Deep Survival: Lessons for investing and trading in the metals
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.
A common theme that the author returns to over and over is that survivors take charge of their own survival and take responsibility for themselves (own your trades), while those who aren’t going to make it constantly externalize their situation and waste energy through blaming behaviors. A yacht goes down and one lady huddles under a tarp to keep shaded, knowing that water-loss is going to be a huge factor so she tries to keep from sweating, while the first-mate stands on the bow of the raft screaming at God and cursing the hurricane that sunk the boat. Guess which one survived and which one died? Survivors do not blame their circumstances or waste energy hating-on outside forces, they focus their energy on understanding and surviving the reality they face. Blaming and anger are counterproductive and keep your mind muddled and on the emotional plane, rather than calmly focused on inputs and accurate assessment of the current state of affairs.
I’ve long wondered why some people who run investing services in the PM space “deny” or more accurately downplay the obvious manipulation in these markets, when the evidence is right in front of us on a daily basis. After reading this book, I think I better understand why. They know it happens (at least some do). They ALSO know that complaining about outside forces beyond their control is a waste of time and focus, and they are focused on surviving. The more productive mindset is “This is the terrain, how do I navigate it today”. Manipulation is to the PM markets like wind is to the sea- it’s always here, and ever-present. TF has always said from day one, even before the blogspot, back to the old days on ZH, that a major reason his analysis succeeds is BECAUSE of manipulation and its effect on the markets. So complaining or blaming it is like the sailor who says “Well I would have successfully navigated to that port, if it wasn’t for the damn wind”. Well, duh. The wind is a huge part of being at sea, and always has been. The manipulation is a huge part of the PM markets, and always has been. Trading strategy that does not account for manipulative events happening regularly (have stops and honor them, or don’t trade) and plans to overcome them, is like sailing strategy that will work great as long as the weather always remains calm. Useless as tits on a boar.
It is revealing that, based on thousands of accounts, the author notes that people who study survival can almost eerily predict who is going to live and who will die based on nothing more than their words during the first hours immediately following the event. It doesn’t matter is someone is an ex-fighter pilot whose been through survival training vs. a 17 year old teenage girl who has no training whatsoever. When the record notes that in the immediate aftermath of the crash the former is noted as complaining loudly about the unfairness of the situation, is angrily blaming others, the researchers reading the account already know that the person is in deep trouble. If they read that the reaction of the girl was to say, as her seat fell out of the broken plane over the Amazon “I noticed that the trees looked like big cauliflowers” they already see the seeds of her survival. She lived, he died. She was already calmly taking in information about the world around her in the midst of chaos, he was emotional and engaging in blaming behavior. So despite his vastly superior (on paper) training, his compromised emotional decision making process would eventually lead to his death, while she would be the only one to walk out of the jungle alive 11 days later.
Humor as a survival mechanism
Attitude matters tremendously. The researchers note that dangerous professions acknowledge this and develop “dark humor” to allow a healthy outlet for emotions that can be vented in a way that does not allow emotion to impede data gathering, reason, and decision making. Groups from firefighters to soldiers develop almost macabre humor that allows them to deal constructively with the danger of their situation, and they will deal almost ruthlessly with people in their midst who bitch and moan, or “crack up” with the stress, because that kind of weakness is contagious and threatens to undermine the clear thinking of others around them. Joking about JPM is a survival mechanism. Bitching and moaning about JPM threatens survival.
At the end of the book, the author tries to sum of some major points his lifelong study of survival, of who lives and who dies and why, had taught him. You can see him struggle to compress the richness of these lessons into bullet points, and he isn’t entirely successful, but I’ll include a few of the most relevant, with a trading slant:
- Perceive, then Believe: Survivors take an accurate assessment of their situation, good and bad, and do not engage in wishful thinking. They are open (almost Zen-like) to their environment and sensitive to it and any changes in it, and then they act decisively. Even in desperate circumstances, true survivors move very quickly through denial, anger bargaining, depression, and acceptance to “go inside”, to see that THEY are the source of everything that is going to happen to them, good and bad. They own the outcome.
- Fight for A Calm: Survivors feel fear like everyone else, but they have an ability to use that fear to produce a sharper focus while never letting it get control of them. They keep the fear in a small box- it’s there, but its controlled and they master it with effort and will.
- Think/analyze/plan: Survivors are deliberate about what they do, they have a plan and they work the plan. They are also highly flexible about that plan and if any change in the environment makes the plan obsolete, they immediately junk it and start planning a new one. One of the best, yet most baffling pieces of trading advice I've ever recieved was from Argentus, who said to me a long time ago "If you don't know what your advantage is over the market, you better not trade until you do". He was absolutely right, but it took me a very long time to figure out what this was and how to do it. That is what thinking, analyzing, and planning means to me. Finding your advantage over the market, and not acting until you have it.
- Take correct, yet decisive action: Knowing what to do is only part of it, survivors have the guts to act boldly when required. Going all in when conditions are ripe may not be fool-hardy, it may be the smart play.
- Celebrate small successes: Even tiny gains are gains, and survivors deliberately allow themselves to take pleasure in small tasks accomplished or obstacles bested. Even small goals met should be celebrated, as they contribute to the mindset of a winner (a survivor). Success breeds success.
- Believe your will succeed: Those who die are typically the ones who say “This is hopeless”. Survivors develop a mindset that says “If I perform correctly and act carefully, I WILL succeed and make it out”. They believe that if they act correctly, they will do it. Belief in the possibility of success is absolutely necessary.
- Do whatever is necessary: Survivors are often rule-breakers, who are willing to do whatever it takes (covering yourself with seaweed to keep warm after a Hurricane, even though it stinks and is slimy). In trading the metals, this means GOING SHORT WHEN THE MARKETS CALL FOR IT. Opportunity is opportunity, period. Survivors do not pass up an opportunity.
- Never give up: Survivors are not easily frustrated, and believe there is always one more thing they can do. They do not allow setbacks to stop them, but keep plugging away and see opportunity in adversity (a beat down simply means there is now value in the market where there wasn’t before… things are cheaper, this is opportunity).
Anyway, I hope that something in the above might be of use to some of you- I found the book to be quite fascinating and helpful, and I am glad I read it at this particular time!
Good luck, my friends.