By: Elliot Turner
I would like to think less cynically about Posner’s choice to finally read Keynes at this point in his life. One of my favorite Supreme Court Justices in terms of both significance and legal reasoning is William Brennan. As the legend, myth or story goes, upon appointment to the Bench, Brennan reviewed the entirety of his old law school textbooks and as a result, completely reformed his legal philosophy. It took a catalyst–his nomination to the Supreme Court–in order to make this change. I would like to think that Posner, upon witnessing a major economic collapse, used that event as a catalyst to trigger a reanalysis of his personal economic philosophy.
I think think there is a lesson to learn from Posner and that is the following: People get extremely caught up in group-think when they become a part of something larger than they are. As part of the Chicago School, Posner completely bought into their doctrine and in the group-oriented narrow-mindedness, he never even READ Keynes. To think one can have an informed opinion on a major theoretician through secondhand analysis should have struck such an intellectual instantly as impossible. Yet that’s a hard trap to avoid when everyone around you reaffirms and hammers home those ideas. In many respects this highlights the troubles in the financial sector–everyone was invested in the same assets with the same risk-management models. Little did they think that correlation in and of itself was one of the PRIMARY risks. Never did these risk managers consider group-think as a risk in and of itself.
Too many people buy into the stigma that a move away from a a longstanding viewpoint or position is a bad thing in and of itself (think back to the “flip-flopper” issue in 2004). It is one thing to have conviction, it is another to stick with your guns even when proven wrong. The more time people spend with self-reflection the more likely they are to have a realistic and comfortable viewpoint about their philosophies (whether they be legal, economic or trading). All of the best traders I know take time to reflect on both what they did wrong AND what they did right. They want to familiarize their consciousness with all thoughts both patent and latent that play into their decision-making on a daily basis. As you become more knowledgeable about your inner thoughts you are less vulnerable to succumb to the pitfalls of group-think and more adept at discovering the sources and consistencies in your own personal thoughts.
One of the more thoughtful and interesting trading bloggers, Tim Knight over at the Slope of Hope, recently conducted a thorough self-reflexive critique that led him to the belief that he needed some sort of change in his trading approach. I urge all to read this analysis as a guideline through which people need to reflect. Please don’t read it from the perspective of: “oh he was just wrong for being bearish.” Rather, try and gain some insight in how he pursued this self-reflexive endeavor in order to better position himself for the future. Some of these lessons apply directly to traders losing money short this market and blaming everything from computers to outlandish conspiracy theories that Brandon highlighted in his post this afternoon (these conspiracy theories are so outlandish that I think people miss the most obvious theory…that is a conversation for another day though, so remember to ask me if you’re interested).
Personally, I try to spend at least a few minutes of every week thinking about how I am. One particularly self-reflexive moment happened around a State of the Union address and to myself, I started demanding my “State of the Elliot Address” on a consistent basis (please don’t make fun of me too much for that one…). Every trader owes it to themselves to do the same.
