The Phaserl


Deep Survival: Lessons for Investing and Trading in the Metals

by Pining 4 the Fjords, TF Metals Report:

I have been reading a fascinating book called Deep Survival by Laurence Gonzales, recommended here at TFMR (thank you, Turdville) that is ostensibly a deep dive into why some people, and really certain types of people who show repeating patterns of behaviors and attitudes, repeatedly survive in dangerous, seemingly impossible life-threatening situations while other people, who do the opposite and display opposite behaviors or personalities, do not survive even in relatively mundane circumstances. It is quite compelling, because the situations are life and death.

But the book turns out be about far more than simply surviving. It can be read for profound significance at many levels, and has been assigned by CEO’s of major companies during hard business environments, used by top-flight athletes and trainers competing at the highest level of their profession, and others who have found the core lessons contained within this deep examination of survival to be highly useful. I happen to have been reading this at a time of particularly low sentiment in the metals complex, and it struck me that so many of the behaviors and attitudes of the “non-survivors” category are reflected in the comments here on a daily basis that it might be of use to summarize some of the more important lessons it stresses, and put them into terms of “How to survive trading and investing in the metals”, an arena that the author of this book would likely recognize as fitting all of his descriptions of an environment of “survive or die” quite perfectly. I hope a few of you find the following worthwhile, or at least food for thought.

Emotion is biologically designed to rule us, and must be consciously controlled

A large part of the introductory sections of the book deal with neuroscience and how the brain actually works, codes and stores information, and how we turn this information into action in different environments (i.e., levels of stress). I won’t get into the weeds with the science here, but the key takeaway is that our “memory” actually operates as a dual system- the slower, frontal cortex memory where we code information and details for later retrieval, and a far faster, more complex over-lain system of emotional triggers linked to that information, environment, the combination of inputs associated with it, etc. This is our inbred instinctual survival trigger that tells us how we “should” feel about something far quicker than we can reason about it, so that you do not have to logically process through the sight of a bear suddenly looking up from behind a tree and go through the process of (a) categorizing the animal, (b) finding logically that of all animals it could be, it’s a bear, (c) reviewing your memory for past information regarding bear behavior, (d) realizing that bears are known to attack people on occasion, and (e) it might therefore be a good idea for you to run away. The thinking brain would take quite a while for this process, but the instinctual emotional part of the brain is there for survival- to trigger the correct emotion (flee) instantly. We are hardwired to respond to this emotional memory first, and foremost.

The problem becomes when this emotional part of the brain regularly overrides the rational part of the brain in situations where it gets us in trouble- people do some bizarre, seemingly totally irrational stuff. A night carrier landing is one of the most emotionally stressful things a pilot can do, and the example he gives is of a pilot who was way too low, was being “waved-off” frantically, being told verbally through the radio to go around over and over, yet he just kept flying straight towards the ship until he smashed the back half of his plane into the edge of the flight deck, splitting it in two. Why? In the emotional stress of the moment, his brain associated the deck with safety, a landing with “job well done” and an emotional release from the stress of the flight, and the survival part of the brain took over under that time of stress and said “I’m in danger and I want to get to safety”… the emotional part of his brain associated the carrier with safety and he literally couldn’t hear the radio or see the wave-off. His emotional response to “get to safety” part of the brain overrode all other inputs. Against all warnings, he flew himself right into the side of the carrier, and this type of story was repeated over and over in the book in different contexts. Emotion, overriding outside inputs and leading to disaster, is a major theme.

Does this sound familiar? Let’s rearrange the story. Investing or trading is highly stressful, the metals are brutal and a high-stakes environment. When is that stress the least, when do we feel best about ourselves? What do our brains associate with “safety”? When the metals are rising and we’ve been “proven right” and our accounts are going up while we are long and strong. Our brains have been conditioned to respond to a rise in the metals as “safety”, as a really good thing. It is where our emotions want to go.

So despite the warnings from the deck waving us off (Turd yelling for weeks about the COT wash-rinse cycle setting up for a smash) and despite the yelling through the radio (My April 21 article warning of problems in the Junior Miners and calling for an impending drop), how many heeded these inputs and chose to sell or even go short? If that isn’t your style, how many simply prudently chose to hedge their positions to be effectively “market-neutral” for a while until those things played out and a better sense of the direction of the market was given? Obviously I have no way of knowing but from comments it is clear that many not only did not do these things, many folks remained “long and strong” (what we emotionally associate with “good”) and some even added to their longs, in the face of overwhelming evidence to the contrary. The lesson of that chapter was that the “deck as safety” is an illusion of our emotional brain, and that survivors consciously put that emotion aside and use the inputs at hand to act accordingly.

Be here, now.

Of the thousands of cases the author studied over a 30 year period, one of the most powerful ideas to emerge was that survivors, in almost any environment or situation, had an ability to be actually present in the moment. This wasn’t just some mumbo jumbo, it was the deadly serious ability to be able to be open to real-time inputs without letting the emotion of the moment (I’m going to die!) or the wishful thinking of denial (This can’t be happening to me! Everything is going to be OK) get in the way of realistically and truthfully obtaining and analyzing input from their environment, then acting accordingly. The author called it “building a true map of the world” and it refers to the fact that we usually don’t possess every single piece of information about our situation so we are used to filling in the blanks with our own picture of the world… and those who do not survive fill in that information with what they WANT to be true. Survivors reject that, and instead seek to build a true map based on actual inputs, realistically weighed to the best of their ability, then act decisively. The difference is huge.

Ongoing survival in a brutal environment, therefore, requires the survivor to “Be here, Now.” Be present in the moment, mentally aware and open to the actual conditions around them, and most importantly, sensitive to any changes in the status-quo that might occur. At the end of the most recent beat-down, silver had been down 15 days in a row and daily RSI had slowly been creeping down until it reached a basement-dwelling 19. On that day, there was some piece of Fed news or something that was going to be announced later and a comment appeared to the effect that “This should be the catalyst for a huge drop” or some other such negative sentiment. To me, that poster (and other like them) had simply not been paying attention to the changing environment… the huge overhang of open interest in silver was largely dissipated, the technicals were turning over, and I challenged people to find anywhere on the charts from which a major drop occurred in silver FROM a daily RSI at or below 19. It hasn’t happened once even during a brutal six year bear market that is famous for vicious beatdowns. Huge drops just don’t happen from an RSI 19 for silver. The conditions had changed and a turn was becoming evident… but emotions were behind the wheel and analysis/reason was riding shotgun, or relegated to the trunk. The low in GDX came not only on the exact day I posted “Pining says it’s time to pick your bottom” it came literally within 3 hours of that post going up. And it’s not like I’m some magician or trading guru, I was simply open to the changing conditions and inputs and could see that the turn was frankly pretty close since all the indicators were saying it was. If someone was ignoring the changing environment, they completely missed this golden opportunity.

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