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Paul B. Farrell Archives | Email alerts
April 17, 2012, 12:02 a.m. EDT
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By Paul B. Farrell, MarketWatch
SAN LUIS OBISPO, Calif. (MarketWatch) "” Most traders are men, macho men. Yes, maybe 95% traders are males. It's bred in the DNA over the centuries.
Once our killer instinct and hunting skills kept us from starving. Today male traders are still on the hunt, but losing money. Secretly blaming dad and mom. Warning, they're not the real enemy. You are.
David Weidner spotlights the sentiment many have that the markets are tilted against them, and it is increasingly difficult to buy low and sell high.
Seriously, time to grow up. Check the facts, try a little therapy, take responsibility. We'll show you how to cut the stress and win the loser's game you're gambling on at the Wall Street casino, where the tables are always fixed and the house always wins.
Fortunately, many of America's 95 million Main Street investors figured out long ago that active trading really is a loser's game. They read studies like the ones by finance professors Terry Odean and Brad Barber and their seven-year study of 66,400 Wall Street brokerage accounts. That research proved that transaction costs, fees and taxes took about a third of your pretax returns, which Vanguard's Jack Bogle had been saying for decades.
Their bottom line: "The more you trade the less you earn." Buy-and-hold investors in their research turned over their portfolios just 2% a year. Active traders churned their portfolios an average of 258% annually, but their net returns were a third less than their buy-and-hold competition. And that's before deducting "opportunity costs" and the added stress many traders complain of.
Given Odean and Barber's research, why would anyone in their right mind ever become an active trader? Are traders born irrational? The long odds at the Wall Street casino are posted and clearly against success. The house wins, you're a loser. What are they trying to prove? And to whom?
This brain-twisting puzzle hit me while reading Maureen Dowd's New York Times interview with famed director Mike Nichols "over deviled eggs and beer at Bar Centrale in New York's theater district," not far from the Wall Street casino. Nichols was directing a revival of Arthur Miller's "Death of a Salesman" on Broadway, a perennial American classic about a dysfunctional family.
Nichols "believes that the father-son wrassle is the central American relationship." Sound familiar? In his early days as a stand-up comic Nichols captured this wounded relationship in a few simple lines listening to a father putting down his son, "?This is what you're going to do for a living? You're not going to go into the family rug-cleaning business that I've spent my life building?' Or, "?I'm going to have to spend the money I've saved up for you to learn how to be a writer or scenic designer or whatever the hell you want to do?' "
In a few lines of dialogue we see a lifetime of hurt and failure, for both father and son. The son is desperate for some much-needed approval from a man who can't give it, never really got it himself. Sound vaguely familiar? As Nichols put it, "the following or not following in the footsteps of the father is a tricky and anxiety-producing discussion between fathers and sons."
Years ago as a crisis manager I discovered the universality of this quest. And for many men, so many other pains settle deep in this wound. "I know so many people" said Nichols, "who can't get their father to even acknowledge their accomplishments," Nichols said. Sound familiar? My brother and I both tried, didn't get it. This is the fuel that drives men to beat long odds in life, chase impossible dreams, get rich as traders.
Do most traders lose money in the market because they were handicapped by their relationship with their father? Or their mother? Dowd focuses on the Oedipal myth where "the son goes out into the world to prove himself, then returns to unknowingly kill the father and marry the mother." And ultimately self-destructs when he learns the truth.
Freud believed this scenario is imbedded deep in the subconscious of all young boys: a secret war with the father for mother's love. And for many men, it never really disappears, dominating the careers chosen, the way as adults we compete with other men on the battlefield of life, as if repeating the ancient hunt.
From deep within it determines our reactions to challenges, threats and authorities. We project our inner "father" onto the world, subconsciously seeing this shadow father everywhere, out there, disapproving, challenging, competing, even threatening.
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Paul Farrell writes the column on behavioral economics. He's the author of nine books on personal finance, economics and psychology, including "The... Expand
Paul Farrell writes the column on behavioral economics. He's the author of nine books on personal finance, economics and psychology, including "The Millionaire Code," "The Winning Portfolio," "The Lazy Person's Guide to Investing." Farrell was an investment banker with Morgan Stanley; executive vice president of the Financial News Network; executive vice president of Mercury Entertainment Corp; and associate editor of the Los Angeles Herald Examiner. He has a Juris Doctor and a Doctorate in Psychology. Collapse
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