Psychological Rule #11: People Will Do the Opposite of What's Required for Success
I've talked about inefficiences, about how people play a trading game and a money game according to rules made up by someone else, and even trading fundamentals which most people have trouble following. All of this leads to psychological rule #11 -- people will do the opposite of what it takes to be successful.
I even think this might apply to trading recommendations. For example, Steve Sjuggerud likes to recommend what is highly undervalued, hated, and starting to go up. The more something fits that criteria, the more people are not likely to take the recommendation. He gives the example of rare coin recommendations about which he says people say "I've taken most of your recommendations except those coin ones."
Now contrast that with what some analyst might say on CNBC. He or she might say, "My favorite stock is XYZ" and people will flock to it in droves. In fact, some good short term traders say they listen to CNBC just to find ideas to short....the one's people flock to in droves.
My guess is that the closer a recommendation is to a "Holy Grail" recommendation, the less people are likely to take it. As a matter of fact, I made one in one of my posts here. I didn't give any specifics, but what I said didn't even produce any comments. And that makes me feel even better that I've invested in that area.
And I expect that some of you might even comment... what was it. But if I told you, you wouldn't act on it anyway.
Comments
OKAY, I WILL NOT ACT ON IT. WHAT IS IT?
Posted by: DONALD | February 10, 2007 09:35 AM
I certainly agree with the rule as stated and as a contrarian by nature I often look for extremes in behaviour or mass psychology but I think you are being slightly short sighted with the examples you cite. To be fair to the people taking "most recommendations except those coin ones" investing in coins is hardly a market suitable for most investors. Trading in stocks/futures/fx is something that can be done with incredible ease and minimal capital (albeit often because of that unsuccessfully), whereas coins are a market that has vastly different characteristics and would not be suitable for most investors. You yourself make 'developing a trading system that fits you' one of the major principles of your work in which we are advised amongst other things to ascertain what timeframe, targets and markets would be most suitable for our situation and I doubt many people come out of that process saying they would like to invest in coins, so I think you are being a bit unfair in assuming that people's reluctance to invest in coins is somehow an indicator of their underlying appeal. If it were a coin STOCK then those constraints are removed and it's possible any extreme sentiment towards them would be a contrarian's delight, but to physically invest in coins is another matter.
I have no idea what your recommendation that produced no comments was, if I'm guessing from what I know of you already it was probably something to do with stamps and if that is the case then everything above also applies to stamps, it is a highly specialised market that requires significant capital and would not be appropriate for the vast majority of traders or suit their personality or trading style. The lack of interest more likely indicates a lack of accessibility to that market rather than the merits of the recommendation.
Posted by: Jon Boorman | February 14, 2007 07:02 PM