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The Little Book of Market Wizards: Lessons from the Greatest Traders by Jack D. Schwager

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Chapter Sixteen

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Doing the Uncomfortable Thing

The Outperforming Monkey

William Eckhardt believes that the natural human tendency to seek comfort leads people to make decisions that are worse than random in trading. I want to be clear. You have probably heard the famous quote by Burton Malkiel, “A blindfolded monkey throwing darts at a newspaper’s financial pages could select a portfolio that would do just as well as one carefully selected by experts,” or some variation of that theme frequently uttered by those deriding the purported folly of trying to beat the market. Eckhardt is not saying that. He is not saying a monkey could do as well as the professional money managers. Eckhardt is saying the monkey will do better.

What feels good is often the wrong thing to do.

William Eckhardt

Now, why will the monkey do better? The monkey will do better because humans have evolved to seek comfort, and the markets don’t pay off for being comfortable. In the markets, seeking comfort means doing what is emotionally satisfying. Eckhardt says, “What feels good is often the wrong thing to do.” He quotes his former trading partner, Richard Dennis, who used to say, “If it feels good, don’t do it.”

As an example of doing what feels good in the markets, Eckhardt cites what he terms “the call of the countertrend.” Buying on weakness and selling on strength appeals to the natural human desire to ...

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