Introducing Inside the Mind of a Trader

Dr. Indre Viskontas:

Hello, and welcome to Inside the Mind of a Trader, the show where we explore how brilliant traders are wired for success. I'm Doctor Indre Viskontas, neuroscientist and professor of psychology at the University of San Francisco.

On this episode, I'll be talking to Kathy Lien. Kathy is a world renowned expert in trading currencies and the co-founder and managing director of BK Traders. But when she's not trading, she can be seen on CNBC, Bloomberg and her own popular Forex YouTube channel. Hi Kathy.

Kathy Lien: 

Hi.

Dr. Indre Viskontas:

So I feel like I already know you because I've seen inside your brain.

Kathy Lien:

I hope you found some things that are interesting.

Dr. Indre Viskontas:

Oh, so much, so much. But I want to start with asking you what it was like to be a prodigy. At 13, you started college.

Kathy Lien:

Well, it was definitely something that was unexpected, but to be honest, Indre, I didn't feel that much different. I felt like it was second nature. I'm in an industry where I am often the only female, the only minority, and I was the only 13-year-old at New York University at the time. And I think, from very early on, it was just part of who I am. I'm not afraid to be the only one in the room doing what I'm doing.

Dr. Indre Viskontas:

So when you were growing up, did you know that your thinking was different from, say, the other kids in your class?

Kathy Lien:

No, I wouldn't describe myself as a prodigy. I would basically say that I learn things a lot faster and I pick up things a lot faster than most people, and I think that helps me understand concepts. And thank God New York University made you take classes and many different topics, and one of them was macro, microeconomics. And who knew? It just made perfect sense to me. And it's from there that I really felt like this was second nature.

Dr. Indre Viskontas:

When I look at your brain, I can certainly see some of the things that you're describing. Do you want to tell me a little bit about the kinds of cognitive skills that you've developed over time that you think make you a good trader?

Kathy Lien:

I react much more on instinct. And once I've developed a trading system, I have a trading system that I've used for over 10 years now, and it's almost second nature to me. So for me it's just about developing the habit and repeating the habit over and over again.

And it's a complicated process because for me, I'm a trader that fuses what we call fundamental analysis and technical analysis. So I dissect all of the incoming news flow, I take a look at what the market sentiment is, whether it's a positive day, a negative day, I take a look at whether investors are bullish or bearish, and I combine that with chart analysis, but it happens very quickly for me. This whole process could happen in 10 minutes maximum.

So I think it goes back to my initial learning process. One of the ways that I was able to go to college at 13 and graduate at 18 was because I took, during summer programs, accelerated math learning classes where I learned different ways to do mathematical equations very quickly. And I think, taking that type of thinking into the real life scenario and trading, I've been able to recognize the shortcuts and be able to process them quickly so that I can make fast trading decisions.

Dr. Indre Viskontas:

It's really interesting. You mentioned intuition, and a lot of people think of intuition as something that you just have a gut feeling, either because you have this literal, physical response, or that you're not consciously aware of what it is that's coming into your decision-making, it just kind of feels right. And I think a lot of people don't understand that that instinct, that intuition is built up over time through learning. And it sounds like that's what you're describing, this building up over time of this knowledge base that now you can quickly query as opposed to just going with a feeling that may or may not be based on any actual reality.

Kathy Lien:

I agree. I mean, this is true of many careers out there. I just got off the airplane. A pilot, by instinct, knows how to react in certain types of turbulence and environment. And you call it instinct, but it's also experience over time.

Dr. Indre Viskontas:

Yeah.

Kathy Lien:

And I think that comes in everything that we all do. And for me, that's trading.

Dr. Indre Viskontas:

So this is a statistical map of your brain of what it looks like in terms of its activations while you were doing the fluency task, so where you were thinking of either trading-related words, so we gave you a prompt like high frequency, and then we asked you what were you thinking about or like beach, like what you think about when you go to the beach. So in yellow that's how your brain was active during the beach and unrelated questions. And then blue, is trading-related. And what you can see is that there's a lot more blue than there is yellow, and especially in these kind of frontal parts of the brain and around this whole area in the temporal lobe, which is where we store concepts. So it suggests that when you're thinking about things that are trading-related, you activate a lot more representations in your brain, you have a lot more concepts to draw from.

But the other thing that we found remarkable overall across all of your brain scans is that your brain had more, larger swaths of activation than the average undergraduate. But when we asked you to make decisions that were either based on a fake trading scenario that we made up, versus a fake other, hopefully, equally complex scenario like, "Who would you vote for in an election? And here's the pros and cons of a particular stance," you spent a lot more time thinking about the non-trading related scenarios, but for the trading-related, you were like within three seconds you had your response.

Kathy Lien:

Those were really interesting questions because I wasn't sure whether I should be voting based upon what I think is going to be the successful result or what I think should happen on a moral basis. So I spent more time thinking about that, and I think that probably came through through the results. Because there's one thing, you know what the outcome will be, the most likely outcome, you know what should be the outcome based upon your own ethics? And I think I was just toying with it.

Dr. Indre Viskontas:

Okay, so that makes a lot of sense. And then again, in the blue trading-related questions, what we see is a lot more activity here in the parietal regions where it's about shifting attention. It's about shifting your attention inward to your thoughts. So it seems like there you kind of had more of a strategic way of accessing the existing information you have in your brain rather than these kinds of islands of activity in the other decisions where it seems, although you were kind of maybe using different networks, probing different aspects of how you think in order to look at those. Is that kind of-

Kathy Lien:

I think a lot of the questions that were trading-related involved numbers, and so, it was easier for me to process. It's something I'm very comfortable with. And as I said, the more non-trading related ones I felt were just whether I should make a decision about what should be done versus what I think personally will be the result, what people vote for.

Dr. Indre Viskontas:

That's really interesting because of course, well, I guess I say of course because I know that, but you might not, which is that the arithmetic, the math areas of the brain are often in this parietal region. And so, it does seem like you're doing some kind of actual calculations here-

Kathy Lien:

Yeah.

Dr. Indre Viskontas:

... even though... Okay, interesting. So in terms of just this way of looking across all of these slices in the brain, so yeah, what you see here is that you've got a lot more of this activity in these parts of the brain that are involved in strategic retrieval, math, those kinds of tools when you're talking about those trading-related decisions.

Okay. So are you ready for the next one?

Kathy Lien:

Okay.

Dr. Indre Viskontas:

So this is where we asked you to do this task that involves pairing kind of risky decision-making versus something that is a control. Okay, so let's start with the control task. We showed you a couple of stamps and we asked you which one do you like better, right? Totally random.

Kathy Lien:

Yes.

Dr. Indre Viskontas:

That is a control condition because we want to control for things like just making a decision, we want to control for a preference and also even just the button presses, like motor activities involved there. We want to be able to subtract that or take that away from...

The tasks that we're really interested in is when we pair you with this choice. There's a safe choice, so there's always a 100% chance of, say, getting a dollar. And then, there's a risky choice where it could be an 80% chance of getting $2 or a 20% chance of getting $10.

And we were interested in a number of things. First of all, which choices do you make? How do you strategize about those kinds of choices? So that's kind of the behavior, and then, what's happening in your brain when you're making those decisions.

So when it comes to the stamp condition, we see the areas that we expect like here, which is your visual cortex. Basically, you're just looking at those features of the image and then some motor, maybe a little bit of dorsolateral prefrontal cortex, which is kind of like you're just pulling the trigger on making that decision.

But when it comes to this risk condition, here again, you can see, there's a lot more blue than there is yellow. So you're recruiting many more networks and regions when you're doing that, and especially here at the front part of the brain where you've got your executive functioning skills, so these are the skills of a CEO of strategic planning and that kind of decision making on the basis of your prior knowledge. But you also have this big swath again here back in the parietal lobe where a lot of your conceptual information is stored. So it seems like you're making this decision. Does this sound at all what you were doing?

Kathy Lien:

I am definitely making a decision when I'm looking at the options given to me that are related to trading. I guess, I'm interested in finding out, well, how does this compare to someone else who is not necessarily in training. And is my brain activated in different ways than a college student would be, for example?

Dr. Indre Viskontas:

100%. 100%.

Kathy Lien:

Okay.

Dr. Indre Viskontas:

So it looks very different, but I'll get to exactly how they differ in a minute. But first, when you took the risky option, you can see here in blue, there was a lot more decision making, a lot more of your brain that was involved. And when I looked at the response times that you used in order to make that decision, I found something really interesting, which is that the first 10 or 12 trials that you saw these different levels of risk, you seemed to take longer. And then, once you had seen that level of risk, the next time you saw it, it was real quick. So it looks to me like you decided, "Okay, when it's a 35% risk, I'm always going to do X." Is that what you did?

Kathy Lien:

Yes. I think it really comes down to my trading style as well. I'm a strong believer of trading defensively, which means that when I have profits, I protect my profits because at the end of the day, we want to walk home with more money in the bank than we left.

And in the beginning, in the program that you had, we did not necessarily see the money in the bank that was given later on. So it took more thinking in terms of do I want to start focusing on accumulating gradual, high probability profits or do I want to take the bet, and then, hopefully, generate that profit in the bank so that I can keep it later on? So there's a lot of thinking involved in that.

Then once I saw the bank account and I saw how much was in the bank, I knew that I could react more quickly in order to retain that equity that was in the account. And at the end of the day, this is what I think traders, especially those of you that are trading for yourself should be thinking about, which is that once you've made money that maybe you want to take less risk in order to protect your profits, or you want to think about how if I made $100 already, the max loss I want to take is $50, at least I can walk away with some profits. So depending upon the risk profile, if that risk opportunity is $200 for a $50 bet, and it's just your first trade, then maybe you do want to do that. So there's a lot more thinking that goes into the decisions that I make that I think are reflective of my personal trading behavior.

Dr. Indre Viskontas:

And we see that in terms of the amount of brain activation, the amount of thinking that we literally see that you're thinking. And I have one more really cool finding to show you, but let's take a quick break and I'll be back with Kathy Lien.

James Kostulias:

A lot of what we do and a lot of what we talk about at Charles Schwab and with our whole offering of Schwab Trading Powered by Ameritrade is the educational component.

Lorraine Gavican-Kerr:

We really like to teach our clients about risk management, about using a platform. I think that we really want to set people up for success for whatever they want to do. So traders have different aims, different goals, they trade different types of products.

Chesley Spencer:

Enabling them to see what they are able to do, particularly with things like derivatives or options where it's not nearly so much a binary of, "Hey, you think this is good? Buy it, it'll go up. You think this is bad? Sell it, and go down." All of those have very particular actions one can take based on them. It's a lot more nuanced than just a simple buy or a simple sale.

Lorraine Gavican-Kerr:

The people who work behind the product and experience are traders, they're super engaged, they love what we do.

Chesley Spencer:

Advice is very much a part of the overall Schwab business, but in the trading space, it's much more about empowerment.

James Kostulias:

Whether you're somebody who's more fundamentally based or more technically based, there's so much to learn across how to trade different instruments across, how to trade different markets. And so I think from my perspective, what I would say is continue to learn and continue to educate yourself. There's no sort of one playbook to trading.

Dr. Indre Viskontas:

Okay. So this is the finding I was most excited to show you, which is that when we give this task to undergraduates or basically anybody, what we expect to see is that their reward pathways, their sort of sense of motivation are activated by the level of risk, so the more risk they take or the more reward they get, the more activation they get in these reward pathways. We saw none of that with you.

So I would be expecting to see here in this region too, in the striatum, a lot of activity that is at least somewhat modulated by either the risky or sure choice or the level of risk. And as you can see, this is like the least activation that we saw.

And even when we look at your whole brain, when we compare the risk-taking trials versus the stamp trials, we don't see any activation in these emotional or reward pathways like the amygdala and the striatum as if you don't have an emotional reaction to what it is that you're doing. And maybe it's this task, but I suspect that that's one of the ways too that you've become a really amazing trader. So how is it that you... What do you think about that?

Kathy Lien:

Well, I don't think that being completely unemotional is the best way to describe my trading process. I mean, I'm only human, right? So I am watching my trades, there is some emotion attached to it, but the task, many of the tasks that were done, the questions related to trading basically presented me with a choice of something that had an 80 or a 100% accuracy versus a 20 or 30% likelihood of happening.

So for me, it's second nature to pick the higher accuracy regardless of the amount of the reward, because my job as a trader is to just make money, and my job as a trader is just to accumulate profits and I want to do it in the most methodical, low-risk way possible. My job is not to go into the casino and gamble and hope that I'll make $1,000. So I take it from a very methodical approach, and I think that's what's made me a great trader because not only am I looking at it from a probability perspective, but if something's not working out, Indre, I'm cutting my losses and I'm just dropping the trade.

Most people go into trading and their only goal is to make money or to outperform the S&P, for example. My goal is to make 1% a week, and once I've achieved that 1%, then I'm focused on protecting my profits. And then, I do that again and again. And I think looking at it from that perspective, 1% doesn't seem much, but it's unlevered. And of course, leverage comes with risk, but it accumulates over the course of time because that could be 3 to 4% a month, 30 to 40% a year. Obviously, there's going to be losses in there, that's why it's 30 to 40%. So taking it from a methodical approach, I think minimizes the emotions. And being able to get out of the trades when they're not working out quickly also allows me to check the emotions at the door and to focus on just making those pips and keeping them.

Dr. Indre Viskontas:

But that's something that's really hard to do that people have to learn. We call it loss aversion, that it's really hard to kind of get rid of the thing that you were hoping was going to make you money, but isn't working out. And that's a lot of the area where emotion comes in and people make trading mistakes.

Kathy Lien:

You're absolutely right. The emotional aspect of trading is probably the hardest part because at the end of the day, I think every single trader has had the experience where they may be up a lot and they let the trade completely reverse and then go into losses, and they're pounding the table and say, "I wish I took my profits." And being able to recognize that and to basically take steps to prevent that happening, I think is one of the most important aspects of trading because anyone can make money, keeping the money is really key, and I think that's the key to longterm trading success.

Dr. Indre Viskontas:

So how did you develop that? Is this something that you feel like you were naturally wired in the beginning or is this something that you actually took the time to develop as a skill?

Kathy Lien:

It came to be, to be honest. I mean, I traded in the beginning. I started trading in '99 during the go-go days of the dot-com boom. It was all about big, triple-digit profits. And I think with time and also shifting markets to foreign exchange and currencies where the instrument is much more levered, and so, the ups and downs can be more significant, I think it's important to take a methodical approach. So I guess goal-setting just came to me, but it's through a long career of trading that I've come to realize that having that goal is probably one of the pivotal parts and transformational parts of my trading because very few people think about that, they just think about making money, and they just think about proper trade selection.

And that's why I also always tell people that the exit, your targets and your stops should be just as important as your entry. Almost everyone focuses all their efforts on their trading strategy, on how to enter the trade, when to pick the right top and bottom. They focus very little effort on how to exit the trade. When should you exit? Are you going to double down? Are you going to scale in, scale out? Are you going to take a profit before the market close? Very few people think about that. They just think about, "I want to make money."

Dr. Indre Viskontas:

Mm-hmm.

Kathy Lien:

And then they see, and this is particularly dangerous when we have a bull market that turns into a bear market where you see everyone floating these significant profits and they don't want to take their profits for a variety of different reasons, then they start to see the profits eroded as we get a bear market happening. And the most dangerous aspect of that is that when you have a bear market, the moves are so much more aggressive and so much more intensive and so much sharper against you that it prevents you from acting because you freeze and you think, what should I do? Should I take the loss or should I hope that it's going to recover again? And then, they end up blowing up their account.

And with trading, I think that's much more important than investing because with investing, companies have value, with trading, especially when you're trading a levered instrument, your value is only the size of your account. And so, that's why having my target and getting out and making sure we just build that slowly, has been the real transformational part of my trading.

Dr. Indre Viskontas:

You use the word freeze, which is so apt because the amygdala, which is one of these areas of the brain that are involved in am ambiguity and uncertainty, when it's activated, it can cause literal freezing. We see this in rodents that we study, they literally freeze, they don't know what to do. And when I see that when you're making these decisions, that is not into play, look, maybe our task isn't the best representation of what you do, but it makes a lot of sense to me and it makes me think about how this has been wired up over time for you.

I do have a question because it looks like you have these strong executive functioning networks, executive control networks that are activated simultaneously. So did you play a musical instrument growing up or learn a second language?

Kathy Lien:

I played piano, not well. I don't remember how to play piano now, but I do speak Chinese. I love foreign languages. I speak a little bit of Italian and French, and none of them well except for Chinese, but I do love foreign languages.

Dr. Indre Viskontas:

Because it turns out that the bilingual brain also has this feature, have all these high executive functioning skills that get developed through the development of a second language. So that's really interesting.

And I think if you go to NYU and you're 13, you have to be pretty goal-oriented or you have to have these networks in place to be able to keep track of all of the assignments and all of the things that 13-year-olds in general are pretty bad at.

Kathy Lien:

Honestly, I didn't even think about it. I mean, I was just another student and I had the same homework, the same responsibilities, the same deliverables as every other student, and that's the only way that I looked at it. And I feel like it just came second nature.

Dr. Indre Viskontas:

Mm-hmm. So getting just back to this exit strategy that you talked about how important it is to have that strategy laid out, one of the things I think can be really painful about loss is when you pull out of the market because you've made your 3 or 4% and now you see the stock or the trade go up so much more, how do you deal with that element of FOMO?

Kathy Lien:

That's a very good question because I mean, that happens to everyone. I just move on. It happens to me, actually, every day. It happened to me today where I had a trade and I took my profit, it went much further. But I find relief and I find comfort in that I stuck to my goal and I exceeded that goal already this week. And so, I may not have made 100% of the profits, but at the end of the day, I went home with more money than I left. And that is my only job, which is to make the profits, keep them, and then do it again every single day.

I don't trade in a way where it's just about the big winners, it's about the consistent, steady winners. And they will be smaller than the 10, 20, 30% gains that you've held for a year for, but they're repeatable. And that, I think, is the most important aspect of it, because you don't want to just get lucky. This is true of athletics. This is true of pretty much anything someone is good at. You find something that works and you just do it over and over again.

Dr. Indre Viskontas:

So as you've learned to regulate your emotions, is there some place that you let out steam? Do you take a sledgehammer to a wall once in a while or something like that?

Kathy Lien:

No, I don't think that would work out very well, but I shut down in terms of trading at very specific periods of the day, and also, periods of the week. And I don't look at it again until I have to restart.

So part of my trading process is I trade the environment that works best for my strategy, which is basically the market opens. And so, basically, I trade from 6 A.M. New York time to about 9:30 New York time. And then I trade the Asia open between 8 P.M. To 11 P.M. and then, that's it. Between there, I don't look at the markets at all. I'll watch some news, now, maybe I'll do some analysis, but I'll just work on other things. And come Friday at 9:30 A.M. right after the New York equity market open, everything's digested, I'm pretty much done. I am doing other things, catching up on other work. So I only focus on the periods that are most efficient for my strategy, and I just step away from the markets any other time.

Dr. Indre Viskontas:

Well, I can certainly see that strategic thinking in your brain activation. And I just want to thank Nina Dolfen and Lila Davachi at Columbia for helping me get these scans, and Yoed Kennett for the Alternate Uses and Alternate Questions Task. And of course, Kathy Lien, thank you for lending us your brain and telling us how you use it.

Kathy Lien:

Thank you for having me.

Dr. Indre Viskontas:

Join us next time as we inside the minds of brilliant traders.

Dr. Indre Viskontas:
 

Hello and welcome to Inside the Mind of a Trader, the show where we explore how brilliant traders are wired for success. I'm Dr. Indre Visconti, neuroscientist and professor of psychology at the University of San Francisco.
 

On this episode, I'll be talking to Stinson Dean. Stinson, a former standout college quarterback, lives, breathes, and physically trades lumber. As CEO of Deacon Lumber, he routinely shares his strong opinions on commodity trading on social media platforms and financial news shows. Hi, Stinson.
 

Stinson Dean:
Hi, Indre. Thanks for having me.
 

Dr. Indre Viskontas:
 

Oh, so great to have you. I want to start out by talking about your career as a college quarterback. How did you gain those skills? How did you learn to take your team to victory?
 

Stinson Dean:
I grew up playing sports and I played football since the third grade. And it wasn't until school football that I started playing quarterback. You grow up watching players on TV and the quarterback is the one we all gravitate to, so I was able to... I laugh because my son is in little league flag football now and he doesn't play quarterback. He doesn't care to, but I remembered in little league I would learn the quarterback plays even though I played fullback. It was a completely different position.
 

I always just was drawn to that position because of how much impact you have on the game, but really it wasn't until college football where the stakes are so much higher and the depth of the game is so much deeper. You kind of go to school, but really, as a college quarterback, you're getting a PhD in quarterbacking. Those skills, kind of the grit and the callousness of failure, those things were developed through intermediate football. But, really, in college is where I've developed into a quarterback that can read defenses and lead a team and we take tests during the week and film breakdown and all those skills that kind of come together to create both the physical skillset and then the mental skillset.
 

Dr. Indre Viskontas:
Yeah. So tell me a little bit about that training period when you're developing those skills. I don't play football, but I imagine that part of it is you're looking out on the field, you're watching all of these players move positions, you have a plan in mind, but you have to also be able to adjust. There seems to be both this spatial awareness that you have to have, but also this sense of what is going to follow what and...
 

Stinson Dean:
There's rhyme and reason for every movement on a football field and you don't really appreciate this until you are in a dark room in a conference room with a projector up in film and you're pausing it and you could play one second. We have a pre-snap analysis and then we hit play and then we go for one step. Everyone just takes one step and then you pause it again. You got to reevaluate your post-snap decision making. You have a series of outcomes that are possible based off of the alignment of the defense and the defense knows this. They may show you something to imply an outcome, but once the ball's snapped, you can't lie, you can't cheat, you can't be out of position from a defense perspective, then you got to start making your movement.
As a quarterback, you have your post-snap read. So everything you did pre-snap, you now have to either execute on or throw it out the window and, within a step or two, have a new decision and a new series of outcomes. That's just on paper. That doesn't take into account the flow of the game, the score, where you are on the field, your intent for that drive, your intent for that play, if you're in a position to take risks or do you need to be a little bit more conservative to move the ball down the field in a more conservative manner.
 

All those things are playing into your head and ultimately playing quarterback is about putting one defender in a place where they can't cover two people and you got to figure out which defender is going to be the most vulnerable and then throw it to the guy he's not covering. But there's a lot of steps and repetition and practice and study before you get to the game and then try to execute on that.
 

Dr. Indre Viskontas:
Yeah. I mean, I can already see the parallels of how this might impact your job as a trader, as you have to not only know the landscape and be able to predict people's behaviors or the market's behavior, but you also have to be able to pivot on demand. How do you approach now those elements of trading? Do you ever find yourself actually thinking about football when you're...
 

Stinson Dean:
I do a lot. One of the most common phrases in a quarterback meeting room is you can't go broke taking a profit. That's typically in the red zone where you just have 20 yards and the field has shrunk. A four-yard play on a percentage basis is significant on a 20-yard field. On a 100-yard field, four yards isn't that big a deal.
 

Generally in trading, if there's profit there, we say, "If there's an order, you take it." You don't get greedy and you don't hold out for a higher price. When there's profit there, you take it. That's always going through my head, "You can't go broke taking a profit." My quarterback coach taught me that at the University of Wyoming, and now it applies to, "Hey, we got into a good trade. There's profit there. We're going to take some chips off the table." The other parallels that I apply to... It's funny. I mean, I'm trying to dodge 300-pound men tackling me. Now, I'm just clicking buttons.
 

When I'm clicking the buttons, it's not quite as intense of trying to get in and out of trades, but the risk management is constantly going through my head. If I make this decision, then this, then this, then this, and it opens up this branch of outcomes. As a quarterback, you had to constantly process, "Okay, do we need to get a first down or do we need to go for a touchdown? Do we need to audible to something safer?" It's completely situational. The context and the situational dependent on the situation. So the ability to kind of have some general guidelines...
People ask me like, "What's your trading process?" I don't really feel like I have one. I've never written anything down. We have some risk management guidelines, but every day, every piece of information as a trading cycle is happening similar to the flow of a game, things are changing and you're giving more waiting to this priority, less waiting to this variable. For a certain outcome to happen, you need this guy to go there. And if he goes there, this guy has to go there. They can't leave it open. And God forbid if they did, we're going to throw it there.
 

In trading, if I trade lumber for a living, and I know that if... For an easy example, if rail car speeds are half of what they normally are this time of year, then downstream from the rail line, they're going to get product in a less prompt manner, so they're going to need to be calling me. So I'm tracking the speeds. And if they're not calling me, it either means they already have a bunch of lumber and they're going to have even more when that lumber shows up and that's bearish. Or if I know rail speeds are low and my phone's starting to ring, they're in trouble, they need these rail cars, I need to sell everything I have that I already have positioned downstream of the rail line before their rail cars show up.
 

It's like this cause and effect and putting yourself where you're trying to eliminate this defender, this defender, this defender, so I can just zero in on this defender or this rail car variable. Nothing else matters. You've eliminated it and its effect on the broader picture, and then you're just... What are you going to do? Are you going to call me and say you need lumber or are you not going to call me and not going to answer my call to indicate you have a whole bunch of lumber and I'm in trouble if I'm sitting on a bunch?
 

Dr. Indre Viskontas:
Watching your hands move like this, it looks like you're actually literally seeing this in physical space. One of the things that has come up recently in neuroscience is that we all have very, very different inner mental worlds. For example, some of us actually have an inner monologue, a voice that's literally talking to us. Some of us can visualize things really, really clearly. There's this one animator at Disney who literally never has to see a film twice because he can recreate every single frame. At first when I heard about this, I was like, "Oh, that's total bullshit." But then you watch him do it and you're like, "Oh, my God, this is actually how his mind works." And then there's someone like Ed Catmull, who is the founder of Pixar, who has zero ability to visualize something in his mind's eye. When I see you work like this, are you actually seeing physical railway lines and lumber?
 

Stinson Dean:
Well, no one's ever asked me that, but I feel like I... It reminds me of studying film. This guy has to go here and this has to go here. And I learned through film study way better than I did doing a walkthrough in person. I don't know if that makes me a visual learner, but that kind of mental picture, I think, helps my mind organize all of these variables. One of the most fascinating things I've ever seen and I feel like I'm probably not as good at this, but there's a clip of the head coach of the Rams and they interviewed him on the practice field and they gave him the down and distance, the time of the game, how much times left, and the score. And they go, "What play did you run?"
 

And it was from the season prior, months and months prior, and he just... like little nothing plays like, "Oh, an end-around and we threw it to the tight end. Oh, we did a reverse. We did a dive." He just nailed them, pop, pop, pop, pop, kind of that visual memory where those things are really ingrained in you. As a coach and as a quarterback, those snapshots... I feel like this was something I was thinking about earlier.
 

There's a book called The Sports Gene and one of the elements in there was about some of the best hitters. It wasn't necessarily their vision that was great, because fastballs come in at the fractions of a second.
 

Dr. Indre Viskontas:
You can't see it. Yeah.
 

Stinson Dean:
They have these mental snapshots of all the reps of just a couple little frames and then they can figure out where this pitch is going to go and their body kind of naturally puts the pad on the ball. In football, you got that pre-snap read and then you have a fraction of a second to get the post-snap read to see where the players are going to move, and then you have to extrapolate where everyone else is going to move. You can't look at all 11 guys. And in trading, you kind of get these snapshots like, "I've seen this before. I've seen this setup before."
 

For this setup to complete, I need the futures market to go from backwardation and start trending towards contango where the time spreads are compressing. If that happens and the rail lines are happening, I've seen this movie play out before, and this is how we're going to position it and this is how we're going to manage the risk. But those kind of snapshots in time help me and athletes in general process information extremely quickly because you're just kind of storing these mental setups and you can kind of pull from those and tweak them and go execute.
 

Dr. Indre Viskontas:
Let's take a quick break and we'll be right back with Stinson Dean after this.
 

James Kostulias:
A lot of what we do and a lot of what we talk about at Charles Schwab and with our whole offering of Schwab Trading powered by Ameritrade, it is the educational component.
 

Lorraine Gavican-Kerr:
We really like to teach our clients about risk management, about using a platform. I think that we really want to set people up for success for whatever they want to do. Traders have different aims, different goals, they trade different types of products.
 

Chesley Spencer:
Enabling them to see what they are able to do, particularly with things like derivatives or options where it's not nearly so much a binary of, "Hey, you think this is good? Buy it and it'll go up. You think this is bad? Sell it and go down." All of those have very particular actions one can take based on them that's a lot more nuanced than just a simple buy or a simple sell.
 

Lorraine Gavican-Kerr:
The people who work behind the product and experience are traders. They're super engaged. They love what we do.
 

Chesley Spencer:
The advice is very much a part of the overall Schwab business, but in the trading space, it's much more about empowerment.
 

James Kostulias:
Whether you're somebody who's more fundamentally based or more technically based, there's so much to learn across how to trade different instruments, across how to trade different markets. And so I think from my perspective, what I would say is continue to learn and continue to educate yourself. There's no sort of one playbook to trading.
 

Dr. Indre Viskontas:
One of the things that I wanted to ask you about that, I think, actually relates to... Just bear with me. This is going to be a really random seeming tangent. Some neuroscience research showing that you can actually literally physically enlarge certain parts of your brain with training comes from London cab drivers. In London, black cab drivers who had to get this particular medallion to have that label had to go through this huge training called The Knowledge, where, for two years, they get on these mopeds and they drive around the city and they have to memorize this map of London.
 

It turns out that the hippocampus, which is the part of your brain that takes information and turns it into a long-term memory, is also really important for spatial navigation. The volumes, literally the number, the size of this region in these successful cab drivers who ultimately passed the test grew over the course of their training. The way that you've been describing what a quarterback needs to do made me think that, in some ways, this is kind of similar, where you're going through all of this training and you're building up probably this one region of... We haven't scanned you yet. That's going to come. I'm going to send you a quick note about that, because I want to measure the size of your hippocampus.
 

Because then when I think about what you're able to do now, remember in detail all of these kind of previous scenarios, that's exactly what the hippocampus does. It's like an index of bringing things together, but the interesting thing about this particular part of this memory network is that what it does... Our memories are not very accurate for the past, even though we think they are, even though it gives us a lot of confidence they are, and that's actually not what it's for. Because knowing exactly what happened in the past is not as useful as being able to take the current situation, which is probably slightly different, and projecting what's going to happen in the future.
Instead, the hippocampus in these brain regions are involved in simulating possible futures. See where I'm going here?
 

Stinson Dean:
Mm-hmm.
 

Dr. Indre Viskontas:
which I think is exactly one of the tasks that you do as you're making these trading decisions. You're simulating possible futures on the basis of what you've experienced in the past and the knowledge you've had and then predicting and making a decision on that basis.
 

Stinson Dean:
Yes, what I call the dispersion of outcomes. It's like that's, I think, the future looking possibilities and then second order effects and kind of like having this rabbit trail or decision tree kind of played out. One trigger then tips you this direction and then another trigger can tip you back the other direction, but as a trader, what I worry about is getting stuck and saying, "Oh, I've seen this before and this is how it plays out," and it does this every time. Because we all know during COVID lumber did something nothing has ever done, let alone lumber as far as the price, the speed at which the price went, how high it went, how fast it rolled over, and then it did it again, and then it did it again. That was not something anyone had in their hippocampus-
 

Dr. Indre Viskontas:
Nope.
 

Stinson Dean:
... at all. I take a lot of pride in how, ultimately, I navigated the COVID commodity market because being a quarterback is you have to have mental depth and probabilistic thinking, but you still have to manage your risk. Navigating COVID meant, "I think this is how this is going to go," but black swan event, COVID, whatever, we need to have hedges on, we need to have an exit plan, and we need to have something that triggers that exit plan.
 

When you're playing quarterback, you could practice a play all week to take advantage of a certain tendency that the defense has. You get it called into the game, get it called in the huddle, everyone's super excited because this is the touchdown shot that you called, and then the defense lines up in something completely different that you've never seen.
What worries me about having relying too much on that prior experience and trying to extrapolate is what happens when there's something you've never seen and there is no precedent. That's why, as a trader, you got to have risk management on, because it just takes one of those to blow you up. Risk management is what keeps you alive to continue to trade all these markets and, to me, it's that part that I'm now learning is the hippocampus, kind of keeping that in check and not getting too confident on your prior experience.
 

Dr. Indre Viskontas:
I want to say don't worry, because the one thing that, really, we know has a direct impact on the size of the hippocampus is stress. Cortisol, it's a hormone. Mothers resist monkeys who are stressed, their children are born with smaller hippocampi. So stress is a big problem, long-term chronic stress. It sounds to me like a lot of the things that you learn as a quarterback is actually how to manage that stress and not to get stressed when things are going awry. Talk about that, your relationship with stress management.
 

Stinson Dean:
Yeah. Yeah, that's very interesting. I didn't know that. Stress, you're saying, shrinks and depletes the capabilities of your hippocampus?
 

Dr. Indre Viskontas:
Long-term. Acute stress in the moment is actually boosting and it's not just hippocampus that's involved, but long-term chronic stress, feeling like you are working for someone who doesn't appreciate you, all that is really bad. You know that from baboons, Robert Sapolsky work. But, yes, it's really bad for these brain regions.
 

Stinson Dean:
So the most stressful thing in trading is when you think you're right, you have a lot of conviction, and then every day you're wrong a little bit more, a little bit more, a little bit more, and you start to panic. Do you cut your losses? Do you double down? What did you miss? And you start second-guessing. Being able to control those emotions and really having a plan before you get to that bad scenario. One of the things we try to do is make decisions well before we're in the midst of executing a decision, so the rules and guidelines and our risk policies. This decision that was made in a boardroom months ago, we put this trade on, we all agreed if it hits this level, we're getting out, and there is no decision to be made. So that helps.
 

But the unforeseen, the market's moving for COVID and lumber, we were locked limit up every day. Within seconds, the first trade was the highest possible trade of the day and that was it. It was stuck and no one would sell it, which meant no one could buy it. Having to navigate that market and manage your cash and manage your margin calls and manage your customers' expectations, being able to navigate calmly volatile markets just gives you a huge edge. Some of that comes from I was born that way. Some of that comes from football culture. Some of that comes from perspective like, "It's not that big a deal. It's money. My wife's still going to love me and no one's going to die." What's the downside? We lose all our money. That's terrible, but I'm still going to have a loving wife and four healthy kids. To me, that's a huge piece of the calmness and the contentment with we could lose it all and I'll be okay.
 

Dr. Indre Viskontas:
Yeah, and it's protective. I'm glad to hear that. We sent you a bunch of tasks to do-
 

Stinson Dean:
Oh, buddy.
 

Dr. Indre Viskontas:
... and you did them.
 

Stinson Dean:
Oh, man. Yeah.
 

Dr. Indre Viskontas:
And then we compared your results to a bunch of college students.
 

Stinson Dean:
All right.
 

Dr. Indre Viskontas:
Okay. Just to put things into context. To me, I want to tell you about one, because that was the most interesting to me and probably the one that I feel like, "Oh..." It set off a light bulb in my head. We asked you to generate a bunch of questions to a prompt like socks.
 

Stinson Dean:
Yeah, it was terrible.
 

Dr. Indre Viskontas:
Really stupid
 

Stinson Dean:
I forgot I took this.
 

Dr. Indre Viskontas:
Yeah. Yeah, ridiculous.
 

Stinson Dean:
I didn't realize we're going to go over this right now. Great. I haven't seen the results.
 

Dr. Indre Viskontas:
We took your answers and then we categorized them using something called Bloom's taxonomy, which is where you get one point if you're just telling us what it is like, "Socks are socks. I remember that I was asked about socks." Two, where you explain something about socks are something you put on your feet. Three is where you apply that knowledge. And then four is where you analyze or go a little bit deeply and use those questions to get at the heart of the matter. For one thing, what you'll see here is that the black line is what the average college student... How they would respond to these questions. They're mainly staying in the very low one to two area and then we see you. This is the order of the questions. Right away, you go straight to analysis, straight to the really interesting questions, and then you stop caring, which-
 

Stinson Dean:
I mean, it's socks.
 

Dr. Indre Viskontas:
It's socks. You're right. There's only so much. You know when to get out of the market, when you get...
 

Stinson Dean:
I'll take that. I'll take that.
 

Dr. Indre Viskontas:
But to me, your initial response coming out of the gate is to go straight to the, really, unanalytical questions made me think, "Huh, I guess this is how you approach this problem. Instead of sitting in the... Let me think about this or explain it." It's like, "No, what is the important analytical question here?"
 

Stinson Dean:
Yeah, that doesn't surprise me. I'm kind of thinking back to that test, because it felt like competition. It was like, "List as many as you can, pop, pop, pop, pop, pop, pop." But then it's like, "But make sure they're creative," and I'm not creative. So I was very stressed out about thinking of creative stuff. I think my instinct was to analyze the sock and then I'm like, "Well, these are not creative questions and I don't have any creativity."
 

Dr. Indre Viskontas:
Oh, that's not true.
 

Stinson Dean:
Okay, we'll deal. I'll take that, but it is fascinating. Also in my professional life, I analyze a lot and I used to be in a sales position where I'm doing a business-to-business sale and it's like chum it up and how are your kids and stuff. I'm like, "I don't really care about your kids. I think you have a problem and this is a great solution to solve it." I'm not very good at sales, it turns out. I'm very good at trading where it doesn't matter how your kids are doing or how your golf game is or what vacation you went to. It's price. My customers don't care about anything than me having the cheapest price. That's how I prefer it. That result ultimately makes sense.
 

Dr. Indre Viskontas:
Makes sense. Well, Stinson, thanks so much for sharing your experiences. I have a good idea now of how quarterbacking prepared you for commodity trading and I really appreciate you.
 

Stinson Dean:
Yeah, thanks for having me.
 

Dr. Indre Viskontas:
Join us next time as we look inside the minds of brilliant traders.

On-screen text: [Schwab logo] Own your tomorrow^®

Dr. Indre Viskontas:
Hello and welcome to Inside the Mind of a Trader, the show where we explore how brilliant traders are wired for success. I'm Dr. Indre Viskontas, neuroscientist and Professor of Psychology at the University of San Francisco. On this episode, I'll be talking with Matt Andresen. Matt is a pioneer in the fields of electronic and quantitative trading. He was CEO of Island, the first electronic stock market which merged with NASDAQ and is still used by NASDAQ today. Now as founder and CEO of Headlands Technologies, he and his teams have programmed computers to do millions of trades a day. Hi, Matt.
 

Matt Andresen:
How are you doing?
 

Dr. Indre Viskontas:
Good. How are you exploiting human weaknesses?
 

Matt Andresen:
Well, human beings have wonderful strengths, they also have certain weaknesses. Our ability to process large amounts of information quickly is never going to be as good as machines that we program to do those tasks for us. We all have outsourced our memories to our phones. I know a lot of random errata. It used to be great fun at cocktail parties because I could remember sports scores and historical dates. Now no one cares. They're like "I know that too I have my phone." Just as in other industries where you have technology replacing rote and repetitive tasks, trading is the same. And for the last 25 years I've been working in that transition using computers to do ever more of the processing work of trading.
 

Dr. Indre Viskontas:
I'm sure you're still a lot of fun at cocktail parties. I wonder if you can tell us what are the ways in which these programs actually make life better, even for traders that maybe aren't using them as much?
 

Matt Andresen:
I wish people asked me that question more often. I think to the ideas that people have that well, it's machines versus humans. It's not, it's humans harnessing machines to do things. If you look at the ... What it costs to trade now versus when I came to Wall Street nearly 30 years ago. Back then a trade commission on a trade was about $250. The spread you would pay, which is the difference in the market between what someone was willing to buy or sell it for, which is at an implicit cost of trading. I mean, Intel had a half-point spread, that's a half-a-dollar spread, which anybody tuning in now under the age of 40 would find incomprehensible.
 

We're in a world where brokers charge no commission to trade, and where the execution price they're getting is virtually the midpoint meaning, there's no slippage in the quality of the execution that the end customer gets. And that's not because there was no law that said that had to happen, it's what markets did. And as people got better with computers, got better with harnessing quantitative science you ended up with all that competition driving prices down in terms of explicit costs and then narrowing spreads to the benefit of everyone.
 

Dr. Indre Viskontas:
So if a person is just starting out in the trading world, what advice would you give them in terms of the skills that they need to develop to become brilliant at it today?
 

Matt Andresen:
I think it depends on what type of trading you want to do. To get into my industry I would tell someone that ... Go hit the computer science textbooks, take your linear algebra, and your other advanced math classes and those will provide a grounding to then apply technology to the markets. There's lots of decisions made every day by human beings in the marketplace. And so my advice to people who want to be the decision maker about given trades is to make sure you understand your time horizon for the trade. If you're trying to trade ... Put on a trade that's going to realize in four seconds, I'd recommend that you reconsider. At those timescales, you're competing with machines. What moves prices at those very small timescales is very infinitesimal fleeting information that a human being can't possibly ingest and translate into a trade.

But you go out for three months and your guess is as good as any machines about whether AMD's earnings will be good or bad in that quarter. As you go further out on the time horizon you get the benefit of all the machines competing for these very short-term trades in the form of very efficient prices. But then you are competing really against other people and against rudimentary machines for how to price out further out.
 

Dr. Indre Viskontas:
Yeah, that's a really interesting point that the human skill now is not going to be in these little tiny decisions that ... On the millisecond or even the second range, but rather understanding the larger patterns of human behavior or market forces moving out. When do you think that might not be true anymore?
 

Matt Andresen:
I don't know. I'm sure everyone read up on the OpenAI drama at their board. One of the things that was sort of out there as a conspiracy theory was that they ... Perhaps the OpenAI team had invented Skynet and the board was trying to stop it from launching the nukes and burning the sky. I'm skeptical of that. Clearly, given the pace of technological advancement, people will have to remember that technology does not ... It's not a linear process it's geometric. You think that in 1903 the Wright brothers flew. They were on the moon by the time I was born, right? You're talking about 60-odd years. You can go from biplanes in World War I to jet aircraft at the end of World War II. Each individual leap forward builds on all of the prior leaps and so you get this very big steepening. I'm reticent to make a grand pronouncement about when we face Skynet. Clearly, you have to be prepared for things to change much quicker than they did when you were a kid.
 

Dr. Indre Viskontas:
So one of the things I've been wondering is whether you need to actually be a brilliant trader in order to program a computer to do it.
 

Matt Andresen:
That is a great question. So in our company there is a dividing line between two broad job functions, one we call software developer and one we call quantitative researcher. The difference in that they both have to be able to code at a world-class level. So if you looked at their resumes they look extremely similar. The difference is sometimes maybe someone has just a little bit better intuition for how to computer ... To program a computer more efficiently, to use less memory, to be ... Operate a little faster. The quantitative side is where they have what we call trading intuition. So even in a place where every single trade is happening at the command of a computer, to program effectively the actual strategy and ... You really have to have an intuition for the trading. So it's that same trader intuition that Paul Tudor Jones or Ken Griffin or the other trading greats have. It still has to be there in the minds of the people programming.
 

Dr. Indre Viskontas:
And when you get this huge increase in speed and efficiency, does that come with a greater risk, not just for your own trades but for the market in general?
 

Matt Andresen:
It certainly can. I mean, I'm a believer in man's progress and technology being largely a force for good. Electronic trading has been around for 30-plus years so we've had lots of chances to make mistakes and to learn as an industry. Have you ever heard of a fat finger trade?
 

Dr. Indre Viskontas:
No.
 

Matt Andresen:
And they still happen very occasionally where ... Let's say you're my customer and you say, "Buy me 100 shares of Intel." I go, "Got it." And I type 100, and then I take a sip of my coffee and hold my finger down and it adds 20 zeros to it.
 

Dr. Indre Viskontas:
Oh, that's bad.
 

Matt Andresen:
And then I go and I hit send. And then the market has to react to someone trying to buy a trillion shares of Intel and chaos ensues. In the industry these are known as fat finger errors. The explanation would be the guys or gals fingers were too fat to fit on the one key and they did. Not a super great HR environment back in the day apparently on the trading floors. You can still have those in electronic trading. The benefit is that you have all these computers that you can program, and test, and test, and program such that ... Machines don't operate outside of their lines. So if you tell them, "Don't ever send a trade away." Whatever else I say, if I ever tell you "Try to buy a trillion shares of Intel don't listen to me." And that's something you can actually put at different parts in your system as a check and balance.
 

Dr. Indre Viskontas:
So do you do that?
 

Matt Andresen:
Oh, yes. That's a critical part of our risk management is not just designing the strategy to do what we'd like it to do and to be profitable but then to not send orders that we don't want to send. Don't send an order outside of this size or don't send the same order multiple times. That's an advantage I think we have over humans who are more error-prone. But the flip side of that is that ... The worst thing a human can do probably is send one erroneous order. Whereas if you had a poorly programmed system where they weren't following the rules, they weren't testing it thoroughly and they do something bad it can get out of hand very quickly. There was a trading firm called Knight, K-N-I-G-H-T, and they had an incident that is known colloquially as the Knightmare. See?
 

Dr. Indre Viskontas:
Oh, yeah, very clever.
 

Matt Andresen:
They are a large complicated trading firm. They were trading lots of markets in lots of different places with lots of different trading teams. But they had started out as a human-driven trading shop and then evolved to be more electronic. Anyone who's tried to build technology know that if the foundation is less secure there can be little gotchas in there that you don't realize that can come up and bite you. And they were hooking up to a new market. The NYSE had a new auction order type that they were ... That finally went live. And it was just this very small little thing that they had to do and it caused a series of unexpected things to happen in their system whereby they bought the proverbial trillion dollars worth of Intel.
 

Dr. Indre Viskontas:
Wow.
 

Matt Andresen:
And that actually caused them to be insolvent at the end of the day.
 

Dr. Indre Viskontas:
Well, that's a tough day. Well, let's take a quick break and we'll be back with Matt Andresen after this.
 

James Kostulias:
A lot of what we do and a lot of what we talk about at Charles Schwab and with our whole offering of Schwab Trading powered by Ameritrade is the educational component.
 

Lorraine Gavican-Kerr:
We really like to teach our clients about risk management, about using a platform. I think that we really want to set people up for success for whatever they want to do. Traders have different aims, different goals, they trade different types of products,
 

Chesley Spencer:
Enabling them to see what they are able to do, particularly with things like derivatives or options where it's not nearly so much a buy-in area of hey, you think this is good, buy it and it'll go up. You think this is bad, sell it and it'll go down. All of those have very particular actions one can take based on them that it's a lot more nuanced than just a simple buy or a simple sale.
 

Lorraine Gavican-Kerr:
The people who work behind the product and the experience are traders. They're super engaged, they love what we do.
 

Chesley Spencer:
Advice is very much a part of the overall Schwab business. But in the trading space it's much more about empowerment.
 

James Kostulias:
Whether you're somebody who's more fundamentally based or more technically based there's so much to learn across how to trade different instruments, across how to trade different markets. I think from my perspective what I would say is, continue to learn and continue to educate yourself. There's no sort of one playbook to trading.
 

Dr. Indre Viskontas:
Welcome back. We've been talking about what might be the remaining features of the human mind that have not been bested by machines. Instead of talking about this necessarily as this dichotomy one or the other, I wonder if we could talk a little bit more about how humans can use machines in ways that make the most of their abilities. Is there something in the trading world where you're programming your machines to do something and they do something or they find something that you think never would've been possible?
 

Matt Andresen:
Oh, without question. I think you've hit on the right concept which is that it's nothing to be feared. We train machines to do stuff for us, and we offload the things that we don't need anymore. But the technology, our feelings as people in society is that change is always disruptive. I don't know what the age is, let's say it's 35 years old. We basically love all technology advances until we're 35 years old. And then after that, no.
 

I remember my grandparents were ... When they were still alive they were like ... When the answering machine came out and they were resistant like "Who" ... "No one needs that." My dad, who's an older guy now, getting him to move off of a flip phone is a ... It's a crucible. Because he's like "Well, why would you need that," right? Once you have it you don't understand how you got along without it. I mean, I'm sure the candle makers went to DC and lobbied for jobs, jobs, jobs after the light bulb but it hasn't made our lives darker. There is plenty of opportunity out there to harness the new technologies. And you're always going to need a human to direct that next layer of innovation.
 

Dr. Indre Viskontas:
So what does it mean to you to trade brilliantly? Where do you use technology? What skills do you ... Would you develop? If you were building from scratch a brilliant trader, that was human, what would you put into it?
 

Matt Andresen:
Well, I think the best traders I've seen have insatiable intellectual curiosity. So Ken Griffin, who I worked for for many years, the most notable thing about him wasn't his intellect which is amazing, it wasn't his work ethic which is great, it was his childlike intellectual curiosity. I mean, he was just like "Tell me more." And any new thing his eyes get wide and he's like "Tell me more." Paul Tudor Jones is someone I've gotten to know very well. Another great trader, exactly the same. Any new thing that comes along they don't fear it. They don't say, "Cryptos new I don't want to do it." They would not have been the guys complaining about the light bulb, they'd be the guys that couldn't wait to figure out a way to harness it and use it. So I think that intellectual curiosity is number one. Because otherwise, certain parts of your skills will become outmoded by competition or by technology. The only way to stay up with that is to be curious enough to motivate yourself to keep up.
 

Dr. Indre Viskontas:
One of the other things that neuroscientists are learning about the brain is that sometimes struggling with a particular decision or a set of information is the way in which you define your own values. You're voting in the booth, and you could write an algorithm that uses all kinds of points that gives you the ultimate choice of who you should vote for depending on ... You plug in your values and then who's the best candidate. But the actual work of looking through the candidates, figuring out where their stances are seems to be how we actually get those values to begin with. So in a sense, you have to do that work in order to understand yourself. And so I wonder if there's an equivalent of that. As you've been programming these what have you learned? And what do you think gets lost if we outsource all of those decisions to a machine?
 

Matt Andresen:
Oh, that's a great question. Well, I'm going to make another pop culture reference from a dystopian future, The Matrix. And if you remember when Neo, who's the character, he wakes up and finds out that his life is a lie, it was a simulation. And now he's awake, and he's never used his muscles before, and they're ... And he's having to learn everything from scratch. And then one of the other teammates sits him down and they start uploading skills. And it was like everyone's fantasy. You're like I want to speak Mandarin. They're like duke and he's like "I speak Mandarin." And then he goes "I want to know kung fu." And I was like wow, that's amazing, wouldn't' we all like that.
 

But I always was a little disturbed by it because I do think ... If you didn't put in the hours and exert the discipline to acquire the knowledge you don't value it and you don't understand it the same way. When you've been on the grind and been trying to figure out these problems, I do think that ... It strikes me as correct that that's how we actually learn and how we develop values, how we develop insights. And if you didn't do that how would you know where to start?
 

Dr. Indre Viskontas:
That is one of my fears with outsourcing a lot of these tasks that ... Even when computers become better at writing essays or doing this work where we're going to lose some of those critical thinking skills that are only developed with that struggle. Do you have a sense that there are specific skills that we shouldn't outsource just because we need to be able to flex those muscles and learn to use them?
 

Matt Andresen:
That's a good question. We talked about memory earlier and how ... Memory used to be an essential part of education, you had to learn how to memorize. And the concept of a memory palace and other techniques where you try to turn ideas into a visual abstraction that you can then file away and sort of deep storage in your brain and be able to recall. When you read books or see a movie involving people from the Victorian age and people just walk around and ... Off the top of their head they could quote a whole act of Shakespeare. Nobody could do that now at all. We've allowed that skill to atrophy. Sometimes I think, because I have a really good memory, that sucks because you've outmoded my ... A key advantage that I have. It's good because now you can go do something else with those brain cells. It's just an opportunity for us to evolve as well. The machines are going to help us evolve. We don't all have to grow our own food anymore, look what we do instead of that. Even 200 years ago we probably would all be growing food.
 

Dr. Indre Viskontas:
So you've been successful in your life, and I'm sure there are moments where you were under a lot of stress. I wonder if you have some advice for people who are trading and are feeling the stress, and are working to manage risk. What are some of the things that you've learned over the course of your career?
 

Matt Andresen:
The big lesson I've taken in business is just not being emotional. You're going to be emotional. But my rule is, anything ... A new thing that happens you're not allowed to be emotional in the moment, right? So if you give me super bad news and you ... I'm not going to react. And I'm really not going to react. I'm going to be like "Okay, that's really bad news, I'm going to file that away and I'm going to deal with that later, the emotional side of it.
 

Dr. Indre Viskontas:
So you don't even feel your heart racing? Okay.
 

Matt Andresen:
And so that to me has been very helpful one, in managing the stress but two, not doing something dumb because you're being driven by emotion instead of that. No one likes being wrong.
 

Dr. Indre Viskontas:
No, I totally get that. That's a theme I think among trading is that you have to be able to separate your emotional response. But there's also this myth out there that we have a reptilian brain that is emotional, and then we have this evolved human brain that is all rational. The truth is that emotions are constructed moment to moment. There is an evolution in how we respond to them. I don't know that it's necessarily true that you just tamp down the emotion. There's an element of understanding when the emotion has value and when it doesn't. I'm sure you get emotional, I hope when your child does something that makes you weak in the knees.
 

Matt Andresen:
Sure.
 

Dr. Indre Viskontas:
You probably have very deep feelings still when there's something in that realm, but yet you have been able to not get carried away into, as you mentioned, some of these bigger emotions.
 

Matt Andresen:
I went to Duke, I sent two kids there. A big Duke basketball fan, I can't watch it.
 

Dr. Indre Viskontas:
Really?
 

Matt Andresen:
Literally, I can't watch it. My sons will text me like "Oh, did you see that comeback or whatever?" I'm like "I'm watching Netflix with mom." I can't deal with it it makes me crazy. And I can't control my emotions in it so I just take a powder and I'm like not ... Let me know how it went. I remember losses that Duke had and in the moment I'm just crushed. And I look back on it I literally do not care at all right now looking back on it. So you just have to remember that there'll be a time where this is not as traumatic, and emotional, and destabilizing as it is in this moment. And so to say, look, let's table that. I'm going to come back to that and grieve later for that loss.
 

Dr. Indre Viskontas:
And I think there are two strategies to handle this if you're just starting out. One is understanding that experience will give you that. As we all know, the teenage years are fraught with big emotions in part because it's the first time you're experiencing rejection or falling in love or all of these things. And then once you've experienced it a few times you've lived through it, you ... It doesn't seem to affect you as much anymore.
 

There's another element of not putting your self-worth into an outcome that you can't control. I work a lot with musicians and helping them deal with performance anxiety. And the times where people get totally crushed by some criticism or hitting the wrong note is when they equate their value with someone else's opinion or with a perfect performance. But that isn't where their value is, right? It's in all of the stuff leading up to it, it's in all of the other people that may or may not have been touched on it or the thing that they've expressed. And so I wonder if that's part of the strategy is, if you don't put a value on yourself as a trader, or as a person, on the outcome of a particular trade then it's not as bad.
 

Matt Andresen:
I wish I could do that, that sounds like fabulous advice. There's clearly strategies to be able to be functional while you're doing that. And I think one thing that I try to draw on is to look back at other times in your life when you've had adversity and said, "Geez, that was really bad. It felt like the world had ended but it didn't. And I persevered and things turned out okay."
When I was an athlete, I remember losses, right? I had the 12 steps of losing I always thought about. Every time I lost a tournament I would come home and I'd be like "I quit, I'm never doing that again," right? And then I'd be in denial and all this. And then three days later I'd be like all right, I just got to train harder that's the answer. But I had to go through that sort of emotional ... Because you have so much tied up in it. And I had my self-esteem. Your self-image is tied up in this endeavor, and when it doesn't go the way you dreamed you have to recalibrate. I try to draw on that and look back at times in my life where I've ... Hey, look, I've been beat down so many times, and look, I always managed to get up. And the answer is always work a little harder.
 

Dr. Indre Viskontas:
Or program a computer to do it for you.
 

Matt Andresen:
Or that.
 

Dr. Indre Viskontas:
Matt, thank you so much for coming on the show.
 

Matt Andresen:
It's been a pleasure.
 

Dr. Indre Viskontas:
Join us next time as we explore the minds of brilliant traders.

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