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I’ve been reading Contrarian Investing and, like many investing books, a good part of it is about psychology.  I’m not going to put my notes up because Dasan has already made a fantastic summary of the book.

One study that I found especially fascinating was one dealing with how attitudes are formed.  There are four forces effecting our attitude:

  1. Utilitarian
  2. Value-expressive
  3. Ego-defensive
  4. Knowledge

In contrarian investing, knowledge is the most important force in making decisions.  “A knowledge-based attitude is one based on facts and experiences … [a]n attitude based on knowledge is part of a person’s attempt to form a consistent, clear, and stable view of the world.”

Now, often we don’t have enough knowledge to make a real decision.  There are three ways we fill this knowledge gap:

  1. By looking for more information.
  2. By adoping the attitudes of other people around us.
  3. By adopting an attitude consisten with their other beliefs or knowledge.

The study found that attitudes based on knowledge are by far the least common.  New information could cause your beliefs to change or require you to work, neither of which are fun for most.  This is why, without fail, the ‘talking heads’ are telling you to buy buy buy at the top and to sell sell sell at the very bottom.  This is also why, I believe, religion has become so popular.  This is why people are suckered into anything that can tap their emotions.  It’s much easier to tap into the non-knowledge forces.

It’s obviously not possible to have a completely knowledge-based outlook.  However, the more information assimilated the better.

The following are quotes from Reminiscences of a Stock Operator by Edwin Lefevre.  It’s a “is the thinly disguised biography of Jesse Livermore”, one of the greatest speculators of all time; and one of the books you must read if you are a serious trader.  It is on the top or close to the top of every hedge fund managers recommended book lists.  The following are quotes, in order, from the book.  The quotes come directly from a series of essays called “The Wisdom of Jesse Livermore” (CTRL+F “Wisdom of Jesse” and you’ll find them) that was sent to me by a friend.  This list is not complete but should still prove helpful for anyone looking for some investing/trading/speculating wisdom. I’ve added explanations where the quotes aren’t obvious.  (Thanks to Andre for sending the essays over.)
Sorry for them crunching together, apparently there are too many and WordPress just doesn’t know what to do.

“Another lesson I learned early is that there is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market to-day has happened before and will happen again. I’ve never forgotten that.”
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