richard5za wrote: Tue Jul 21, 2020 7:05 am
A fellow said to me recently that clever academic people make bad traders; because they analyse everything and come to conclusions on what pattern or path the market will take with some certainty. They do this in other disciplines with a high level of success. So when the market does something else it takes them more time to realise that they were wrong and they take bigger losses than those who simply roll with the prices and cancel out at the first signs of getting it wrong. I am guilty of too much analysis and prediction, and I got into shorts too early. Now I shall just watch the madness as if its a fantasy show until its clear that there is a trend reversal. My analytical head says this week will be the turn but lets wait for evidence of the turn down
I think there are lots of different reasons why intelligent people can make bad traders.
One is that really intelligent people often make a lot of great trades right out of the gate, become overconfident, then blow up. This is probably the most common way intelligent people blow up their accounts.
Another is someone who is really intelligent may believe and be mostly right that trading has a great deal of uncertainty associated with it and therefore can't bring themselves to pull the trigger in a big way when they really need to.
Another is really intelligent people know they can reliably count on professionals like doctors and lawyers in other areas of their life, so they rely on "financial experts" for their investments and lose money that way. Einstein lost all his Nobel Prize money in bad bond investments, probably this way.
Higgenbotham wrote: Tue Sep 27, 2011 1:28 pm
The divorce settlement with Mileva contained a unique clause, in which Einstein agreed that should he win the Nobel Prize he would deposit the money in a Swiss bank account in Mileva's name and she could use the interest to finance the upbringing of the children. Einstein failed to fulfill this promise, and Mileva always felt betrayed.
The newly-released papers reveal that he invested three-quarters of the money, some $24,000, in long-term bonds via the Ladenburg and Thalmann Bank in New York. Mileva was supposed to receive the interest. But the value of the bonds were wiped out in the American Depression of the 1930s and Mileva's income dried up.
On 12 June 1932, Mileva asked her ex-husband for more money to help pay the mortage on properties she had bought. "Not much is left for us to live on, especially since our income in any case has been reduced because of the loss from the papers in America," she wrote.
http://www.dailymail.co.uk/news/article ... -side.html
Another is that just because somebody is intelligent doesn't mean that they don't follow the herd. After all, to some extent, intelligence is just the ability to assimilate other ideas, including the ideas of the herd. Newton was reputed to have lost a considerable sum in the South Sea Bubble.
And I do think your friend is correct that intelligent people are often told repeatedly in life that they are smart and therefore they believe they can outsmart other traders.
With regard to the current bubble, I made a gamble back in April that the bubble mentality had ended for good. And that brings me to the last reason I can think of that intelligent people fail at trading. They tend to think that since they wouldn't buy into a bubble that other people won't either, and the market stays irrational longer than they can stay solvent.