Another calendar year is winding down and with that another year approaches. Many of us are getting ready to do what we have done around this time for many years: we prepare to make new resolutions for the new year. I don’t know how many people keep lists of the promises they have made to themselves and others over the years. I do not, though I often think back to what I recall resolving to do, and wonder in disappointment that I have not managed to stay with them. It’s an odd situation to find oneself in, not least for those of us who have grown up in a culture of achievement. Somehow, though, those promises to do things differently and better get placed on a path that we do not follow. It’s a salutary lesson to try to assess where you are at year-end compared to where you planned to be.
Do we feel the need to make these promises to make ourselves feel better or are we truly trying to analyse ourselves and correct our course? One thing that a turn needs is a stationary point, where you move from one direction to start heading towards another one. If you did not do calculus (or did but never mastered it) then this may not be as evident: in moving from positive to negative (or vice versa) you must pass through zero. For fun (and you can use this as an excuse to be excessive on the grape juice), over the holidays, you could review some of that stuff about first and second derivatives. Turning points can come in many forms, and the mathematicians can explain to us in equations or graphically the many ways of charting a curve.
Human existence, however, does not lend itself to setting up some nice functions, with clear variables that can be adjusted. In life, however, one of the challenges is to get to that necessary stationary point. It’s often much easier to continue in the same direction. One of the first lessons I learned when I started trading was that although no trend continues forever in one direction, the line of least resistance can often be a continuation of a trend, even if it seems that it has reached an unsustainable point. (Take a look at the US stock market indices, for example, and ask yourself how they keep rising while the US economy appears to be on its knees.)
What happens when the turn occurs can be varied; in life and markets, the turns can range from smooth and gentle to violent and abrupt. Perhaps the problem with carrying through with our resolutions is that we hope that they will be smooth and gentle but find that our nature needs them to be violent and abrupt, and that is scary. But that is a conjecture, not something I can establish as fact.
A question to pose to ourselves is to ask if what drives us to try to commit to change can succeed without some form of catalyst. Our promises are necessary, but not sufficient, economists would say. We have one important ingredient, but have to get other elements for the recipe to work out. But, those of us who have lived our lives as self-driven, self-starters, etc. often cannot see that personal life change needs help from elsewhere or someone.
Many economies have had stimulus packages recently to get them turned around, and as we have seen with the US Federal Reserve’s recent actions, the first slug may not be enough so we have to get a booster. As we think about putting forth more good resolutions, we should understand that we need more than good intent: we need to figure out what our personal stimulus package has to be.