Four classes of men in market

I wouldn’t say that. I would answer it this way: I believe that men make markets and man doesn’t change. Man may or may not interpret the importance of the fundamental the way I do. I believe that there are different classes of men and that in every market, there are always these four classes of men to a greater or lesser degree. Of course, there are much more than four types of men in the markets. But for the sake of simplicity and analysis, I have reduced them to four. Each group can at any one time be dominant. The key is to know what the mix is of men who are making the markets. It’s a question of which class will win out, and which class is dominant.

The first class of men doesn’t think. The second does think, but must have a reason for taking action. They are going to succeed over the long haul. The third class is in there professionally — hedgers, commercials. The fourth class thinks that they think. They are highly emotional and are never able to control their emotions.

The difference is this: many people can’t think, but only do what they are told. Usually, the first class makes up the majority of a market. Today they don’t — they need to have an exciting market. The second group is comprised of people who are intelligent and are able to think for themselves — the successful traders. The members of the fourth group try to think for themselves, but are incapable of anything more that emotional thinking.

IM: So 1975-1980 might be a period of time where the metal markets were dominated by those who don’t think — the outside speculator who just wants to buy a bull market. The commercial might be someone who sold the metals, and the higher they got, the more the commercial sold.

There’s a difference between those who speculate for money, and those who trade — not to make a lot of money — but to protect their inventory. The hedgers are the third class and think more long term.

The ride up was caused by those who don’t think, but the wild excessive top to the gold — and to virtually every market — is caused by the fourth group — the emotional traders.

Bull markets breed emotionalism and therefore attract the fourth class, as well as the first class. The third class is always in the market, by necessity. And the second class is never very far, always looking to get in early on an attractive opportunity. So the first and fourth class of men change the market in its later stages, bringing extremes. I think there were fundamentals that caused the gold market to go up, but not as high as it did. At key turning points in the market, the fourth class dominates, such as when we saw $800. gold.

It is something that I’ve learned to do that I think is invaluable. You see, I try never to let a trade get to me to the point that I’m anxious about it. I’m not a master of my anxiety, so once I feel myself coming to that point, that alone is reason enough to get out of the trade. Once I begin to worry about it, I might better be out of it. There’s no way to recoup my losses by keeping this trade, since there’s no way I can.

A good trader doesn’t let fear or anxiety dominate him. He must demonstrate that he can by doing something about it and not worrying.

Most of the people who have traded commodities are walking dead men. They remember and fixate on the fear they experienced when they were wrong. Unless they can shake that, they’ll never trade well again. The experience has been so painful that they will remember it for the rest of their lives.

I concentrate on possibilities rather than probabilities.

I know that there’s always a possibility that what I don’t want to happen, will happen. The market will not act in accord with my expectations.

You have to ask the question, ‘How must you function in order to survive?’ The answer is to be able to accept a loss. Not having expectations makes it a little easier to accept a loss. You must realize that losing is a part of soul growth, so to speak. It’s necessary. It’s hard to accept, but necessary.------LONGSTREET