Conquering False Pride

Self-knowledge.. . is not an aim in itself, but a means of liberating the forces of spontaneous growth.

-De Karen Homey

THE MOST IMPORTANT REASON PEOPLE FAIL IN TRADING

In considering what made the difference between success and failure among traders, the most puzzling thing to me for a long time was the incredible human capacity for self-delusion. I didnt understand how or why normally good traders could be capable of m aking trades in obvious violation of their own mles. I didnt understand how other traders could make the same mistake time and time again without ever teaming from their errors. I didnt understand what motivated people who were obviously unhappy, even miserable, to get up each day and be unhappy and miserable again without ever making an attempt to figure out what was wrong, much less change their behavior.

I knew that at the root of the explanation had to be some form of self-deception and rationalization, but the scale of it boggled my mind. I felt a little bit hopeless trying to figure it out. I was reading virtually every book I could find on psychology to try to figure out this and other problems, when I found Neurosis and Human Growth, by Dr. Karen Horsey. This book really opened my eyes to the roots of self-deception and self-delusion, so much so that I feel compelled to share the essential elements of it here. It helped me understand not only the self-delusions of others, but it opened my eyes to some of my own motivations, both positive and negative.

According to Dr. Horsey, each of us is provided by nature with a unique set of "given potentialities" and we have a natural drive to realize them. In other words, we are born with a "real self" and our purpose in life is to actualize and grow into that self through a constant process of self-discovery. But because it is an imperfect world, it is possible that "under periods of inner stress ... a person may become

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alienated from his real self. He will then shift the major part of his energies to the task of molding himself, by a rigid system of inner dictates, into a being of absolute perfection. For nothing short of godlike perfection can fulfill his idealized image of himself and satisfy his pride in the exalted attributes that (so he feels) he has, could have, or should have."

In a terrible irony, the artificial view becomes a tyrant, driving people to mentally reconstmct reality to fit the idealized image of the mselves, their relationship to the world, and their relationship with others. The result is an ever-widening system of falsehood and evasions that take people further and further away from being able to identify and live the tmth.

What Ive said is so full of subtleties that I need to break down and discuss the essential elements that give rise to this gigantic illusion called the false pride system, an illusion that hinders many traders regularly. In particular, I want to cover what I consider to be the most insightful portions about a false pride system that Dr. Homey writes about in her book: the idealized self-image, the search for glory, the tyranny of the shoulds, and neurotic pride. These concepts are so active in trading and our society in general that understanding them is cmcial to gaining self-awareness, which, you will recall, is the first step in any process of personal change and growth, especially for traders.

I tmly believe that self-awareness is more important in the financial world th an in other professions. The reason I think so is that when you trade, the judges gavel comes down every day on the ledger sheet. A doctor can evade the tmth that he or she made a mistake and tell the relatives of a deceased

patient, "I did my best, but----"A lawyer can drink too much the night before his final address to the

jury, and when he loses, convince himself and his client that the jury was biased. But a trader has no one to convince, no one to lie to. The market is the final judge, and it issues its verdict every day. I therefore

think that understanding how the false pride system works can be crucially important to a successful and lasting career as a trader, speculator, or investor.

YOUR EVIL TWIN: THE IDEALIZED SELF-IMAGE

Think of your "given potentialities" as a core self which you strive to realize and bring out throughout your life. Unfortunately, many of us often strive toward a set of false potentialities that we ascribe to ourselves as a means of protection against the pain involved in true self-discovery. We develop a sort of dual personality that places us in a state of inner conflict. On the one hand, the core self -a sense of what our lives should be is always there, and we naturally want to realize our true potential. But on t he other hand, we develop an "evil twin" that strives to make good on unrealistic and idealized potentialities and subverts the growth of the core self.

Through the use of imagination, the evil twin builds a fortress against the perception of a hostile reality. For protection, "[gjradually and unconsciously, the imagination sets to work and creates in his mind and an idealized image of himself.

In this process he endows himself with unlimited powers and with exalted faculties; he becomes a hero, a genius, a supreme lover, a saint, a god."

THE SEARCH FOR GLORY

According to the model of the mind that I have set forth in preceding chapters, our actions are motivated by values and beliefs programmed into the subconscious. If, as Dr. Horsey postulates, pe ople adopt an idealized image of themselves as a protection against basic anxiety,2 then, according to the model, the logical outcome would be an attempt to actualize this idealized self-image. In Dr. Homeys words:

... self-idealization inevitably grows into a more comprehensive drive which I suggest calling .. .

the search for glory. Self-idealization always remains the nuclear part. The

other elements in it, all of them always present, though in varying degrees of strength

and awareness in each individual case, are the need for perfection, neurotic ambition,

and the need for a vindictive triumph.

The need for perfection is one element that I think most of us can relate to. One of the hardest things to accept in life is that mistakes and pain are an inevitable and essential part of it. The question I ask is: "Why is it so hard to accept?"

The answer, I think, is that it upsets our idealized image of ourselves. If we have ascribed exalted attributes to ourselves, then we should not make mistakes, we sho uld not suffer pain, we should be able to get along with anyone, we should be able to convince anyone and everyone of our viewpoint, and so on.

Should, should, should. The need for perfection manifests itself in a rigid set of "shoulds" and "taboos" that are derived from what we think attaining the perfect idealized self requires. In the last chapter, I used the example of a young trader who applied totally unrealistic standards to his evaluation of success. Such a person is probably motivated by an idealized self-image.

I have a weakness as a trader, a big one, that stems at least partly from the need for perfection. I often call myself a "perfectionist" when it comes to playing the market at major turning points. Since 1971,1 have only missed two down mov es, and Ive caught the others exactly at the tum. But when I do miss an exact tum, I have a hard time moving in and trading with the trend, and that is a big weakness. For example, I was looking for an opportunity to short the market in late July 1990. But I didnt have a short position and was taken by surprise when Saddam Hussein attacked Kuwait.

I watched the market plunge, and couldnt bring myself to go short in the middle of the down move. If I had acted, I could have made as much as 10% for my acc ounts, but I didnt do it... I was afraid of selling near the lows instead of the highs, which is what I strive for.

As another example, during 1989, I became totally infuriated with myself for not paying closer attention to some of the commodity markets and missing perfect buying or selling opportunities. Although it is true that as a trader I should have

been paying closer attention, as a human being and a businessman during that period, my focus was elsewhere. Instead of just accepting that mayb e my focus was a little off, I got furious with myself for not being perfect as a trader.

Both of these examples illustrate how an underlying need for perfection can affect our lives. The need for perfection is such a radical force, that I reserve a more omplete discussion of it for the section entitled, "The Tyranny of the Shoulds."

Neurotic ambition-the compulsive drive for extemal success-is one aspect of the search for glory that is especially pervasive on Wall Street. This is not really surprising, b ecause such ambition is fed by a competitive environment, and Wall Street is very competitive.

The source of neurotic ambition is an attempt to prove and realize exalted attributes. A person lacking real self-confidence seeks high ranking on a comparative scale in an attempt to achieve what psychologist Nathaniel Branden calls, pseudo self-esteem. Neurotically ambitious people, believing themselves to be innate geniuses or potentially omnipotent, must produce results in the extemal world that prove this claim. Such people are driven to be "the best" and to be recognized as such in order to actualize their idealized selves.

But because the ideal striven for is by its very nature imaginary and impossible, the quest is inherently futile. Therefore, people seeking to actualize the idealized self can never stop in their striving. To stop is to admit the falsehood of their view of themselves and of the world. For that reason, one of the hallmarks of neurotic ambition is often genuine talent and ability that is com pulsive and driven in nature, and that never results in a sense of personal fulfillment. A man like Ivan Boeskey is a perfect example. It was neurotic ambition, not simply money, that made him resort to buying his success rather than eaming it.

There is often a fine line between neurotic ambition and a genuine need and desire to succeed and make money. The difference is manifest in the motivation of the person and the emotional results attained when extemal goals are actually achieved. For the neurotically ambitious person, life is not experienced as a process, but as a path toward an unreachable future. Activity is the only outlet: "[Wjhen they do attain more money, more distinction, more power, they also come to feel the whole impact of the futility of their chase. They do not secure any more peace of mind, inner security, or joy of living. They started out on the chase for the phantom of glory, but their inner distress is still as great as ever."

When I said that neurotic ambition is pervasive on Wall Street, I didnt mean that most people are compulsive neurotics driven only by the desire for extemal success. However, I do believe that there is a strong element of neurotic ambition in many, many people involved in the financial world, especially among traders.

Anjiime we think in terms like, "If I were rich, then Id be happy," neurotic ambition is at the root. Hidden beneath such statements are false and idealized beliefs about what we would be and what we would do if we had a lot of money. "Bumout" is another symptom of neurotic ambition, especially among formerly successful traders. The inherent futility of achievements driven by the search for glory eventually just wears people out. It is important to understand if and how

much we are driven by neurotic ambition; it sabotages the ability to enjoy the process of living.

The worst element of the search for glory, in terms of the damage and human suffering it causes, is the need for vindictive triumph. Again, it is an element which is not dominant in most people I have observed, but it is there to some degree in almost everyone. Dr. Homey describes it like this:

[The need for vindictive triumph] may be closely linked up with the drive for ac tual achievement and success but, if so, its chief aim is to put others to shame or defeat them through ones very success; or to attain the power, by rising to prominence, to inflict suffering upon them-mostly of a humiliating kind. On the other hand, the drive for excelling may be relegated to fantasy, and th e need for a vindictive triumph then manifests itself mainly in often irresistible, mostly unconscious