Tuesday, December 01, 2009

The Value of Trading as a Performance Activity

Is trading a useful activity? A thoughtful reader writes:

"I am unable to reconcile as to how traders are providing any value to the society by what they are doing. I accept that we may be called providers of liquidity (which I really doubt we are) or guys who determine correct asset price helping bring market efficiency, but it still does not make trading relevant from a social perspective...I sometimes feel that as a trader we are pretty selfish guys concerned with our own well being. When we make profits, we do not regard the losses someone else made and trading seems like a zero sum game to me."

I addressed this issue in the post on the value of trading. See also the post on the dual road to trading success.

The real issue here is the assumption that one's value--and the value of one's activities--is a function of help to others.

The great scientific discoveries, for the most part, have reflected the very selfish concerns of investigators who become consumed with finding the answers to challenging questions. Doing what they love and following their passion does indeed bring benefit to others: that is the happy synthesis. In starting a business and seeking success, an entrepreneur brings jobs and needed goods and services to the world. In creating a great work of art, a painter absorbs herself in her medium and brings something of beauty to others.

When you make the most of yourself, you become a greater value to the world.

Like all performance disciplines, from sports to games of skill, successful trading requires self-development. In developing ourselves and mastering our own thought processes and behaviors, we have the opportunity to not just become better traders, but to also become better human beings. And, yes, that brings benefit to those with whom we interact: from the role modeling we provide to younger people to the fruits of self-mastery that aid our roles as parents and spouses.

Please review the post on the value of trading, particularly the last paragraphs. Trading is a useful activity to the degree that it pushes us to become more than we are: to enact the best within us, not just in markets but throughout life.


Mark Feldman said...

Perhaps your 'value' is an indirect result of trading. By trading at home, a father can stay at home and spend more time with his wife and kids and help raise productive children and use his free time, not tied up in the office, commuting, or on a Blackberry serving his community.

What's so productive about people working 80 hours a week in a job they hate?

blenderking said...

A few thoughts:

1. Where did you get the money for trading? Did that activity provide value?

2. It's your money that you're trading - you have the right to do with it as you wish. If you earn a lot of money, you'll put it to other uses - like spending it (provides revenue to others), saving it (provides capital to others), or donating it (provides services to others).

Think beyond the actual act of trading itself. If you enjoy it, and are good at it, you are benefiting society.

BirdMan said...

The reader brings up an excellent point that if not addressed may undermine his trading.

William James "The greatest use of a life is to spend it for something that will outlast it."

It seems to me there are many ways to do this...

fireman said...

This blog posting is a superb response to the reader's concerns. Really thought provoking for me too.

There are plenty of people out there whose jobs would be considered a contribution to society but that are so angry and nasty that any conventional contribution they may make with their job is more than wiped out by the negativity they spread around to others who then carry it around too.

JimRI said...

This is an important issue that everyone who trades has to rationalize in a way that satisfies his own values. It is one I have struggled with and sometimes I wonder if it is not getting in my way of being a better trader (do I deserve the money?).

It is true that except when the market moves up, this is zero zum (less than zero actually) game and when a trader makes money it is someone else's loss. I prefer to think that it is Goldman Sachs' loss and not that of some poor guy trying to get the money to feed his kids. He should not be trading in the first place, but in this economy some may be.

On a number of forums (not this one) that I visited and since left, there were a lot of folks who clearly are comforatable taking care of themselves without regard to the impact on others.

I agree with your position, Dr. Brett, that improving one's own self has value beyond one's self.

My position is that since our society has devolved into one that no longer has an economy based on value added work, manufacturing, I must find a way to make a living and that I am entitled to that as a member of our society. Trading can be a way to do that if one is good enough at it. The jury is still out on that.

sandp emini said...

"The great scientific discoveries, for the most part, have reflected the very selfish concerns of investigators ..."

I respectfully disagree. There are countless examples of unselfish innovators.

Other than generating income for their spending - for self/family/others, I don't see any "value" in trading.

Doing what some one likes is different than what "value" it brings.

Nothing gets created. Don't get me wrong - the futures contracts exist for a purpose.

Most of the recent financial engineering has gotten society in to trouble.

PS: I simply trade because i want to generate additional income. I simply bring no value to anyone by trading - except broker gets commission.

peppebas said...

I, like other traders, had to reconcile this point as well.

I think we need to accept our role in the bigger scheme of things. If being a trader is not as important as being a doctor who saves lifes,
it has at least the same value and integrity of a lot of other kind of jobs.

Due to our ealry scripting and view of the world we might not be able to accept what we are and what role we play in the society.
It's a small role, but not less important: it is the purest form of commerce and it is a role required by any society.

It has been showed and proved now and again that lack of speculators would bring much higher prices, in any market. In economics this is known as allocative inefficiency. The problem here is that, in trading, the so called 'deadweight loss from overproduction' which we manage to minimize (risking our hard earned money) is measured not in physical goods but in sort of abstract contracts that settle in dollars (I am specifically referring to futures here).

If this process is pushed by profits, be it. The biggest scientists and inventors where driven by profit, Benjamin Franklin is one of them, and look what he has brought to humanity?

It is okay to look at profits because that is the motivation that brings our best out. I personally also look at ways to compete and keep improving myself. And that, I think, is okay too. What I believe is not okay is to be greedy and behave like a pig (and also because markets often won't forgive it). But this job can be done honestly.

As per the gains we are 'stealing' from the other guy, I would agree with what I remember to have read from Dr. Brett, that probably it is the best thing you can do to him. Markets are not for unprepared or lazy chaps. Better to lose $5,000 today than keeping the same attitude and hoping to make a killing and maybe lose much more. And if we are moving profits out of Goldman Sachs' account, then even better, we are playing the modern Robin Hoods.

It's an abstract (from a traditional perception of 'value' and social contribution point of view), though, remunerating and satisfying, modern job which offers (just to mention one example) to equity managers and asset-liability managers (pension and insurance funds) the possibility to keep doing their job with the best price and liquidity we as traders can, in aggregate, make available. Just think for example of the spread on bonds futures of a decade or two ago. Not to add the personal advantages already mentioned to being more present in the family, offer a bright example of a parent who takes responsibility and cultivates self improvement and more... The best job in the world, for me..., but traditionally not valued...

bruce said...

...and then you have to consider obama.

...wants to socialize this country, which will negatively impact our country, but of course he has the best of motives.

kind of the flip side to the case against trading that the "thoughtful writer" makes, eh?

TraderJoe said...

It is Christian's Reformer like John Calvin and Matin Luther proposed that all trades are sacred. It is not just priest do a sacred duty. It is free market system that produce traders, risk takers. We reward people that do the good job and punish the losers.
If you do not believe in our value, just go to country where the market is close.

dips said...

..well...with my trading commission I certainly helps many other getting their paychecks.