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South Africa: Street Dogs - Trust Me, I'm a Doctor
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Business Day (Johannesburg)
COLUMN
13 August 2007
Posted to the web 13 August 2007
Michel Pireu
Johannesburg
JANICE Dorn, a U.S. psychiatrist who specialises in helping traders, says that the single biggest reason for failure as a trader or investor is the inability to take small losses.
"The greatest source of failure is loss of capital," she says. "After all, if you lose it, you are out of the game. If you lose your money, you have to go out and find more money to put into your account. If you lose your emotional stability, you have to go out and find ways to get it back. In either case, you will need to leave the markets for a while and get your financial and emotional act together. This takes a toll, gets you out of the flow and inflicts damage to you in ways which may not be immediately obvious. Faced with a large loss, many people become both emotionally and physically ill, and this carries over to their families. Yes, it is the financial burden that seems heaviest after a major draw-down, but, in actuality, it is the neurochemical brain changes that lead to emotional and then physical illness.
"Granted, some of the best traders have gone through complete wipe-outs, and come back stronger than ever," says Dorn. "But, these are the legends that are few in number and who live to write books about it or become so-called market wizards. These are the true comeback kids. The rest of us are not so lucky, and we just go quietly (or kicking and screaming, depending on personality style) into the night, tail between our legs, buried in shame and guilt, never to return.
"Small losses almost always become larger and larger losses, leading to every manner of emotional distress as you are holding and hoping, or in complete denial that the position could possibly turn against you," warns Dorn.
"Holding and hoping leads to larger losses and more emotional carnage until you are a financial and neuropsychological basket case and you just want out at any cost. Desperation sets in and brings up for you every time in your life when you were told that you were not good enough, that you would never amount to anything or that you didn't deserve to win."
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Eventually, according to Dorn, you end up in a state where both financial and psychological capital is depleted: "All because you didn't take a small loss."
Her message is a simple one: "Take small losses. You only take small losses! And you let winning positions run."
In the words of Orlando Battista: "An error doesn't become a mistake until you refuse to correct it."
I thank you for quoting me, although I have no idea how you got these quotations, as I was not interviewed by anyone from your newspaper. Nonetheless, you have done your readers a great service by showing them the critical importance of emotions and the brain in making successful trading and investing decisions. I am happy to speak directly with your staff about any aspect of Market Psychiatry and you may reach me through my website: www.thetradingdoctor.com.
Thank you and I wish your paper every success going forward.
Janice Dorn, M.D,. Ph.D. Phoenix, Arizona, U.S.A. www.thetradingdoctor.com
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