A note to readers: While Dr. Tharp’s content is timeless, this article is from our newsletter archive and may contain outdated information, missing links or images.
PART 1
Note from Van: I am particularly indebted to the insights of Robert Dilts in producing this article. Robert is one of my favorite NeuroLinguistic Programming (NLP) teachers and he is also the author of a series of books entitled Strategies of Genius. The second book of the series (out of print right now) is entirely devoted to Einstein so Dilts did much of the hard work for me in being able to delve into this fascinating topic. In fact, he makes Einstein’s thinking accessible to the average human being. Most people might guess that Einstein thought in complicated mathematical formulas but that’s not the case at all. Instead, he thought in terms of simple visual images—a process he called combinatory play with concepts
How would a genius like Albert Einstein approach the task of making money in the markets? Let’s explore the answer to that question and hopefully, you’ll learn both about Einstein and about the markets in the process.
Einstein’s Beliefs
To really jump into how Einstein might think about the markets, it’s important to explore his fundamental beliefs—those beliefs that shaped his reality. Remember that beliefs are not reality. Instead, they are just your filters to reality. In fact, one of Einstein’s most famous quotes was: “The real nature of things, we shall never know, never.”
Our main criterion for evaluating beliefs is “how useful are they?” with “useful” meaning how useful are they to adopt. In fact, adopting some of Einstein’s beliefs will totally change the way most people think about the universe, life, and the markets. While this article cannot begin to explore all of Einstein’s key beliefs, we can make a start with some of the most significant. My goal here is to explore five of Einstein’s most useful and interesting beliefs and then to show how they apply to the markets.
I’m not asking you to accept any of these beliefs. Instead, just act like you are already a genius and try another perspective. Ask yourself, “Is it useful?” And, when you try on these beliefs, ask, “What are the implications for the markets?”
First we will summarize key beliefs of Einstein and then begin to look at what their implications might be for the markets.
This topic will span two articles over two weeks. In part one we will look at 3 beliefs and market implications and next week we’ll finish up with the remaining 2 beliefs plus an exercise for you to try.
Belief One: The Universe is a Friendly Place
I am fond of using an Einstein quote to illustrate how important beliefs are to us. Thanks to Robert Dilts, I can now present to you that entire quote which occurred when a reporter asked him, “What, in your opinion is the most important question facing humanity today?” Einstein replied:
“I think the most important question facing humanity is, ‘Is the universe a friendly place?’ This is the first and most basic question all people must answer for themselves.
“For if we decide that the universe is an unfriendly place, then we will use our technology, our scientific discoveries, and our natural resources to achieve safety and power by creating bigger walls to keep out the unfriendliness and bigger weapons to destroy all that which is unfriendly—and I believe that we are getting to a place where technology is powerful enough that we may either completely isolate or destroy ourselves as well in this process.
“If we decide that the universe is neither friendly nor unfriendly and that God is essentially playing dice with the universe, then we are simply victims to the random toss of the dice and our lives have no real purpose or meaning.
“But if we decide that the universe is a friendly place, then we will use our technology, our scientific discoveries and our natural resources to create tools and models for understanding that universe. Because power and safety will come through understanding its workings and its motives.”
As Einstein was so fond of saying: “God is subtle but he is not malicious and God does not play dice with the universe.”
Belief One Implications for the Markets: The Universe is a Friendly Place
One well-known joke is that Einstein would have never said that the universe is a friendly place if he had played golf or invested in the markets. Nevertheless, if Einstein’s logic is sound and the universe is basically a friendly place, then the markets must also be friendly. My belief is that the markets are a very friendly place. Whatever you want in life, the markets will find a way to give it to you. I’m not being facetious here.
Ed Seykota was fond of saying that people usually get whatever they want in the markets. They are very accommodating. Whatever you seem to be getting from the markets, that’s what you probably want from them. If you want excitement, the markets will give it to you. If you want to justify a lot of emotions such as fear or anger, the markets will find a way to help you do that. If you want to play silly emotional games with the market, then the markets will help you play those games. On the other hand, if you want to have discipline and are willing to commit yourself to making handsome profits, then the markets will be friendly in that way as well.
In the marvelous book by Neal Walsh entitled, Conversations with God, Book II , God says:
“Don’t you see what you’re doing here? You’re making up the rules as you go along!”
“And don’t you see something else? That’s perfectly okay. It’s what you’re supposed to be doing! …All of life is a process of deciding Who You Are, and then experiencing that.” (p. 33)
Later, He goes on to say:
“No one comes to you by accident. There is no such thing as coincidence. Nothing occurs at random. Life is not a product of chance.” (p. 50)
When you realize the “truth” of how this applies to the market, the whole process of trading becomes entirely different. Yet I have no doubt that Einstein would be willing to begin his approach to the markets with this viewpoint in mind. But just think about it. What if the markets are just made up of people totally getting what they really want? What would this say about what the real force and rationale behind the markets is?
Remember that these are just beliefs, not reality. But also remember that your current beliefs are not reality either.
Belief Two: It’s Important to Learn God’s Thoughts
Einstein’s second key belief reflects what he considered to be his purpose in life—to learn God’s thoughts. As a result, Einstein has one primary goal driving his research and his work. He states that goal so eloquently in the following paragraph:
“I want to know how God created this world. I am not interested in this or that phenomenon, in this spectrum of this or that element; I want to know His thoughts; the rest are just details.”
Einstein goes on to say that,
“ . . .the scientist is possessed by the sense of universal causation. The future to him is every whit as necessary and determined as the past . . .His religious feeling that’s the form of a rapturous amazement at the harmony of natural law, which reveals an intelligence of such superiority that, compared with it, all the systematic thinking and acting of human beings is an utterly insignificant reflection. This feeling is the guiding principle of his life and work, in so far as he succeeds in keeping himself from the shackles of selfish desire.”
Begin to think about the implications of these spiritual beliefs for your perceptions of the market. What do they mean about purpose and what might be going on in the universe? And, what are the implications for trading?
Belief Three Direct Sensory Experience is the Key to God’s Thoughts
In the case of the fundamental laws of the universe, the closer we get to the actual patterns that created the universe, the further we get from anything that we can directly sense or experience. Consequently, many of the concepts we use such as “gravity,” “atoms,” “energy,” “electromagnetic force,” “time,” “space,” and even the notion of “cause and effect” are in many ways arbitrary concepts that we use to make sense of our sensory experience.
According to Einstein, our senses do not directly perceive things like “causes.” Instead, all our senses can perceive is that first one event happens and then another event happens. Thus, we are likely to perceive something like “first I type on my computer” and then “letters appear on the screen.” You may then assume that typing on the computer “causes” the letters to appear on the screen. However, you are really assuming the concept of causation.
Now, as a trader, start thinking of the implications of these beliefs on the market. What are the concepts you believe about the market? How much are those concepts related to direct sensory experience?
Beliefs Two and Three Implications for the Markets: It’s Important to Learn God’s Thoughts and Direct Sensory Experience is the Key to God’s Thoughts
By these statements Einstein is basically saying that most of our constructs and concepts are totally man-made. Through his thinking, Einstein concluded that concepts most of us consider quite basic such as time, space, causation, simultaneity, motion, gravity, etc., are merely concepts that we’ve made up to explain things. Furthermore, all of them are relative concepts.
Since most of these are concepts we take for granted as reality, think about what Einstein might say about time and price—two concepts that most people use to describe the markets in their entirety. Of course, he would say, both are man-made concepts and quite relative to the unique moment and situation. You probably can accept Einstein’s logic about time being relative since that’s part of relativity. In addition, all you need to do is compare the value of the dollar now with the value of the dollar twenty years ago (or the value of the dollar-yen relationship to its value thirty years ago) to realize that price is quite illusory and relative. And that means that most of us are just playing games in terms of our perceptions of the market.
So what would Einstein say the market is? The market is the direct sensory experience of all of the players immediately involved in the trading arena—especially those involved at the level of directly making the market. If you’ve ever been to a trading floor—be it the New York Stock Exchange or one of the futures pits in Chicago (when there were a lot of floor traders), you know that there is a lot of emotion in the air. You see expressions on people’s faces. You can hear the tone of their voices. You can also hear the overall volume of activity. Those direct sensory experiences are probably a much better representation of the overall market at any given moment. And the direct interchange of a product between two people (i.e., between a broker who must get your order off in the manner you have directed and a floor trader or specialist who is making that market) constitutes your market at any given instant. Most people don’t even think about the market in those terms—at least until now.
What about the sensory experiences of every individual who is holding a position in that market? Their beliefs about the market’s activity dictate their feelings which dictate their action or lack of action. Their actions influence the trading arena (with the quantity of influence a direct relation to the size of the position(s) that must be traded at any given moment in time) which influences other people both in and out of the arena. The strength of a trader’s beliefs about a market, combined with his position size relative to the market’s capacity, can have a dramatic influence on the price of the market. For example, if the biggest market player(s) decide that they must sell RIGHT NOW, the market’s violent reaction to those decisions will ripple through all of the minds of each participant, stimulating new feelings or actions based on their beliefs and the process continues on and on.
Profits tend to be made from the flow of the overall market (as I’ve described it) and numerous individual reactions to that flow. The closer you can get to being “here and now” observing that flow, the more likely you are to be able to become part of that flow and be successful in the market.
The more you are caught up in the emotions and memories of the past, the less likely you are to be able to go with the flow of the markets.
There are two other significant beliefs held by Einstein. Next week we will explore those and market implications.
PART 2
Editor’s Note: In Part One of this article we explored how Einstein might view the markets based on a few of his beliefs. I used the insights of one of my favorite NLP teachers, Robert Dilts, as he outlined them in his series of books entitled Strategies of Genius. There were three volumes in this fascinating series on how legendary geniuses thought. Unfortunately, Series Two on Einstein is now out of print.
This week we continue with examining how Einstein might have thought about the markets. If you missed last week be sure to read it as well. There is an exercise at the end of this article which will include the ideas from both parts.
Belief Four: The Universe is One
One of the key beliefs of most scientists before Einstein—indeed many still do hold such a belief—is that the universe is composed of large bodies and that there are certain interactions between these bodies. They also believed that any act of measuring something is separate from the individual doing the measuring and this was the model of the universe developed by Sir Isaac Newton. Even today, many scientists still assume that they can look at aspects of the universe, measure it and describe it, without having any influence at all. This assumption even holds for studying other living things or other human beings for that matter. Many scientists seem to feel that they can measure psychological process while ignoring the effect that their own presence has on the creatures or persons that they are measuring.
In contrast, Einstein completely took apart that long held model of discrete measurer and discrete measurements. He stated:
“A human being is a part of the whole called by us ‘universe’. . . a part limited in time and space. He experiences his thoughts and feelings as separated from the rest—a kind of optical delusion of his consciousness. This delusion is kind of a prison for us, restricting us to our personal desires and to affection for a few persons nearest us.”
Einstein is saying that we’re all a tiny piece of a holographic universe. If you keep one limited perspective of a tiny corner of that universe, then you will have the delusion that it is just one separate piece of the universe. But when you can look deeply enough into it—when you can look at it from enough perspectives—you will see what it really is. The whole is contained in each piece.
Once again try this belief on for yourself. Think about the implications of this statement for any observations you might make about the market. Is there really such a thing as the market or is it just a theoretical construct? What happens when you attempt to observe the market and study the causes of up and down price movement? What do words like Bull Market, Bear Market, Correction, Overbought, etc., mean? Can you even give them meaning or even study them?
Belief Four Implications for the Markets: The Universe is One
This particular belief tends to relate to all of the others. What if the whole is reflected in every piece of the universe? What if you are totally reflected in the market? Can you observe the market without in some way influencing it? Perhaps to the extent that you can be totally neutral with respect to the market — but most people are filled with judgments and emotions. When they view the market, they typically get exactly what they expect to see.
Let’s look at an example of Joe, who has an issue with anger. Joe has a system that enters a trade when the market reaches a 30-day high, however, he also fully expects the market to stop him out. It always does. On one day, the market does make a new high, Joe enters a position and he puts a stop just under yesterday’s low. About an hour later, the market starts to creep down below his entry point. It keeps going down and down and Joe starts to get upset. Sure enough, Joe is stopped out at his initial stop which is also the low tick of the day so far. From that point, however, the market starts moving up. Joe is now furious— he believes the market makers got him again. The market keeps moving up and soon it’s near the 30-day high again. Now, Joe is really furious. As the market starts moving up to new highs, Joe is beside himself. The market is always picking on him. After the market closes, Joe calculates he would have earned a $3,000 profit had he not been stopped out. Of course, Joe can’t even sleep that night. The next morning the market continues to move up and in the end, Joe calculates he missed out on another $2,000 in profits. Joe resolves to never enter another trade. The market proved him right.
What Joe never realized is that another entry signal fired when the market made a new high for the second time. He had been so angry that he missed a second trade. True, he lost $800 on the first stopped out trade but the second trade would have given him a $5,000 profit. What was in Joe’s mind was perfectly reflected in the market.
Once again, I don’t ask you to accept these beliefs as reality. Just start to notice how useful they might be. And if they are more useful than the beliefs you currently hold, then begin to think about their implications.
Five: “Our thinking creates problems that the same type of thinking will not solve.”
This belief is a direct quote from Einstein. Essentially, Einstein assumed that all human thinking makes certain presuppositions or hidden assumptions. These hidden assumptions are like unconscious beliefs that are just assumed to be true.
For example, Einstein believed that we could not really perceive what was going on in the universe because we were probably overlooking something simply because it was part of us or part of our thinking. For example, a fish in the ocean might not be aware of the ocean because it is so much a part of that ocean.
Einstein made this same assumption about many of the concepts that we use to explain the universe—gravity, time, space, etc. He made the assumption that we were ignoring a critical background element in the equation—light—because light was simply a part of everything we did. Indeed, most of Einstein’s most famous discoveries came from making the assumption (remember, it’s still an assumption) that there was only one major constant in the universe. That constant was the speed of light. When that assumption was made, time, space, and any number of concepts that had always been assumed to be fixed and real, suddenly became relative.
Now begin to think about the implications of this last belief for your reality of the markets. When you think about any belief you have about the markets, what are your presuppositions? You’re probably assuming certain things about time and price, aren’t you? What are those assumptions? And what are the implications if those assumptions are not true?
Belief 5 Implications for the Markets: Our Thinking Creates Problems that the Same Type of Thinking Will Not Solve
When you are thinking about the market, what are you assuming to be true? What influences your thinking, because you are a part of it, that you just assume to be true? Make a list of your beliefs about the market that is the basis of your trading. For example, you might say, “markets trend and I can profit from those trends.” Now take the statement apart and take a look at your assumptions.
“Markets trend.”
This makes the assumption that you know what markets are and what trends are. It makes some assumptions about price and time— that both are important and that both are relatively stable at least in the moment. However, we’ve already discussed how both are relative.
“I can profit from those trends.”
This makes an assumption about yourself. You can profit. But what does profit mean? Make money? How are you assuming that you can make a profit? Who are you? Who are you with respect to the other market players?
This analysis is just beginning to scratch the surface with respect to the presuppositions that you are making. Let’s just look at a few more presuppositions just to illustrate the point. You are assuming that profit means something and has some value. Value compared to what? Is it worthwhile to make some profit? What about the person who might take the other side of the trade? Do they want to make a profit? Perhaps you make a profit in the unit of measure you are thinking in terms of—dollars—but would you make a profit in Euros? Perhaps the dollar is going down dramatically in terms of the Euro and as a result you are really losing money with regards to your “international” wealth.
These are simply examples of some of the presuppositions in a statement you might reflect on with respect to your trading. What about problems you face with the market? What are your presuppositions? Try listing some of your problems with trading and then list the assumptions that are hidden in your problem statements.
One Final Suggestion
I hope that this exploration of Einstein’s beliefs and their application to the market has stretched your imagination. I would suggest you work on the following process.
- Adopt the belief that you will learn a great deal about yourself through this exercise.
- Get five blank pieces of paper. Write one of Einstein’s five beliefs in the middle of each blank sheet and draw some lines radiating outward from the belief. Reread each of the belief sections of these articles slowly and along those radiating lines on each sheet, write your thoughts and feelings about each belief (create a mindmap).
- As you reread each section, also record your answers to these questions somewhere on each sheet:
Is this belief useful?
Is it useful to me? Why or why not?
Am I limiting my success by not holding this belief? If so, how? - Review the completed sheets and notice what they tell you about yourself and your trading.
Through doing this exercise and the ideas suggested throughout the article, strive to reach a totally new level of understanding of how you relate to trading and the markets.
Van’s note: While Volume Two of Strategies of Genius is out of print, Volumes One and Three are still available on Amazon. In them, Robert Dilts modeled the cognitive strategies of some of the great legends of the past. These include (in Volume 1) Aristotle, the fictional character of Sherlock Holmes, Walt Disney, and Wolfgang Mozart. Volume 2 is devoted to entirely to Einstein and Volume 3 covers Sigmund Freud, Leonardo da Vinci, and Nikola Tesla. I personally believe this work shows the genius behind NLP modeling. While these books are not about trading in any way, I think they are excellent and I recommend them to anyone inspired by great thinking.