Vimal & Sons

May 19, 2022

Cliff Notes of the book: The Tao Jones Averages

The Tao Jones Averages: A Guide to Whole-Brained Investing: by Bennett W. Goodspeed
 
 
  1. Scientists have discovered that we have two brains – one that reasons analytically and one that is intuitive. Wall Street tends to ignore the intuitive side, even though the stock market has always behaved nonrationally. The Tao Jones Averages offers some plain truths about the world of finance:
  • The half-brained experts can only tell you what’s already happened – they have a lousy record for predicting the future. 
  • There is more to financial analysis than hard logic.
  • You have to use both sides of your brain to beat the market.


Chapter 1: The Street Where Your Money Lives


  1. Why do investment professionals get such poor marks? The main reason is that they are victims of their own methodology. By making a science out of an art, they are opting to be precisely wrong rather than generally correct. By creating the illusion of certainty where there is none, analysts are continually surprised by changing conditions.
  2. Wall Street does not seem to have figured out what Mr. Edward C. Johnson, Jr., of Fidelity Management, the now retired "dean of Wall Street," understood when he said, "I have been absorbed and immersed since 1924 in the market and I know this is no science. It is an art form...It is a personal intuition, sensing patterns of behavior." Yet despite the fact that the market is famous for its fickle, crowdlike behavior, the Street's research analysts keep applying rules of logic and formula thinking. Behaving like the fanatic (one who, when he loses sight of his goals, redoubles his efforts), they apply logic to an illogical game. By applying male (yang) logic to the market's female (yin-type) behavior, professional investors are often guilty of what Lao Tsu referred to as "trying to understand running water by catching it in a bucket." In other words,  it is illogical to treat the market logically. 
  3. Knowing how to do something and doing it are two different things.
  4. Analytic methodology is ineffective in identifying change in the early stages and thus contributes to what Marshall McLuhan refers to as man's tendency to walk into the future looking in the rearview mirror.
  5. On Wall Street what is known tends to get glorified at the expense of the unknown. It is very easy for the professional money manager to mistake activity for effectiveness as he plots through his daily paper snowstorm.
  6. In dealing with a changing world, we often try to "catch water in a bucket" rather than go with the flow.


Chapter 2: The Tao of Dow


  1.  The Tao means "the Way," the way of the universe that cannot be adequately described in words.
  2. Despite these commonalities and the fact that Lao Tsu and Confucius were likely contemporaries some 2,500 years ago, Taoism and Confucianism are best known for their contrasts.
  3. Lao Tsu stated: 'To attain knowledge, add things every day; to obtain wisdom, remove things every day'. Knowledge is the goal of Confuscius, whereas Taoism strives for wisdom.
  4. In a world where dynamic change is a constant, one has to go with the flow in order to survive. As Lao Tsu said, "To resist change is like holding your breath—if you persist, you will die." Therefore, Lao Tsu's advice that "man must accept motion, must live with motion, and must know himself to be forever moving" is even more relevant today than when first uttered. Unfortunately, Western mentality with its analytic ways tends to resist change by making fixity out of flux, or as Lao Tsu would say, it tries to understand running water by catching it in a bucket.
  5. By depending on expertise, we have become less dependent on ourselves. By so downgrading our trust in our intuitions and feelings, we settle too often for the false comforts of doctrines and beliefs. Considering the predictive records of economists and other information specialists, it is quite clear that such trust has too often been unrewarded. In effect, by attempting to fit life's events into the framework of rigid form, we tend to exhaust our energies by trying to freeze the flow of the current. For these reasons, Taoism has the potential of being a catalyst for freeing the "fixity" of the Western view.
  6. The principle Lao Tsu calls Wu Wei, which literally means "not doing," is the doctrine of inaction, sometimes called the law of reverse effort. Wu Wei does not mean total passivity, but rather the avoidance of forcing, of hostile or aggressive acts. Wu Wei means rolling with the punches, swimming with the current, and winning by attraction and attitude rather than by deed and compulsion. 
  7. Examples of the law of reverse effort are many. For instance, when you try to float, you sink, but when you try to sink, you float. When you try to remember a name, you can't, but when you stop thinking about it, it appears forthwith. When you hold your breath, you lose it, but when you let it go, you regain it. Wu Wei means succeeding by attitude rather than action; it is having the power of the infectious wish that comes from certain virtues such as compassion, moderation, and humility.
  8. When it comes to the stock market, Taoism can be used to justify many different methodologies. For instance, the technician would encourage one to "go with the flow" of what others are buying and selling. The fundamentalist would say that successful investing depends upon knowing the "way" of the economy, industries, and companies. Finally, the contrarian would advise generosity, like "the sage who prefers being the creditor," by giving others the stocks they want and buying those that they don't. Perhaps this book will help you decide which Tao principles will work for you.


Chapter 3: Our Two Brains


  1.  Looking at the brain and how it operates, it is interesting to see that we have two brains within our neocortex: a left and right hemisphere. Furthermore, each person is dominated by either one side or the other. Though these twin hemispheres look alike, recent brain research indicates they control very different functions.
  2. As the diagram shows, our left hemisphere, which controls the right side of the body, is analytically oriented. It reasons logically and sequentially and is responsible for our speech. It is adept at math, accounting, languages, science, and writing. Like a computer, it is programmable and is nurtured by our highly analytic educational process. The properties of the left brain are not unique; man has developed computers that can duplicate those functions.
  3. Our right-brain hemisphere, which controls the movements of the left side of the body, is unique. It operates nonsequentially, is intuitive, artistic, has feelings, is gestalt-oriented (sees the forest and not just the trees), and controls our visual perceptions. Since it is nonverbal, it communicates to us through dreams and "gut reactions." The right hemisphere provides and stores all of our nonverbal experience—a vast amount of input, certainly much more than we can verbally retrieve from our left brain.
  4. Each of us shows a dominant preference for one side of our body or the other; cases of true ambidexterity are rare. We have a dominant hand, foot, and even eye. (Note: To test for your dominant eye, point to a small object across the room and shut first one eye and then the other. The eye that is "on target" is your dominant eye.) There is a good reason for dominance; if one side did not control the other, we would often end up like Buridan's Ass (the symbol of indecisiveness because it starved to death equidistant between two bales of hay). There is, in fact, growing evidence that dyslexia occurs in cases where there are verbal skills in both hemispheres. Indecisive mental processing occurs as the two sides vie for control.


Chapter 4: The Bicameral Perspective

  1. With the advent of the computer, which "thinks" sequentially in digital form, the left brain was given a powerful tool to extend its capabilities.
  2. By declaring in the first line of the Tao Te Ching that the "way of the universe" cannot be adequately described in words, Lao Tsu shows his disdain for the language skills that are identified with the left hemisphere. He later adds, "Those who know do not speak; those who speak do not know," thus leaving us with little doubt about how he would view the "articulate incompetent." For Lao Tsu, man needs to overcome a lifetime habit of expressing thoughts only in words.
  3.  In short, Lao Tsu feels that "expertise" does not work, that left-hemispheric logic is incapable of leading us to the higher wisdom of intuitive knowing. He complains about the scholars who study for the sake of knowledge and who then create a barrier of words between themselves and common people. As Lao Tsu laments, "Nature's way is simple and easy, but men prefer the intricate and the artificial." Therefore, "The wise are not learned and the learned are not wise."
  4. "The power of intuitive understanding will protect you from harm until the end of your days." "The sage is guided by what he feels." Such statements by Lao Tsu show his preference for those qualities of the right hemisphere. By stating, "Without going beyond one's nature, one can achieve ultimate wisdom," Lao Tsu is giving right-brained knowing the highest accolade.
  5. He believes that "the way of the universe" can be understood only through perception of nature, by using the attributes of the right brain. By saying that running water can't be understood by catching it in a bucket, he is observing the inability of the left hemisphere to deal with motion and change.
  6. Though definitive studies have not yet been published about the brain dominance of minorities, there is an interesting possibility that blacks, Indians, and other minorities have been discriminated against not so much because of their skin color but because of their right-brained thought preference. One indication of their dominance is the success of blacks in basketball, a spatial, nonprogrammed sport if there ever was one. Seventy-two percent of the players in the NBA are black.
  7. By the same token, as our society becomes more aware of the limitations of analytic thinking, it will also place an increased value on right hemispheric intuitive sensing.

Booze as a Balancer

  1. The growth of left-brained thinking during the Cognitive Era has not been without its side effects. As we became more conditioned to distrust our own personal instincts in favor of "experts," we were also attracted to drinking to relieve our anxieties. Our left brain, the censor of our emotional right side, becomes tranquilized by alcohol. Just as meditation stills the left brain by giving it the simple task of repeating a mantra, so alcohol numbs the analytic mind so that our right hemisphere can be "let out of its cage." As we get high, physiologically speaking we are achieving a better balance and we thus tend to feel more complete. If this theory is correct, it may help explain why American Indians have trouble drinking. Since their left brain is their minority mode, drinking can more easily anesthetize their "censor," leaving them out of control.
  2. John Marshall, founder of Right On, a Los Angeles organization that works with alcoholics ("experienced drinkers," as he prefers to call them), is fascinated with recent medical discoveries about the two brains. As he says, "Drinking is the easiest, most effective, most economical, and most accepted way to give the overworked half of the brain relaxation while the other half has a chance to express itself."
  3. The Persians long ago sensed the relationship between booze and our two modes of thinking:
  • If an important decision is to be made [the Persians] discuss the question when they are drunk, and the following day the master of the house where the discussion was held submits their decision for reconsideration when they are sober. If they still approve it, it is adopted; if not, it is abandoned.
  • Conversely, any decision they make when sober is reconsidered afterwards when they are drunk."—Herodotus, The Histories (ca. 450 B.C.), Psychology Today, December 1979.

Where Wall Street is headed

  1. The dominant role of security analysts in the decision-making of professional investors is a key to Wall Street's mind-set; after all, they are called analysts. These highly paid researchers use logic by combing through the numbers, interviewing corporate managers, and then passing on their recommendations to the investment community as to whether a stock is a buy, hold, or sell.
  2. As logical, brilliant, and hard-working as these professionals may be, the lack of success of their recommendations speaks for the ineffectiveness of their approach. Unlike the Japanese, analysts do not take a whole-brained approach to understanding the world. By applying left-brained logic to the illogical stock market, they often are using the wrong tool for the task. Though tests have not been done, it is quite likely that the majority of those investors who consistently outperform the market value their right-brained qualities, for that is the side that can best sense the rapidly changing world of the stock market. Lao Tsu, if he were a professional money manager, would probably not read institutional research reports, as he would feel that they would fill up the mind, preventing it from seeing the true nature of things.


Chapter 5: Butterflies to Cocoons



Education & The Split Brain

  1. So constituted, there is a high correlation between high grades and IQ scores. Conversely, a study of engineering students by Don Taylor at Yale University indicates that there is virtually no correlation between grades and intuition.
  2. Considering such evidence, it is no wonder that Dr. Roger Sperry states, "Our educational system and modern society generally discriminate against one whole half of the brain. In our present educational system, the attention given to the right hemisphere of the brain is minimal compared with the training lavished on the left side."
  3. Such an educational bias, which is further reinforced by testing, has led to what I call "analexia," our society's compulsion to accept only what can be measured.


The Whole Brained Approach

  1. If our educational system is left brained, and Lao Tsu, on the other hand, is right brained, whom should we believe? The answer is neither and both. Neither should be blindly followed, as to do so would be to act in a half-brained way. Nor should we ignore either, for each effectively represents its half of the brain. By understanding both and being able to use the correct hemisphere for the correct task, we can be more whole brained and effective in our decision-making.
  2. Preparation is "doing your homework," researching the situation, searching for information, and it is best performed primarily by left-hemispheric skills. Incubation is "sleeping on it," taking a walk, or just reflecting. It takes place when the left brain idles (emits alpha waves) and the right mulls things over in its own nonverbal way. Illumination takes place when the two brains come together, when the left side is able to verbalize the intuitive understanding of the right. This coming together of the two minds can be so powerful that it often produces the enlightenment, the oceanic feeling, that sent Archimedes jumping out of the tub shouting "Eureka." Verification is the process whereby the left brain confirms the validity of the discovery.
  3. Looking at Wallas's model for creativity, the stages of preparation, incubation, illumination, and verification can be classified hemispherically as left, right, both, and left. This suggests, indeed, that creativity and its counterpart, discovery, are whole brained. Einstein, when he quipped that he seemed to get his ideas while shaving in the morning, was in reality referring to the process whereby his left verbal hemisphere was combining with the right hemisphere's incubation that had been performed while he was asleep.


Chapter 6: The Loser’s Game


Nothing is more suicidal than a rational investment policy in an irrational world


  1. Man is extremely uncomfortable with uncertainty. To deal with his discomfort, man tends to create a false sense of security by substituting certainty for uncertainty. It becomes the herd instinct. The irony is that the greater the uncertainty, the greater the similarity of predictions, as the experts "shout together in the dark." In turn, the greater will be the collective surprise when their predictions miss the mark. The less information there is available about reality, oftentimes the more uniform the "conventional wisdom" will be.
  2. It is amazing how easily people's opinions are drawn together under conditions of uncertainty. Sadly, many businessmen, despite having made disastrous decisions by following the conventional wisdom, retain their jobs because their files are stuffed with research reports ("How could you expect me to disagree with the 'world's smartest men'?"), and because almost everyone else was wrong as well. And so it goes, as the experts continue to substitute certainty for uncertainty and thus become the losers in the forecasting game.

Inner Sports

  1. As Lao Tsu said, "Certain ends are best accomplished without the use of conscious means." Tim Gallwey made the same discovery and shared his insights with readers in his book The Inner Game of Tennis. Gallwey's inspiration for his famous book first developed when he observed a player talking to himself on the tennis court as if there were two people in one body. After further observations, Gallwey concluded that the conscious mind of many players constantly blamed the unconscious mind for a poor performance. He further observed that the more a player berated himself, the more his natural flow was affected and the worse he played.
  2. Though Gallwey does not refer directly to the left and right brains in his book, the dual mentality of tennis players is the book's primary focus. By trying to overpower the nonverbal right hemisphere, whose natural province is spatial relationships, players often let the wrong mind dominate the task. The expression "playing out of one's mind" in effect refers to play where the logical, verbal mind is stilled so that the right hemisphere can be in control. (Note: In jogging, that "runner's high" occurs when the blood flow first switches in greater proportion to the right brain, usually ten minutes after starting.) In like fashion, those who can verbalize the techniques and methodologies of a sport tend to be those whose play is least skillful. As Lao Tsu observed, "The man who struggles to carve a piece of jade will mar it, but if he lets his hands guide themselves, the work is easy and perfect."

Hemisphere Investing

  1. The task of dealing with the verbal utterances of managers and statistical data is clearly best performed by the analyzer. Unknown or restricted information, on the other hand, is best dealt with by the "Lao Tsu" right hemisphere. Because the dominant method of Wall Street analysts is left brained, the unknown variables are often dealt with poorly or conveniently ignored.
  2. In doing so, these institutions proved once again the maxim that Burton Malkiel, in his book A Random Walk Down Wall Street, refers to: "Stupidity well packaged can sound like wisdom."
  3. Therefore, Ramo concluded, in amateur tennis one's strategy for winning should be to avoid mistakes. To play a winner's game, one should avoid trying too hard. As Lao Tsu pointed out, "In making furniture, the more you carve the wood, the weaker it gets."
  4. By relying too much on MBAs and other technocrats, Wall Street and corporate America have tipped the managerial balance heavily toward the left brain. But it constantly plays the loser's game by trying to make fixity out of flux. As John Maynard Keynes said, "Nothing is more suicidal than a rational investment policy in an irrational world."


Chapter 7: The Eyes Have It



The more stuffed the mind is with knowledge, the less able one can see what's in front of him.


  1.  As Einstein said, "Theory shapes the observation." Therefore, the common expression "seeing is believing" is perhaps one of the West's most inaccurate In reality, we are much more likely to see what we believe. As Shakespeare's Macbeth asked, "Are my eyes but fools for my other senses?"
  2. Most of our personal, business, and investment problems are not caused because we lack intelligence or are lazy. Rather, the most common cause of failure is that we fail to see and/or otherwise ignore the numerous yellow and red warning signals that are waved before our eyes. Why do we so often miss them? One reason is that the warning signals are but one of many information inputs vying for our attention. Sociologists calculate that Western man receives 65,000 more stimuli per day than his forebears did one hundred years ago. Investment research reports piled high on the desks of professional investment managers attest to the now-famous overload of information.
  3. Another reason why we see reality so poorly, and so often miss the warning signs, is that our logical left hemisphere interferes with the seeing abilities of the right brain.
  4. The fact that the subjects' assumptions limited their ability to see reality shows once again how we tend to ignore our sensory input when it does not fit our dominant beliefs. Dr. Robert Ornstein in his book The Psychology of Consciousness points out that if one lived a lifetime of being awake only during daylight, he would quite likely treat with skepticism claims by night people that there were stars in the heavens. Furthermore, the harder he would look at the blue sky, the more he would classify night people as "crazies." As Ornstein states, "If an object or sensory input appears which does not fit our categories, we tend to ignore it. Therefore, it is difficult to alter our assumptions even in the face of compelling new evidence." We fail to realize that our consciousness is merely our best guess about reality.
  5. The following Taoist story illustrates how one's assumptions affect perception: Once upon a time  a man whose axe  was missing, suspected  his neighbor's son.  The boy walked  like a thief, looked  like a thief, and spoke  like a thief.  But the man found  his axe while he was  working in the field, and  the next time he saw his  neighbor's son, the boy  walked, looked, and spoke  like any other child.
  6. One of Betty Edwards's instructional drawing exercises is to draw a picture upside down. The idea is to "trick" the left brain so that it is unable to categorize the facial components. In a like manner, forgers commonly copy signatures upside down in order to eliminate the bias of their own writing. In reality, we all know how to draw, but old habits of poor seeing interfere with that ability and block it.
  7. The basic difference between commonplace and creative solutions is often that the field of vision of the person with creative insight is larger.
  8. Wayne Gretsky is a remarkable hockey player because he is both a prolific scorer and a top assist man. Such a combination of skills is unusual, as the vision of a scorer needs to be focused on the goal, whereas an assist specialist needs to be able to "see" the whole rink so as to know the position of the other players. In this respect, hockey is like the ancient Chinese story of the ox and the cat. Though big and slow, the ox is difficult to catch as he can see anyone approaching and will warily take cover. The cat, though quick and agile, is easily caught in a net for he cannot see someone approaching while he is intently focused on his prey—the mouse.
  9. Like the cat, investors have to continually guard against outfoxing themselves by being overly focused on the near-term promise of a payout. The market is composed of too many variables and is characterized by too much flux to justify a secure, confident attitude. Like so many others, this author has made his worst investment mistakes when he was the most certain about being right, when he lacked the "wisdom of insecurity." H. L. Mencken stated, "There is always an easy solution to every human problem—neat, plausible, and wrong."
  10. Studies of stock market trading patterns indicate that price movements are 50 percent correlated to general market changes, 35 percent to the movement of industry groups, and only 15 percent to the result of the dynamics of an individual stock. If one focuses like the cat on one issue, he is considering the least important factor of the three main causes of price movement. One might then end up like the fox, wondering where all the rabbits went.
  11. In investing in the stock market, it is important to discover or see reality before events can be quantified and then easily identified by the analytic horde. As Marilyn Ferguson said in The Aquarian Conspiracy, "Detecting tendencies and patterns is a crucial skill. The more accurately we can get the picture from minimal information, the better equipped we are to survive. The ability to close a pattern with limited information enables the successful retailer or politician to detect trends, the diagnostician to name an illness, the therapist to see an unhealthy pattern."


Body Language


  1. We've long known that what people say is  not necessarily the same as what they do.
  • **Sign:** Crossed Arms
  • **Indicator:** I don't buy what you're saying
  • **Response:** Stop talking; ask if anyhing is bothering them
  • **Result:** Objectons are quickly put on the table; by clearing them up early, other person is freer to listen
  • **Sign:** Hand over mouth or touching eart (a quirk left over from school when raised hand to ask question)
  • **Indicator:** Wants to talk in order to make a point or ask a ques- tion
  • **Response:** Pause, allow the person to participate
  • **Result:** Motivation of buyer becomes more identifiable
  • **Sign:** Leans forward
  • **Indicator:** Has reached a decision
  • **Response:** Stop talking and start closing
  • **Result:** Will avoid talking yourself out of a sale

2. Body language is an important aspect of business, as success is often dependent on the ability to see through human interactions and discover covert meanings and motives. As an old Cantonese proverb states, "Watch out for the man whose stomach doesn't move when he laughs."



Chapter 8: Elementary, Watson


  1. According to Webster's, to infer is to arrive at a decision or opinion by reasoning from known facts or evidence (e.g., from your smile, I infer that you're pleased). An inference can also be a matter of making connections between events that are not obviously related. General Patton observed the anomaly of cart tracks and made the connection that the Germans were low on gas—a rather creative and important leap.
  2. A crisis can be defined as a severe change. It is interesting that the Chinese do not have a word for crisis. What they do have, however, is a two-word idiom: crisis equals danger and opportunity. It is the purpose of Inferential Focus, the author's firm, to identify these dangers and opportunities before they can be proven by statistical measurements (i.e., analyzed).
  3. The process of spotting change is essentially visual, and is hence the domain of the right brain, as is the creative process of connecting seemingly disparate events. Inferential thinking, however, is very much whole brained; the left brain stores up the knowledge acquired during the reading so as to provide a background against which the right brain can spot anomalies.
  4. IF inferential reasoning has a disadvantage as an investment tool; at times it can be too early.


Chapter 9: Tao Investors

  1.  In an ancient Taoist story, workers stood on the bank and watched with horror as an old man was swept over the falls. They rushed below to see what they could do, only to find the old man calmly sitting on a rock. When asked why he was safe when he could have been killed, the old man said, "Since I grew up with water, I do not think about its flow. I accommodate myself to the water, not the water to me.”
  2. Investment success does not belong to those with the "magic formula," but to those with the courage of their own wisdom.

Roy Neuberger

  1.  "Stay in love with a security until the security gets overvalued, then let someone else fall in love."
  2. Aware of his fallibility, as well as the tentative nature of the investment game, Roy follows a policy of taking a loss anytime his investment loses 10 percent of its purchase price. "This creates a reservoir of buying power that can be used to make fresh judgments on what are the best values in the market at that time. The mistake of many is to make one decision and to get locked into that position."

Chapter 10: The Yin and Yang



The Male & The Female Mind


  1. Physiologically the minds of males and females are different. These differences, however, cannot be categorized in terms of hemispheric dominance (women are not more right brained than men or vice versa). Rather the difference is one of specialized (yang) versus generalized (yin) thinking. As a result, men tend to perform better as experts, whereas women tend to have an inherent superiority to see the gestalt, the big picture.
  2. Such biological differences between the sexes may in large part be related to their rates of maturation, in that girls mature much faster than boys. At birth, for example, girls are physiologically four weeks more developed than boys and reach puberty and maximum growth a full two to three years before males. Thus, girls begin to talk and read earlier than boys, and are much less likely (by a four-to-one margin) to have learning disabilities than males.
  3. Because of early maturation, the two brain hemispheres in girls begin to interact earlier than in boys. Thus, the woman's earlier ability to involve both hemispheres simultaneously in a task gives them an advantage in seeing the whole. The male, on the other hand, since his two hemispheres operate independently for a longer time, tends to excel at specialized tasks (Einstein didn't talk in sentences until he was three).


In search of our missing inner half

  1.  1. "It is because we single out something and treat it as distinct from other things that we get the idea of its opposite. Beauty, for example, once distinguished, suggests its opposite, ugliness...in fact, all distinctions naturally appear as opposites. And opposites get their meaning from each other and find their completion only through each other."
  2. Lao Tsu's sense of polarity, as expressed above, certainly applies to the yin and the yang. Not only do we all possess both qualities, but we also complete a yin and yang coupling through marriage. By observing many marriages, it is the author's belief that we tend to marry our missing inner self. In terms of the brain hemispheres, in mating we tend to couple with someone of opposite brain dominance, so that left-brained types tend to mate with right-brainers. As Chinese physicians often say, the equilibrium of the yin and yang principles results in great longevity. Likewise, when a partner of a lifelong marriage dies, the other's life expectancy becomes greatly reduced. If the above hypothesis is valid (and it is a tentative one), there are many interesting implications, including why married couples so often have communication problems.
  3. The possibility that we often marry our missing inner half also has an important implication for investment decision-making—namely, that one can be more "whole brained" by involving one's spouse in the decision-making process. Maybe your wife/husband isn't interested in facts or figures, but she/he might be a keen observer of the real world (the one that stocks sooner or later must respond to). Had our friend from Houston who lost 75 percent of his portfolio of energy stocks in just one year been married, his wife might have pointed out how people were purchasing more sweaters and were turning down their thermostats to conserve energy. Remember, our brain dominance tends to hold the key to both our strengths and our weaknesses.

The Stock Market as a Female


  1. "The market is like a beautiful woman—endlessly fascinating, endlessly complex, always changing, always mystifying." So states Edward C. Johnson, Jr., of Fidelity Management, whom many consider to be the modern dean of Wall Street. Furthermore, as we saw earlier, Mr. Johnson strongly believes that investing is not a science, but rather an art form.
  2. As was mentioned in Chapter 1, the stock market's dynamics are very much related to crowd behavior. As Gustave Le Bon states in The Crowd, "A crowd has the mind of a single woman." Despite the market's obvious yin characteristics of uncertainty and flux, Wall Street professionals continue to treat it with yang principles. By applying logic to the illogical, Wall Street continues to play a loser's game, as is seen by the fact that fewer than one in three outperform the averages.
  3. Wall Street analysts also love to proclaim that one company has good management but another does not. How do Wall Street analysts know good from bad? That's a good question, as few of them have ever managed anything themselves. Moreover, since Wall Street firms are notorious for their own poor management practices, analysts do not exactly have a good role model to choose from. In reality, "good management" means that the company has done well in the past, leaving money managers the task of figuring out whether the success should be credited to the horse or the jockey.

Chapter 11: The Uncarved Block


  1. As Adam Smith, author of The Money Game, states, "If you don't know who you are, the stock market is an expensive place to find out."

The $64,000 Question

  1. When making investment decisions, it is advisable to stop and ask which side of your brain is running with the ball. Have you thought about logical considerations? Does it feel right? When your gut says one thing, does your logic say another? If so, it is best to defer judgment; chances are that your hemispheres are in disagreement. 
  2. The ability to defer judgment is a quality that creative thinkers possess, according to many studies. The resistance to "premature closure," as it is dubbed, is the phenomenon in which an individual does not rush in to develop a point of view, but rather is content to "wait and see."
  3. Both Roy Neuberger and Don Kurtz recommend investor patience, and Jim Rogers achieved his portfolio increase by using only a relatively few major insights.
  4. Left-brained, logical investors need to observe the law of reverse effort. When a decision seems so perfect that it can't miss, one should take a walk or "sleep on it" in order to give the right brain an opportunity to participate in the decision. Your right brain will work on your investing even when it is out of your left mind. It will, in effect, be working while you sleep. For this reason, many people keep pen and notepaper at their bedside table, to harvest compelling ideas that pop up at night.


Yaqui Investing


  1. Carlos Castaneda, in his book The Teachings of Don Juan: A Yaqui Way of Knowledge, outlines Don Juan's description of the four enemies one must overcome to become a "man of knowledge," or in this case a wise investor.
  2. The first enemy is fear. If a man runs away out of fear and avoids investing, nothing will happen except that he will never learn. Though you can read many books about the theory of investing, you can never learn unless you become a player. The different investment techniques such as options, short sales, bonds, etc. also can be known only through doing, as that is how you can best acquire a feel.
  3. Fear is overcome by clarity, which then becomes an investor's second enemy. Clarity of mind about the investment process, which is hard to obtain, dispels fears, but it also blinds. It forces you not to doubt yourself and gives you the false assurance that you can do anything you please, for you see clearly into everything. If you yield to this power, which is only a point before your eyes, you have succumbed to your second enemy. Remember, in analysis what can get you into trouble is not what you took into account, but rather the variables you never questioned. You must use your clarity and use it only to see, and wait patiently and measure carefully before taking the next step. You must understand above all that your clarity is almost an illusion. In investing, it is dangerous to feel too secure.
  4. One who overcomes clarity possesses power, but this too is an enemy. One who is defeated by this third enemy, power, dies without really knowing how to handle it. To conquer power, you have to defy it deliberately. You have to realize that the power you have seemingly conquered when your investments succeed was never really yours. You must keep everything in check and know how to use your power. For Lao Tsu, power means understanding "the way of the universe." If you do not possess such understanding, power can come and go, as the highly publicized technician Joe Granville has found out. If you have such power, it should be used only when it feels right and not viewed as anointing you as an "investor for all seasons."
  5. The fourth enemy to becoming a wise investor is old age, where you must resist the unyielding desire to rest. In investing, old age does not relate to physical age, as Roy Neuberger has convincingly demonstrated. Rather, it relates to a tiring concentration where you stop questioning the changing world or stop following a holding under the excuse that "it has gone up so much I can't afford to sell it because of the capital gains tax." It is dangerous to give in to "old age" because you always have to be looking in order to maintain power over your investment portfolio in a changing world.


Chapter 12: The Investment Alphabet


  1. The Taoists tell a story of a farmer whose horse ran away. Because the horse was a prize mare, the neighbors stopped by to express their condolences, to which the farmer said, "Perhaps." The next week the horse returned, bringing with her five wild horses. When the neighbors stopped in to congratulate the farmer on his good luck, he answered, "Perhaps." The next day, when the farmer's son was trying to ride one of the wild horses, he fell off and broke his leg. Again the neighbors gathered to express their sympathy for the farmer's misfortune. Again the farmer said, "Perhaps." Three days later, army conscription officers rode into the village and seized all of the young men except the farmer's son, who was rejected because of his broken leg. When the neighbors came by to say how fortunate it was that everything had worked out, the farmer said, "Perhaps."
  2.  VALUE THE ART OF SELLING. The key to investment success is knowing when to sell, for as Lao Tsu pointed out, "Nature's brightest day fades into night." Since 90 percent of the Street's recommendations are on the buy side, there is little competition for selling advice. Selling is the highest art form of investing. "Finishing always triumphs over starting out," according to Lao Tsu. And he added, "People usually fail when they are on the verge of success, so give as much care to the end as the beginning. Then there will be no failure."
  3. To be a successful investor over time, you need to become nervous when others start feeling secure. This is the "wisdom of insecurity." 
  4. To break free of the tyranny of the "world's smartest man," you need to learn to trust your intuitive right brain. Remember Lao Tsu's words, "The power of intuitive understanding will protect you from harm until the end of your days." Why? Because it is your intuitive understanding that will allow you to follow Lao Tsu's advice: "Take care of what is difficult while it is easy, and deal with what will become big while it is yet small." 
  5. All you need to accomplish this is to treat intuition as an equal partner with logic.