Many wise traders look deep. They know to understand human psychology is the bedrock of good living and ultimate success. The book People of the Lie, by Scott Peck offers food for thought:
The central defect of ‘the evil’ is not the sin but the refusal to acknowledge it. More often than not these people will be looked at as solid citizens. How can that be? How can they be evil and not designated as criminals? The key word is designated. They are criminals in that they commit crimes against life and liveliness…their crimes are so subtle and covert that they cannot clearly be designated as crimes. The theme of hiding and covertness will occur again and again throughout the rest of this book. It is the basis for the title People of the Lie. Evil deeds do not make an evil person. Otherwise we would all be evil. If evil people cannot be defined by the illegality of their deeds or the magnitude of their sins, then how are we to define them? The answer is by the consistency of their sins. While usually subtle, their destructiveness is remarkably consistent. This is because those who have crossed over the line are characterized by their absolute refusal to tolerate the sense of their own sinfulness.
The poor in spirit do not commit evil. Evil is not committed by people who feel uncertain about their righteousness, who question their own motives, who worry about betraying themselves. The evil of this world is committed by the spiritual fat cats, by the Pharisee’s of our own day, the self-righteous who think they are without sin because they are unwilling to suffer the discomfort of significant self-examination. It is out of their failure to put themselves on trial that their evil arises. They are, in my experience remarkably greedy people. A predominant characteristic of the behavior that I call evil is scapegoating. Because in their hearts they consider themselves above reproach, they must lash out at anyone who does reproach them. They sacrifice others to preserve their self-image of perfection.
Utterly dedicated to preserving their self-image of perfection, they are unceasingly engaged in the effort to maintain the appearance of moral purity. They are acutely sensitive to social norms and what others might think of them. They seem to live lives that are above reproach. The words image, appearance and outwardly are crucial to understanding the morality of ‘the evil’. While they lack any motivation to be good, they intensely desire to appear good. Their goodness is all on a level of pretense. It is in effect a lie. Actually the lie is designed not so much to deceive others as to deceive themselves. We lie only when we are attempting to cover up something we know to be illicit. At one and the same time ‘the evil’ are aware of their evil and desperately trying to avoid the awareness. We become evil by attempting to hide from ourselves. The wickedness of ‘the evil’ is not committed directly, but indirectly as a part of this cover-up process. Evil originates not in the absence of guilt but in the effort to escape it.
It often happens then that ‘the evil’ may be recognized by its very disguise. Because they are such experts at disguise, it is seldom possible to pinpoint the maliciousness of ‘the evil’. The disguise is usually impenetrable. They are not pain avoiders or lazy people in general. To the contrary, they are likely to exert themselves more than most in their continuing effort to obtain and maintain an image of respectability. They may willingly, even eagerly, undergo great hardships in their search for status. It is only one particular pain they cannot tolerate: the pain of their own conscience, the pain of realization of their own sinfulness and imperfection. They are men and women of obviously strong will, determined to have their own way. There is a remarkable power in the manner in which they attempt to control others.
Those who are evil are masters of disguise; they are not apt to wittingly disclose their true colors — either to others or to themselves. It is not without reason that the serpent is renowned for his subtlety. We therefore cannot pass judgment on a person for a single act. Instead judgment must be made on the basis of a whole pattern of acts as well as their manner and style. Think of the psychic energy required for the continued maintenance of the pretense so characteristic of ‘the evil’! They perhaps direct at least as much energy into their devious rationalizations and destructive compensations as the healthies do into loving behavior. Why? What possesses them, drives them? Basically, it is fear. They are terrified that the pretense will break down and they will be exposed to the world and to themselves.
Evil people would be distinguished by these traits:
- Consistent destructive, scapegoating behavior, which may often be quite subtle.
- Excessive, albeit usually covert, intolerance to criticism and other forms of narcissistic injury.
- Pronounced concern with a public image and self-image of respectability, contributing to a stability of lifestyle but also to pretentiousness and denial of hateful feelings or vengeful motives.
- Intellectual deviousness, with an increased likelihood of a mild schizophrenic-like disturbance of thinking at times of stress.
This relates to trading? Yes, but more importantly it relates to life.
The Trading Application
The trading application of Peck’s framework is not about identifying evil in others. It is about the self-examination that most traders refuse to perform. Peck’s central observation is that the damage done by the people he describes comes not from their actions but from their refusal to acknowledge those actions as wrong. The mechanism of self-deception is what perpetuates the pattern.
The trader who consistently loses and consistently finds external explanations, bad luck, market manipulation, the broker’s fills, the timing of news releases, is performing a version of the scapegoating Peck describes. The trading losses are real. The explanations that assign responsibility elsewhere protect the self-image of the competent investor who is being wronged by circumstances. The actual explanation, that the approach is flawed, the position sizing is wrong, the exits are too early, the entries too frequent, requires a different kind of self-examination: the willingness to put oneself on trial.
Peck’s point that the people he describes are not lazy but actually exert themselves enormously in maintaining the pretense maps directly to the trader who works very hard at the wrong thing. The trader who spends enormous energy on finding better entry signals, better news sources, better tips, while never examining whether the exit strategy is correct or the position sizes are right, is doing the psychic equivalent of Peck’s subject. The energy goes into maintaining the narrative of competence rather than into honest evaluation of performance.
The four traits Peck lists as identifying characteristics apply cleanly to a specific type of market participant: the analyst or manager who never acknowledges being wrong, who scapegoats market conditions when calls fail, who maintains an elaborate public image of expertise, and whose thinking under stress produces rationalizations rather than honest reassessments. These participants are in every market. They are the counterparties whose systematic self-deception creates the predictable errors that systematic trend followers exploit.
The connection to trading is real. The connection to life is deeper.
Frequently Asked Questions
How does Peck’s framework apply to trading psychology?
The refusal to acknowledge error is the same mechanism whether it operates in personal conduct or in trading. A trader who cannot acknowledge that their approach is producing losses, who always finds external explanations for failures while attributing successes to skill, is maintaining the pretense Peck describes. This self-deception prevents the honest self-examination that would allow the trader to identify what is actually going wrong and correct it.
What is scapegoating in a trading context?
Consistently attributing trading losses to factors outside the trader’s control: market conditions, broker fills, news timing, manipulation, or bad luck. These explanations protect the self-image of the competent trader and prevent examination of whether the approach itself is flawed. The pattern, not any individual loss, is the indicator. A trader who never acknowledges a systematic flaw in their approach is scapegoating regardless of how sophisticated the explanations are.
Why does Peck say the people he describes exert enormous effort and what does that mean for traders?
Because maintaining the pretense of competence requires more energy than honest acknowledgment of limitations. The trader who works very hard at rationalizing losses, searching for exculpatory explanations, and maintaining an image of investment expertise is expending effort that could go toward honestly evaluating what is working and what is not. The willingness to put oneself on trial, to examine one’s own trading decisions as honestly as one would examine anyone else’s, is the prerequisite for genuine improvement.
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