Dec 8, 2022

Use Your Unconscious Mind to Trade

I recently finished From Where You Dream by Robert Olen Butler. I read some Butler stories when I was in my 20s—he has written some amazing stuff, like his Pulitzer Prize-winning short story collection, A Good Scent from a Strange Mountain.

While he’s known for his fiction, From Where You Dream is a collection of lectures from his creative writing classes at Florida State University. It is perhaps the best guide in existence on how to write fiction. His message is that you must write fiction with your unconscious mind.

Nonfiction, like this newsletter, is analytical. You write nonfiction with your conscious mind. Butler talks about “dreamstorming” as the creative process that goes into fiction—like brainstorming but with dreams. You are supposed to achieve a trance-like state when you write, blocking out the outside world.

I don’t write a lot of fiction, but I am starting to write more of it. As a career nonfiction writer, I am accustomed to writing with my head. Butler says that fiction is art, and art is a sensual experience—you write about what you perceive with your five senses. This does not come naturally to most people. Maybe it came naturally to me years ago when I was in high school and college, but since then, I’ve been writing about things like convexity and forward-starting variance.

Anyway, the best way to get good at writing fiction is to write a lot of fiction. In the book, Butler said he wrote about four years of fiction—about a million words in total—and flushed it down the toilet until he learned to write with his unconscious mind.

You probably aren’t going to believe this, but that’s how you’re supposed to trade, too.

Don’t Overanalyze

Investors are highly analytical people. Some of the best investors I know accumulate thousands of data points, build spreadsheets and charts, analyze all of it, and use that in their decision-making process. Some people will read 500 pages of material a day!

I prefer not to do that. I don’t trade by analysis—I trade by inspiration. I might come across a chart or tweet, and it gives me an idea—and I immediately pick up the phone and execute the trade.

How is that working out for me? Well, I’m a newsletter writer, not a hedge fund manager, but the closest thing I have to a track record is the Street Freak portfolio, which has outperformed the market by 21.7% this year. (You can learn more about my Street Freak letter here.)

Not only do I avoid research and analysis, I also believe that too much information is bad. And it does not take much to have too much information. A chart and a few anecdotes are all I need. That’s my process. It works for me.

Reading 500 pages a day may work for other people, but really, what I’m trying to do is trade with my unconscious mind. Analysis is really no help against the market. It never has been. The smartest freaking people in the world, with all the technology and computing power, and nobody can beat the market on a repeatable basis. It’s not about being smart. It’s about distilling concepts to their simplest essence.

A baseball player on a hot streak says that he can see individual stitches on the ball as it’s coming toward home plate. A race car driver will talk about the sensation of his surroundings slowing down, that he can see individual bricks in the wall as he speeds by at 200 miles per hour. These athletes are not thinking or analyzing. They are seeing and reacting. And that’s how you’re supposed to trade as well.

Trade from Within

My best trades are the ones where I hear that little voice in my head—and act on it. We all have that little voice in our heads, but we are taught to not listen. We’re taught to think and overanalyze things. We’re not taught to act instinctively. I’ve known a handful of employees at Tudor Investment Corporation with Paul Tudor Jones, and they talk about how he will get up in the middle of the night and completely reverse a giant position in yen or something like that—and will end up being right. That’s not the conscious mind at work.

One of the worst things to happen to finance in the last 20 years was the disappearance of the open-outcry trading floors. Those trading floors were a good place to get an entry-level job and see if you were any good at trading. Now, you need to go to Harvard or its functional equivalent to get an entry-level job in finance.

It’s not that we don’t want smart people—being smart helps—but it’s more important to listen to your inner voice, the unconscious mind Butler talks about.

Trust me, they don’t teach that in a CFA.

Jared Dillian

P.S. Year to date, the S&P 500 is down 17.3%, while my Street Freak portfolio is up 4.4%. For a limited time, my publisher is extending a special offer—a 45% discount that gives you access to a full year of my market-beating portfolio. So, if you’re interested, don’t hesitate to check it out. Click here for all the details.

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