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Here's How George Soros Makes The Right Decisions In The Heat Of The Battle


Hi, Im Dave Goodboy, Executive Producer of Real World Trading. Today, I am privileged to be joined by uncertainty expert, Dr. Flavia Cymbalista. Flavia has a background in financial economics and psychology. She is the worlds foremost authority on market epistolomology, which means a specialist in how traders know what they know. She created a new approach called Marketfocusing that dramatically improves decision making under uncertainty. Marketfocusing teaches you how to work with your gut feelings in a systematic and reliable way. She has worked with multiple super successful money managers /traders. In an industry focused primarily on the quantitative, her work is truly revolutionary. I am excited about this interview, lets get started!

Dave: Welcome Flavia, thank you for joining me today.

Flavia: Thank you Dave, I am glad to be here today.

Dave: What is it that you teach traders and fund managers?

Flavia: I teach them to access information that they actually have but normally do not manage to take advantage of in their trading and portfolio decisions. I teach them how to work with their gut feelings in a systematic and reliable way: how to generate gut feelings, articulate the information contained in these vague sensations and transform that into objective questions. MarketFocusing is a methodology to improve the intuitive side of decision-making in markets.

Dave: Ok, I know every trader has had that experience of just knowing that the trade is right before even putting the trade on. Is that what you are talking about?

Flavia: Yes, and in particular I am talking about the experience of feeling there is something off with your trade. Sometimes you make a decision that looks perfectly rational and logical on paper. In trading you take a look at your indicators and your methodology tells you to do X. Yet something inside you complains. You feel it in your body that something is off there. The decision is not sitting right. As a trader, David, have you experienced these feelings?

Dave: Sure, I experience feelings about trades. However, generally I endeavor to fight the feelings and act in a rational, systematic manner.

Flavia: And do these trades turn out to be winners or losers?

Dave: Well, in these cases, more often than not theyre losers.

Flavia: Exactly. Those trades usually go wrong. Afterwards, in retrospect, you can see that there was a crucial factor in the situation that your logic or your methodology wasnt taking into account. You can see that in retrospect. My methodology, MarketFocusing, teaches you how to see it with FORESIGHT rather than HINDSIGHT. It works with the gut feelings and helps you articulate the factors behind them with foresight, in advance instead of in retrospect. It then leads to decisions that sit right. The decision is then rational AND it feels right.

Dave: You mean, your head and your feelings agree?

Flavia: Thats right. Its a mistake to think that gut feelings and logical analysis contradict each other. Theyre complementary. Just think about it: You can justify rationally any trade. Theres always a way of doing that. Any trade and also its opposite. You can always find logical arguments for anything you please. The right question to ask is: are my premises relevant in this current situation? The models themselves cant tell you that. Models are abstractions; theyre independent of context, of the particularities of the situations.

Dave: This all seems very mystical. How does your body know these things?

Flavia: We are constantly absorbing and digesting information. We are doing that all the time on a subliminal level. We are only conscious of a very small part of that information. Thats explicit knowledge, the knowledge that we have articulated, and with which we reason logically just a little part of all we know. The rest is subliminal; its stays in the background. When something in the situation violates our experiential knowledge, the body complains. That is when you have that funny feeling.

Dave: Were usually told not to pay attention to our subjective reactions, to be objective.

Flavia: The truth is that our subjective reactions contain information about the situations were facing. This is true in any profession. Think about M.D.s. Whats the difference between a good doctor and a bad doctor? The bad doctor just like an inexperienced trader has a checklist and criteria that he uses without really looking at the patient. The good doctor looks at a patient and has a feeling of this or that, and gets puzzled. The funny feelings guide his questions, until he gets to a diagnostic that wasnt evident at first. Its like that in any profession. We have theories, concepts, and models, things that we already know and that have already been articulated, conventional criteria, procedures and best practices for decision-making. But they cant tell you whats relevant right now. In markets, the risk and expected return of each position is constantly being affected by a multiplicity of interacting influences, which we cannot monitor one-by-one. Our analytical methods and quantitative tools are based in the premise that in the future things will change in the same way they did in the past. Of course we need analysis, but to base ourselves exclusively on these tools can result in serious errors.

Dave: Yes, the map is not the territory.

Flavia: Exactly. And the territory is not the territory either. Its not a stationary thing; its a multi-layered web, which is always evolving. And it evolves in ways that escape our maps. Thats my definition of uncertainty: that which escapes our models and theories. Thats where gut feelings come in. If youre uneasy with a position or decision, theres something off with the way you have structured the situation with the mental map youre using to navigate the territory. The map cant give you the answer the answer emerges from your situational sense of the territory. This situational sense is in your body: the unease is telling you that youre leaving something crucial out of the picture, using an old map, and its time to re-map the situation.

Dave: So, thats how gut feelings come in. They tell you to check your premises.

Flavia: You got it. Superior performance requires not only good analysis based on the past but also a bodily sense of the market process and how its currently evolving. Because of uncertainty, we have to constantly re-map the territory. And our bodies help us do that. Neglecting what your body knows results in avoidable losses and missed opportunities not to mention stress and sleepless nights

Dave: Lets back up into the concept of uncertainty. You call yourself an uncertainty specialist and also a market epistemologist a specialist in how traders know what they know, in their ways of knowing. How did you get into that in the first place?

Flavia: At the time I did my doctorate in Financial Economics, the academic discussion on whether markets and market participants are rational or irrational was just beginning until then, the huge majority of academics believed markets to be efficient, that is, to fully reflect fundamental value at any point in time. It struck me that there was a huge gap between what the academics were saying and the experience of market participants. The academic theories left uncertainty totally out of the picture. Theyd talk about risk, which involves stationary probability distributions, but not true uncertainty. But uncertainty is the essence of whats going on in the market! Its what market professionals are paid to deal with! I saw that the traditional definition of economic rationality was only adequate in a deterministic world where you have the stationary distributions and can compute the best course of action. The really interesting question, I thought, was: What does it mean to be rational under uncertainty? As I explained above, to be rational under uncertainty requires more than logical thinking alone.

Dave: So you expanded the concept of rationality to include intuition.

Flavia: Thats correct. To be rational under uncertainty we need more than logical computation. Theres something that traders do that is not in the models, in the computers, in the systems. It needs a living person participating in the situation. Look at the difference between a beginner and an experienced trader. Both can have the same tools, the same models, know the same theories, and yet theres something that the beginner doesnt have. Its the invisible side of trading.

Dave: This would be experience.

Flavia: Yes, But what does that entail? All good traders agree that having a feel for the market is what makes the whole difference between a good trader and mediocre one. They tell you they smell the market, feel the market. Yet they cant tell you exactly how that works. And its very difficult for a trader to work with his feelings on purpose. You have a feeling, sometimes you dont have a feeling, and these feelings come as they please. It is not something you can usually control. I then asked: can this be improved, can this be taught? And developed MarketFocusing, which teaches people to bring forward gut feelings anytime they need them, and know if theyre reliable or not.

Dave: How did you create MarketFocusing?

Flavia: Well, it took me a lot of reseach and experimentation. The starting point was the work of Eugene Gendlin, a philosopher and psychologist, who specializes in the relationship between logical reasoning and experiential, embodied knowledge. He developed a methodology called Focusing, in the 70s, at the University of Chicago. I adapted this technique for financial markets, and developed an application for decision-making under uncertainty.

Dave: Is there a step-by-step process to this?

Flavia: Yes, there is a step-by-step process. Ive written about it, with different applications, in a series of articles on How George Soros Knows What He Knows for the magazine SFO. Theyre available on my site: www.marketfocusing.com. However, my experience is that you cant learn the steps just by reading the instructions. You have to experience the process. Its only then that you can really see how powerful the steps are and learn how to do them yourself, on your own.

Dave: So, how do you teach MarketFocusing?

Flavia: I teach this process one-on-one. The training has three segments each is a session of about 1.5hrs. Each time I emphasize a specific aspect of the process. The first concentrates on listening to your organic reactions. It teaches you how to find them and the right way to listen to your gut so it will tell you what it knows, The second segment teaches how to separate real gut knowledge from emotional reactions. A reason why gut feelings are so often unreliable is that your bodily reactions initially include emotions and irrelevant factors and motivations that have nothing to do with the actual situation. In the second session, I teach my clients to separate emotionality and other irrelevancies from the complex and subtle feelings that enter into reliable gut calls. In every session we work with the actual decisions and positions that the client has, I guide them through the steps and adapt them to each person. By the third session, the clients have experienced the process many times. Its only then, when the building blocks are in place, that the step-by-step makes sense. After the third session, clients know how to guide themselves.

Dave: Can anyone learn MarketFocusing?

Flavia: The methodology is made for professionals. It does not substitute for experience it builds on experience. Without experience, the person has no raw material to work with. Ive had beginners come to me and say they wanted to improve their confidence. But the truth is, they have no reason to be confident they dont have enough experience. There isnt much I can do for them. On the other hand, the more experienced and the more intuitive a person already is, the more he or she will benefit from the methodology.

Dave: We are just about out of time here, is there anything you would like to leave our members with?

Flavia: Well, theres much more.Best for those who are interested is to visit my site and read the articles. The address is: www.marketfocusing.com

Dave: Thank you very much.

Flavia: Thank you.

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