“Up in the morning, up in the morning, out on the job.
Well you’ve got me searching searching for… searching for, the philosopher’s stone.
Even my best friends, even my best friends they don’t know
That my job is turning lead into gold.
It’s a hard road even my best friends they don’t know
And I’m searching for the philosopher’s stone”
I’ve been pondering, what has alchemy got to do with your trading account? I traded Thursday but due to Jackson Hole meetings Friday, stayed flat. Instead I wrote and recorded these thoughts. Last year during Powell’s speech in Jackson Hole, the Dow dropped 1000 points. This year, I had such a great day trading Thursday, why not use the time well and stay away from the volatility.
On the surface, one of the primary goals of alchemy was the transmutation of base metals (like lead) into noble metals (like gold) using the “philosopher’s stone.” This transformation was believed to represent the mastery of the alchemist over both the material and spiritual realms.
By thinking about this over the years I’ve begun to realize that the alchemists in ancient times believed something more nuanced. I began to ask myself, why did attempts to create this legendary and mythical substance develop into such a widespread practice across so many cultures and across so much time?
The belief was that if you could get to the underlying structure of the lead, you could transform it into something more valuable: GOLD. Meaning, with the right concoction you could transform something base – into something valuable. In our trading ‘crucible’ we add a concoction of ‘technical analysis’ plus the leverage of your margin account and you could transform something base (margin) into something more valuable (equity).
Akin to if you could completely eliminate the randomness of market price action using of all things, lagging indicators, you could accurately predict the outcome of your trade and transform something base (charting software) into something much more valuable.
But the entire practice of Alchemy was more. It was an esoteric blend of mysticism, philosophy and early science in an effort to master both the material and spiritual realms. It was the pursuit of transformative achievement, ultimate knowledge and enlightenment.
If we can see the analogy between alchemists believing they could transform base metal into gold, speculators expect to transform their margin into substantial profits. We could be accused of using the philosopher’s stone to turn a small investment into a substantial fortune by shrewd speculation. Just like searching for an elixir of immortality or instant enlightenment through the philosophers stone most traders are swayed by the dream of a perfect trade. Quick and big gains in the financial markets. Just like the mythical powers of the ‘stone’, we dream of leveraging the possibilities in our own favor.
More important in my thinking is the less obvious hidden component of the philosopher’s stone. Inner transformation, spiritual enlightenment and the sense of accomplishment and self mastery ARE the goal. The successful speculation is the offshoot of self mastery in the best game in town. Like the alchemist’s quest for wisdom, it’s my belief successful traders have to undergo a personal journey of learning and growth. Hopefully quick enough to NOT blow their account up with a margin call that can’t be met. For me it was the NYMEX Coffee futures in the 80’s.
Alchemists sought self transformation and I could speculate the lead into gold is a perfect allegory for seeking personal insight, managing expectations, self control and being on the lookout and adapting to unpredictable market conditions. It can be your highest calling with the payoff being far greater than just trying to turn lead into gold.