Make money from trading and investing? Get hold of your animal spirits

What is Animal Spirits?

From Wikipedia,

Animal spirits is the term John Maynard Keynes used in his 1936 book The General Theory of Employment, Interest and Money to describe the instincts, proclivities and emotions that ostensibly influence and guide human behavior, and which can be measured in terms of, for example, consumer confidence. It has since been argued that trust is also included in or produced by “animal spirits”.


Animal spirits and your behaviour in the * market cycle

* insert any of the following:

  1. Forex
  2. Stocks
  3. Stock index futures
  4. Precious metals
  5. Oil
  6. Property

From my personal observation, this chart explains why some people win all the time and some lose all the time. Investment trainers, course providers may be able to impart technical analysis or any other market timing techniques but personal performance is also affected by how an individual approaches the market with that knowledge.

Animal spirits and the market cycle

So until a trader or investor operating in the way of this chart makes that self-realisation that he is totally on the wrong foot, his money making effort is totally going to be buy high sell low.


Original passage by Keynes

Even apart from the instability due to speculation, there is the instability due to the characteristic of human nature that a large proportion of our positive activities depend on spontaneous optimism rather than mathematical expectations, whether moral or hedonistic or economic. Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as the result of animal spirits—a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.


A financial advisor said to me

A friend of mine worked at a bank. She was a financial advisor who was tasked to sell unit trusts to retail customers. I observed to her one day that she was selling to me index funds of countries’ whose stock market had rallied for several years and appeared toppish. ‘Why don’t you sell me something that is like at the bottom rather than these funds that look over the top?’ I asked. ‘Don’t the ones at the bottom have more upside?’

‘Oh no that would not do.’ she replied. ‘People are more keen to buy something that has rallied 500% than something that has corrected 80%.’

Her last piece of advice to me? ‘I will sell anything they like so that I can reach my target.’

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One thought on “Make money from trading and investing? Get hold of your animal spirits”

  1. Shao Guoyong says:

    wow the last part was uncannily similar to what happened to me 7 years ago!

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