns are deeply ingrained in our subconscious, and history has shown that this cycle repeats itself. Ultimately, the end of complacency will lead to humility, redemption, and eventual success, marking the beginning of the cycle once again.
At Highmoon, we are dedicated to thoroughly monitoring and analyzing the actions and decisions made by market participants, from corporate executives launching new products to renowned investors advertising their new positions, as well as examining social media reactions to corporate events. By evaluating beyond basic fundamental metrics, we aim to gain a deeper understanding of the underlying motivations and factors driving market behavior. This enables us to make more informed decisions with greater conviction and an increased likelihood of success. Our ongoing objective is to enhance and expand our analytical approach, incorporating critical elements of psychoanalysis to gain a comprehensive understanding of the collective psychology that forms the backbone of the stock market.