Trading and investing are all about gain and loss and balancing those via the sizing of positions and prudent risk management. Inevitably it occurs in a trader's career that, in pursuing gain and success, they experience significant loss. One portfolio manager I worked with developed a new approach to investing and fell in love with the promise of the method. When market conditions changed dramatically, the new approach could not keep up and adapt. The manager went through a potentially career-ending loss. But it wasn't the financial loss that was so difficult; it was the loss of something cherished: a dream.
Many of the most challenging problems traders face is not simply fear or greed, but the emotional impact of loss and gain. What brings many traders to their craft is also what brings many people to a significant romantic relationship: a dream. How do we respond when that dream changes? When it is lost? How do our responses to loss impact our subsequent trading? Our lives? Our future ability to dream?
I'm currently reading How Children Grieve by Dr. Corinne Masur. A core idea in that text is that how we are impacted by loss is a function of the stage of life that we're in. Loss and grief are different for a child than for an older adult who loses their spouse, for example. Similarly, the beginning trader is impacted by loss differently from the experienced one. New attachments impact us as well...and those impacts differ for people at various phases of life.
What we lose and what we gain impact us emotionally. A healthy psychology knows how to grieve--and how to celebrate. When we fail to deal with the emotions of loss and gain, our subsequent actions become distorted by what we don't process. A beautiful way to deal with loss is to more deeply attach to everything and everyone important to us that we haven't lost. In life as in finance, a rich and deep portfolio helps buffer us from traumatic losses. The deeper our love, the greater the grief we will experience in times of loss. It is the passion we feel, not the need and greed, that leaves us vulnerable to loss and open to the fulfillment of gain.
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