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Finding Your Freedom

I said in the very first part of the book that freedom means a lot more to me than political liberty, that it means maintaining a financial independence so secure that nothing short of outright robbery or my own imprudence can take it away. Well, it means even more than that. It means being able to experience life with an unbridled capacity for joy, regardless of your financial condition. Freedom is just easier to find when you dont have to worry about yourself or your family surviving if disaster strikes.

When I look at my youngest daughter, Janene, a smile almost always comes to my face. She embodies a rapturous sense of life that few people ever attain, and I hope that she is able to maintain it throughout her adulthood. At age 1 . she wrote a poem, and in it was a line which I believe captures the essence of the spirit required to maintain that sense of life. She wrote:

Dont look at the bad when there are so many good things to see. The world doesnt have to be perfect to be loved by me.

Ayn Rand said virtually the same thing in a more sophisticated way when she wrote, "Values, not disasters, are the goal, the first concern, and the motive power of life." What Janenes poem and Rands quote both imply- is that while people and the world are imperfect, while pain, suffering, and disasters do exist, they do not have to be and should not be the focal point of living.

Too often, for too many people, disasters and pain are the focus of living. That doesnt mean that people dwell on their pain and suffering. Some do. but usually when people focus on pain, they do it by default. Rather than spending their time and energies on the pursuit of values, they spend it trying to avoid pain. And that makes pain the focal point of life.

You cant pursue a negative. By definition, if avoiding pain is the focus of life, positive action is limited. If you allow pain to become the dominant force in life, you sabotage your ability to think, to grow, to produce. You may either become trapped in a dull, apparently secure routine or engage in the search for glory, but either way, you cant experience the process of living with the passion and spontaneity that you are capable of.

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Life involves risks. With every action and every choice you make, the chance of mistakes, errors, and failure is there. Perhaps I am more aware of this than others because I have made my living by taking objectively controlled risks in the markets. If you dont recognize risk, failure, and pain as part of the process in trading, then forget it-youU either lose money or be miserable in the process of making it.

The essence of maintaining your mental well-being as a trader is taking a position in which you feel confident and sure, while always knowing that you may not be rewarded for your work, your thoughts, and your willingness to take a risk. Even more important, when you dont win, you have to be willing to pick up and do it again. You have to be open to the pain that so often accompanies honesty and growth. The same is true of every aspect of living.

You know, people throw around the term "love" all the time, and I am hesitant to use it in this context. But virtually every act in life should be an act of love, the essence of which is giving of yourself. Let me make it very clear that I am not speaking about a selfless or sacrificial giving, not giving while expecting nothing in retum (I think that is impossible) but giving with the knowledge that you may not get anjhing in retum and, further, being able to pick up when you are unrewarded and give again.

Im speaking of giving as in presenting or bestowing. To present yourself to the world; to offer it your products and services in trade; to bestow upon it your achievements, your productive capacity, your energy, your thoughts and opinions: all of these are the things that make life rich, both spiritually and materially.

By giving in this way, the retums come back manifold-both financially and in terms of the

happiness you experience. Its not "give and take"; its not "give and thou shalt receive"; its "give and receive in trade."

You can give to yourself by using your mind-dedicating yourself to learning and growth-and get your retum by having new opportunities and experience available. Through your own actions and efforts you bestow upon yourself new options and altematives. You can give to yourself by taking ris ks in the market, and receive the financial benefits. You can give to others simply by opening yourself up and letting them see the real person, by dropping the self-protective shields designed to prevent people from hurting or rejecting you, and get your retum from those special friends who make you feel seen and understood, who act as the mirrors for your soul.

Opening yourself up to the risks of life may be frightening, but the fact is, there really is no altemative. You will suffer pain one way or the other.

There is no freedom from risk. There is no freedom from fear. There is no freedom from pain. There is no freedom from the possibility of failure. But there is freedom in the acceptance of all of these as part of life, and moreover, as the least imp ortant part of life.

That doesnt mean that risk, fear, pain, and failure are unimportant. I spent the entire first part of the book demonstrating ways to limit risk in the markets and put

as many of the odds in your favor as possible. I spent a substantial amount of this second part talking about how to manage the desire to avoid pain and use it in your favor. Yes, they are important, but it is a matter of focus-focus and integration.

Finding your freedom doesnt mean being able to do what you want, when and how you want to, with total disregard for the consequences. It doesnt mean living a life free of pain, mistakes, and failure. Nor does it mean "swallowing your emotions" and forging ahead in spite of them.

Finding your freedom means attaining the ability to give freely to yourself, to your work, and to others. It means acquiring the ability to establish tme motivation, to take control of your faculties such that the need to avoid pain and the desire to attain pleasure are directed at the same end. It means striving for integrity of thought, actions, and emotions. But above all, it means teaming to experience joy in the process of living.

I hope that this book helps you in the process of finding your freedom. Good luck, and good trading!



1.1 did manage a fund in the mid-1980s. Victory Partners, that lost money, but under conditions that were rather extraordinary. For a description of what happened, see the introduction to Part I. 2. This statement is not meant to imply that analyz ing securities through examination of corporate financial statements is worthless; far from it. Any information that can be acquired which supplements the knowledge to be discussed in this book can only increase the odds of making good decisions, of being right more often than not.

Chapter 1

1. John Scame, Scame On Cards (New York: Crown Publishers, 1969). Chapter 2

l.Ayn Rand, "Credibility and Polarization," The Ayn Rand Letter, vol. 1 (1), 3.

2. The term "false pride" is taken from the work of the psychologist Dr. Karen Homey and is discussed later in the book.

3. By growth I mean a continuing accumulation of wealth.

Chapter 3

1. William Peter Hamilton was Editor of the Wall Street Joumal from 1908 to 1929. Chapter 4

1. A Proven Method of Economic Forecasting, an unpublished study by Victor Sperandeo and Sandra Kunze, Copyright 1987 by Victor Sperandeo and Sandra Kunze.

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2. Unless otherwise specified, all of the quoted information in this chapter is extracted from The Dow Theory, Robert Rhea (Barrons, 1932).

3. The Wall Street Joumal, July 20,1901.

4. For further discussion on the subjectivity of the markets, see Chapter 9.

5. To the best of my knowledge, the basis of the terms bull and bear market is that the bull kills whi le lifting up with his homs, while the bear kills by driving his adversary down with his paw-the bull kills up, the bear kills down.

6. Victor Sperandeo, Statistical Characterization of Stock Market Movements, an unpublished analysis of stock market movements from 1897 to date. All data not attributed to others area result of this study.

7. For those interested in the details of this statistical approach to risk assessment, a complete exposition will be included in my forthcoming book for the market profes sional.

8. In the past, our govemments policy has been to inflate the country into tem porary prosperity. But as the economy grows and the effects of a ballooning money supply become factored into prices, there is a net decline in real eamings and savings. People begin to realize that inflation is nothing but a hidden tax on their future, and it becomes a prime concem to the public and therefore to politicians. Then the Fed intervenes to curtail credit availability, and the false economy of credit expa nsions comes crashing down like a house of cards. Now our wise govemment is using debt expansion instead of inflation to maintain an unsustainable level of consumption against future eamings. The net long-term result will be the same, once the camouflage is removed.

9. For example, Dow Theory never gave a clearly defined buy signal after the crash of 1987. People were so badly hurt by the swiftness of the move that many did not want to reinvest. It was only by considering fundamental economic factors that one could justify reentering the market on a long-term basis.

Chapter 5

1. When applied to the averages, all related averages must confirm the trend. If they do not, then a divergence exists-evidence of a possible change of trend.

Chapter 6

1. Robert D. Edwards and John Magee, Technical Analysis of Stock Trends (Mas sachusetts: John Magee Inc., 1966) (fifth edition), p. 5.

2. For an excellent description of the ever present "they," see G. C. Seldens, Psychology of the Stock Market (Vermont: Eraser Pub lishing Company, 1965).

3. For those of you unfamiliar with this terminology, the "bid" on a financial instmment is the price at which someone on the floor has said he will buy the instmment. The "offer" is the price at which someone has said he would sell the stock.

4. An "upstairs" trader is one who continually monitors and trades from a remote location.

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