Thursday, September 10, 2009

Cass et al., Bullish Thinking

Bullish Thinking: The Advisor’s Guide to Surviving and Thriving on Wall Street by Alden Cass, Brian F. Shaw, and Sydney LeBlanc (Wiley, 2008) sets out to teach cognitive-behavioral therapy skills to financial services professionals (and, by extension, traders) so they don’t become among the walking wounded of Wall Street. In keeping with the Wall Street theme, they define bullish thoughts as rational, mostly positive, and based on personal and historical evidence. By contrast, bearish thoughts are irrational predictions, expectations, and beliefs. The authors claim that “just one realistic positive thought has the power to wipe out an entire army of negative ones.” (p. 27)

Let’s look at the case of Fearful Frank, a 35-year-old trader in a major slump. He was a high flyer in the late 1990s but after the market bloodbath felt dysfunctional, unable to accept loss or take risks anymore. He had been badly burned on some recent trades and was under great pressure to turn his account around. Dr. Cass, his therapist, offers him three golden rules to transform him into Fearless Frank. First, “Don’t Aim! Just Throw the Ball!” This advice doesn’t mean pitch wildly. “If your research tells you which stance to take on a trade, follow it, be disciplined, and just throw the ball!” (p. 44) Second, “Go for the Batting Title, Not the Home Run Crown.” That is, in a less volatile market “Maybe it’s time to look at yourself as a singles and doubles hitter who only swings for the fences when you are more certain of succeeding.” (p. 44) And finally, “Think Bullish, Not Bearish.” I personally doubt that simply following these three rules will transform Frank into a fearless, disciplined, successful trader.

The authors also claim that it’s important to pinpoint your unique mindset in order to understand why you react the way you do under stress and to find solutions. Here are the major categories. (I only hope you can’t be pigeonholed as easily as I can.)

The problem is that the authors admit that it is impossible to change your mindset to any significant degree, though you can work on how you come across to others. That’s not particularly useful for the self-directed trader or investor, though as we know from Brett Steenbarger’s work this advice can be modulated somewhat.

All in all, Bullish Thinking is a lightweight book. It’s compelling neither anecdotally nor theoretically.

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