Our subconscious desires could be a danger to the investing process – a reflection from Hamilton

190801-London-full

When I was in London in June, I managed to catch the acclaimed American musical Hamilton amidst a relatively tight schedule and a cold summer rain.

To be honest, I haven’t heard of it until a couple of people brought it up to me when I told them I was headed for the U.K. earlier in the year (I’ve heard about other musicals like Matilda and the Book of Mormon). Curious to know why others have enjoyed it, I scrambled for tickets and hurried through the evening bustle of Westminster and Victoria Street expecting little from this musical.

A rough check on it made me realise that it was about the life of Alexander Hamilton, who was one of the Founding Fathers of the United States. Hamilton was a talented individual who was influential and instrumental in laying down the foundations of the hallowed U.S. Constitution as well as the U.S. Treasury. He was a lawyer, banker, economist and a military commander during the early and turbulent times of the American Revolution.

a-hamilton-national-portrait-gallery

Mulling over my shallow knowledge of Alexander Hamilton’s life and the Colonies’ struggle against their British overlords, I joined the queue and headed up the narrow stairs of the quaint and beautiful Victoria Palace Theatre. I managed to find my seat at the back and shot quick glances around me, realising that the crowd was happily strolling in and taking their seats, glasses of champagne in their hands.

victoria palace

Theatre attendants ensured that everyone was promptly seated and announced that no recordings or pictures could be taken during the performance. The lights dimmed and I saw members of the cast on stage as the curtains were drawn back. As the opening Act begins, I wondered how a story of the life of a historical character could end up a hit musical…

*

The curtains fell and everyone in the theatre was on their feet, delivering a thundering ovation to the cast of Hamilton. I found myself swept off my feet by the brilliant performance of the actors, an epic story-line and an eclectic mix of modern R&B, pop, soul and traditional style music.

Hamilton

I later discovered that the musical came from the idea of Lin-Manuel Miranda, who was inspired by historian Ron Chernow’s book Alexander Hamilton. The musical itself had achieved critical acclaim in North America and won seven Olivier Awards in 2018 in the U.K. If you haven’t had the chance to watch it, I highly recommend it to you as well.

Amidst the colourful scenes and catchy modern style beats, the storyline was easy to follow, and I’ve noticed that the various tumultuous events of Alexander Hamilton’s life were dramatised to build the twists and turns and the climax for the story. At that point, I realised that every part of the musical dealt with various aspects of our lives.

The specification and personification of the various parts of the plot (events throughout Hamilton’s life) was how the audience was drawn in and caught up emotionally with the struggles of a great man who died a long time ago.

Everyone sees a Hamilton within themselves.

As they’re up on their two feet applauding the cast, every single member of the audience could relate to the story deep down. Whether its Hamilton’s early life in politics, to the victorious fight against the British forces, the plea for forgiveness from his loyal wife to his tragic demise following the spar with Aaron Burr, the audience could not help but feel moved and swept away by the dramatic episodes of his life.

Good stories that lasts through the ages typically explore the themes of our inner-most desires:

The struggle for survival. The desire to be loved. The wish for social acceptance. The yearning for recognition. The fascination with an exciting adventurous life. 

Most people rather have epic and tumultuous episodes within a short life than a long, seemingly normal life that has the similar gratifications of passion, love and recognition. We tend to remember the ‘highs’ and ‘lows’ of various forms of experiences, more so if they deal with our inner-most desires. The Nobel Prize winner Daniel Kahneman coined the term ‘Peak-End Rule‘ for this and described it as a psychological heuristic.

These inner-most desires heavily influence our conscious motivations and actions on a regular basis.

Investors have to be true to themselves and self-aware in markets.

What do you really want out of markets?

When asked that question, many will without a doubt say ‘to make money’. While this is definitely an important objective, my understanding thus far is that all of us go to markets unconsciously with a ton of psychological and emotional baggage. And this is what hinders most of us unfortunately.

It’s also why it’s so difficult to take money out of the markets consistently and compound a fortune over a long period of time. Our inner-most subconscious beliefs and desires and personal traits complicate the already-difficult task of investing.

Is the true reason for participation the desire to be famous? If so, you will be more interested in being right and proving to the world that you are all-knowing and intelligent so as to receive the recognition you subconsciously crave – never mind what happens to your portfolio in the meantime.

Do you really believe you can beat the markets? If you don’t but you actively try to find the best assets or investments and engage in market-timing in an attempt to beat the market averages, then your efforts will be doomed to failure as your subconscious beliefs affect the way you research and gather information, build a process and develop edges. Would you even do the extra work for alpha?

Do you sincerely want to win? If so, you would be committed to do so. You would have accepted that the reality of this game is difficult, and be aware that you’re competing with the brightest, most sophisticated and well-resourced individuals and teams from all around the world.

I recall the currency trader and author John Percival writing that:

Many other required attributes of winning traders in fact must necessarily follow from such a commitment: attributes like following a consistent method; doing careful homework; using a valid risk-management system. It’s quite simple: a trader who does not do these things is not committed to winning. This rules out an amazing number of market participants.

If you really want to win, you wouldn’t be content to just putting in the bare minimum and becoming average. You wouldn’t be blindly following the majority and accepting things at face value and believing conventional wisdom. The crowd is usually doomed to mediocrity for most of their lives with their wishes for hitting the jackpot or making a quick buck for the least amount of effort.

Saying that you want something and doing something about it are very different things.

Build a process for success in markets.

I’ve noticed that successful investors build a process and form habits out of that process which help them in winning in markets while simultaneously lowering the odds of the negative effects of their subconscious ruining their operations.

They examine themselves thoroughly to ensure inner psychological alignment. They structure a lifestyle or a routine to maximise the chances of success, and they build a process by which they are committed to it day in day out. By doing so, they are psychologically prepared for battle, aware that the fight is tough, and prepared mentally to do whatever that is necessary.

  • Writing down the source of your edge(s) forces you to be cognisant of whether you have them or are developing and refining them.
  • Having a checklist helps to reduce your behavioural biases in the research process, as well as activating System 2 to raise objectivity to ensure you don’t cut corners.
  • Operating by a risk-budget and quantifying potential loss levels helps you to mentally accept that losses are part of the business (the crucial thing is to manage it well).
  • Performing post-mortem analysis helps you to get better over time as you continuously learn from your experience. Doing this also reinforces mentally the need for constant adaptation and evolution within your operations.

The temptations of greed and getting rich quick, the yearning to be recognised and famous, the inner craving to be socially accepted – these may all lead us to take unnecessary risks at times. Developing a process, sticking to it with discipline and refining it continuously helps to prevent our subconscious desires from ruining our chances of success in markets.

Although an epic yet tumultuous life of Hamilton’s story may sweep us off our feet and make us dream about adventure and glory, we have to be serious, sober and realistic about the business of investing to compound a fortune over time in markets.

*

While leaving London, I find myself recalling the catchy song of General George Washington to Alexander Hamilton in Act I:

I was younger than you are now
When I was given my first command
I led my men straight into a massacre
I witnessed their deaths firsthand
I made every mistake
And felt the shame rise in me
And even now I lie awake

Knowing history has its eyes on me (Whoa oh oh…)
(Whoa…)
(Whoa…)
(Yeah)

Let me tell you what I wish I’d known
When I was young and dreamed of glory
You have no control

Who lives, who dies, who tells your story
I know that we can win
I know that greatness lies in you
But remember from here on in

History has its eyes on you~

 


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