The Derivative - Using Emotions to Make Better Decisions and Deliver Results with ReThink’s Denise Shull

Episode Date: April 14, 2022

Forget about not being emotional in your investment process. Tap into those emotions! According to today's guest Denise Shull, that is the recipe for success. Denise is the Founder of the ReThink Group and leverages her neuroscience and modern psychoanalysis background to solve the mental mysteries of successful investing, trading, competing, and leading teams. In this episode, we talk through Denise's days as a trader, the differences between trading and athletic performance, why systematic traders can still use some help from time to time, and of course, all things Winter Olympics [enter gold medal-winning client Lindsey Jacob Ellis], which she still tears up talking about. Tune in to discover the power of using your emotions and having someone like Denise in your corner! Chapters: 00:00-01:33 = Intro 01:34-17:10 = From trading in Chicago to Neuropsychology 17:11-28:54 = The Shull Method: The Value in Emotions 28:55-42:12 = Athletes vs Traders & and whether there’s any "Edge" left? 42:13-55:01 = Lindsey Jacobellis: Processing negative feelings, Visceral intelligence & Intuition 55:02-01:03:03 = How do you invest? Follow along with Denise on Twitter @DeniseKShull and visit The ReThink Group's website for more information About Denise: Denise Shull, ReThink's Founder and CEO, leverages her background in neuroscience and modern psychoanalysis to solve the mental mysteries of successful investing, trading, competing and leading teams. She is known for her uncanny effectiveness in resolving mental blocks and decision conundrums. Her Wall Street career began in 1994 when she joined one of the first electronic trading firms in Chicago. She then traded at Schonfeld Securities before she was recruited to run her own desk at Sharpe Capital in NYC. Don't forget to subscribe to The Derivative, and follow us on Twitter at @rcmAlts and our host Jeff at @AttainCap2, or LinkedIn , and Facebook, and sign-up for our blog digest. Disclaimer: This podcast is provided for informational purposes only and should not be relied upon as legal, business, or tax advice. All opinions expressed by podcast participants are solely their own opinions and do not necessarily reflect the opinions of RCM Alternatives, their affiliates, or companies featured. Due to industry regulations, participants on this podcast are instructed not to make specific trade recommendations, nor reference past or potential profits. And listeners are reminded that managed futures, commodity trading, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors. For more information, visit www.rcmalternatives.com/disclaimer

Welcome to The Derivative by RCM Alternatives, where we dive into what makes alternative investments go, analyze the strategies of unique hedge fund managers, and chat with interesting guests from across the investment world. Happy Holy Thursday, everyone. Sounds like something Robin would say in the old Batman show. Happy Holy Thursday, Batman. But I digress. A couple of good shows coming up for you to close out April with Archer Sepp next week on to talk through how he creates models and strategies in the crypto space.

And our friends at Resolve Asset Management the week after to check in on their return stacking approach now that bonds have tanked and commodities are flying. On to this episode where we have performance coach Denise Shaw, founder of the Rethink Group, talking through her days as a trader, the differences between trading and athletic performance, why even systematic traders can use some help from time to time, and of course, all things Winter Olympics and her gold medal winning client, Lindsay Jacob-Bellis, which she still tears up talking about. That's powerful stuff to have someone like that in your corner. Send it. This episode is brought to you by RCM's China division. If you think commodity markets have been a little crazy here, you should see some of the eye-popping numbers happening over there. Our China division

helps both traders access Chinese markets and managers access Chinese investors. For more info, go to www.rcmalts.com slash China, raltz.com slash China. Now back to the show. Hi, everyone. I'm dealing with a bit of a cold here today. Sorry if you hear a few sniffles, but we've got performance coach Denise Shaw on with us to get me through and deliver the best pod possible. Welcome, Denise. Thank you. Happy to be here. Yeah, I had a little bit of tech difficulties getting here, so happy to finally hear you loud and clear. Welcome to Sun Valley. Exactly, right, and insanely jealous that you live in the mountains there in Sun Valley, but you're saying you're not long for Sun Valley?

Yeah, we're going to move to Park City. I mean, we moved to Sun Valley in the middle of the pandemic, like escape New York City. And it's great. I mean, we're not unhappy we did it. But they don't get enough snow, actually. And

the prices there and Park City are through the roof, right? Oh, my gosh. Mountain towns. Yeah. Talk about inflation. It started in the summer of 2020. I mean, we would have originally gone to Aspen.

I've been going to Aspen since I was 25. We got married there. Like all the billionaires got there before. Yeah. I grew up actually going out to Aspen Snowmass. And then after college lived in Aspen for a year and a half, slapping chili up on the mountain cafe, Suzanne on, on snowmass. We probably passed cross paths. Yeah. That was fun. Now, when I go back, I'm like, who's happier that guy slapping the chili or me? It's a tough call.

It's a tough call. And are you a skier or a snowboarder? Skier. Although I coach an Olympic snowboarder who just won two gold medals. I know. I'll get to that. Hold on. Just want to make sure I have some whatever involvement in snowboarding.

I know. I could spend the whole pod talking about skiing, snowboarding and mountains. So we'll come back to that if time. That makes sense. So your background is too expensive to get all the way through, but take me into the little nugget I saw of you.

We're doing the first electronic futures trading here in Chicago. Oh, gosh. Yeah, it was actually equities. Ninety four. I was with a friend of mine who had been a floor trader at the SIBO equities options. And we were literally turning left from LaSalle on to Jackson when he saw this guy who he apparently knew. Oh, my God, Don, like, hey, I'm so happy to see you. We're starting this upstairs trading firm and you should come.

And Don had always thought I should be a trader and wanted me to go on the floor and buy a weather future seat. And I was like, I don't know what you're talking about. And the answer is no. Those were never really took off. Yeah. No, no. And I remember reading about them thinking,

what on earth is this? But in any event, um, I was in the process of writing my thesis for a master's degree at the university of Chicago. And he was like, come on, come on. You can just keep track of our P and L and we'll teach you how to trade. And you're just writing that old master's thesis, which isn't doing anything anyway. So I did it and then started trading equities intraday. They were on their own for their P&L and then later became a member of the board of trade for financial futures that obviously became part of the work. Nice. What were you trading at board of trade? No, S&P, NASDAQ, Dow.

Love it. I never really, I mean, I'm sure i've done a bond trade in my life but not generally and don that wasn't don wilson was it no it was don winton known as zap in whatever the sebo yeah his his uh badge was zap it. And so they were doing electronic option market making? It was a guy named Bob Cantor who had been an options trader here in New York, or there in New York. I'm so used to living in New York. And I don't know, he got wind of the technology and, you know,

real-time intraday quotes on a network and had a vision for electronic trading. So he started this company called Electronic Trading Group, moved from New York to Chicago to do it. It turns out there's such a difference between trading in New York and trading in Chicago. But anyway, it was that firm. I didn't stay there all that long, like, I don't know, a year or so

at ETG at Bob's firm, there were traders trading all different strategies. Like the guy in front of me was scalping. That was back when we were eight. The guy over there was doing like risk ARB. You know, the guy next to me was trading banks. Like, I don't know if anybody was really trading what you call momentum, but I had of my own observation discovered that like stocks have momentum and thought, I think this is my style. Like no one said one thing that I now know, like figure out what your style is and stick with it. Like figure out how the market makes sense to you and then go with that.

But in any event, I, so I went to Schoenfeld across town that was definitely trading intraday momentum in equities. And then did you start to see in these early days of some of these traders just being crazy and emotional and yelling and screaming and affecting their P&L? Well, there was two things. There was two things. I had known my friend Don for quite a while, and he had this story of like losing a half a million dollars in like two hours at this SIBO thing, whatever that was. And I was like, what? My dad has spent his entire life like, you know, saving up to have a half a million dollar portfolio. How in the world did you lose? Like I could never comprehend that right so that was my backdrop to becoming a trader and then you know I started reading the trading psychology and market wizards and I'd see all the stuff about taking the emotion out of it but actually that guy sat over there Steve was his name who was

trading like a risk arm kind of thing was the most emotional guy I'd ever seen he was constantly jumping up and down screaming he was also making the most money in the office. So I was like, this is like not all adding up. And I had this background in neuropsychology, but I wasn't really using it. At the time, they seemed completely unrelated. And it was really only years later, 2003, when this institute I was studying at wanted to publish my master's thesis. And I had to update it for them to publish it because I didn't want to look, these psychoanalysts look idiotic by having a decade old neuroscience paper. And Antonio Damasio, who's at University of Southern California now, but at the time he was at Iowaowa had started to show that we cannot make any decision without emotion and i was like okay like it's physically impossible it's physically impossible yeah if you think and everybody was going well that can't be true it's like at a minimum it's

confidence you have a belief in some level of confidence that the decision you're about to make is correct. And if you don't have that, you go back and forth and back and forth and back and forth. And that's what he was showing. But I was like, wow, this like really changes all that training psychology. And by that time I was training at a prop firm in New York. And I, and it turned out this guy lived across the street from me and we met at Starbucks and I'm just talking to him about it and he's like you gotta write a paper you gotta write an article and I'm like yeah like right like who's gonna publish an article by me like nobody it turns out that he was undercover working for Linda Bradford Raschke the somewhat famous

trader and he had a whole fake identity in the prop firm, but he was really close to her and she'd written a lot of articles. So he knew all these editors. He's like, I can get you an article. So I wrote this article, it's called Freud's Path to Profits. It came out in December, 2004 in Stocks, Futures and Options. And it's basically about conscious and unconscious emotions and how they would affect your trading. Because I had this background in psychoanalysis

and how we repeat things. And literally, I thought, well, that's it. That's cool. I got my master's thesis published. And I got an article published in a magazine. And that was going to be it. And then the phone started, then the phone started ringing. And now here we are 18 years later, it took on a life of its own because it answers so many otherwise

unanswerable questions about trading and investing behavior. Such as? Why people do what they do. Why they have a pattern of mistakes. You know, why they get stubborn and lose a half a million dollars in two hours. Why they get in too early, out too early, in too late, too big, too small, have a good day, give three quarters of it back. If you understand what's going on for the person, I'll say psychologically,

but what that actually means is consciously, emotionally, and unconsciously, emotionally, you can explain anything. Now solving, it's a separate problem, but you can at least explain it. And at a very minimum, I contend like you can't really solve a problem until you really understand it. And so as your early focus was on these traders, coaching these traders, what were some of the differences you found in helping traders of other people's money versus traders of their own money? You know, that's a really good question that hardly anyone ever asks. It totally depends on the person. Some people are like hyper responsible. And if they're trading someone else's money, they just get way too worried about losing anybody else's money. And so it creates a whole nother less level of stress.

Other people, for whatever reason, can trade other people's money with less stress and they can trade their own. I can't a hundred percent explain that side of it from a character point of view, but it's true. I've seen it. The first one is more common in my experience. Like they're kind of wild with their own money and they're willing to take all these risks. And when they're starting to trade other people's money, they get, they pull the reins way back. And that's probably why we're not allowed to show proprietary results in our industry without a hefty disclaimer, because

the psychology is so different. You're not going to get the same results. I have a client, this is a slightly different version of that, but it's just super interesting. He's really talented, really smart investor, long, short equity, holds positions, supposedly holds positions for months to years. But I mean, he's always moving his book around. So as is typical of most of these people. But anyway, he has his main fund, which has all his rules and what his volatility should be and all that. One of his investors gave him a chunk of money in a no rules fund. Like do whatever, have whatever volatility. He's routinely up 50, 60, 70% in the no rules fund.

The fund where he's got the normal sort of investment management rules. He does okay, but nothing like, you know, jaw dropping. So what is that about? Like, it's not, it is about, he was given rules and not given rules, but why is he reacting so differently? And what, and so if he's a client of yours, you're helping him through that, or you're helping him say on that no rules fund, just let it ride. I don't even have to say anything about the no rules fund. The only thing I ever say about it is, hey, how's the other fund doing? He'll say, oh, 60%.

We only ever talk about the rules fund. I mean, he hired me because in 2020, and I had a lot of clients who came to me in 2020 for this reason they caught the downturn and they couldn't believe the upturn yeah so they fought it and then you know they started out with these spectacular years you know around this time two years ago and then slowly just gave it back over the year and then they came to like doubt themselves and so like when he first called in the fall of 2020 it was to help him recognize his true market intuition but he was also reeling from like i had another cio from a huge fund called for the same reason and was like i think i've lost it i just don't know how to read markets anymore and it wasn't really that it was they, I think I've lost it. I just don't know how to read markets anymore. And it wasn't really that. It was that both of them had fought that uptrend in 2020.

And people will, that will definitely have an impact on your confidence. And what makes me think of like, that's as a allocator, as an investor, that's why I prefer to have like some, a systematic program, right? So those emotions don't get in the way. I should put my glasses on and read an email I have from a systematic programmer that came in about an hour ago. Okay.

I probably won't, but it's literally this. Go ahead. You still have to have conviction and intuition in developing the models choosing which algorithms to run um sticking with them when they're not working yeah exactly choosing includes not choosing um you know discretionary factors like implied volatility, what time frame are you going to use? I mean, there are still judgment calls. Right. Have you seen much more interest in that kind of trader? Right. It seems like a performance coach is mostly made for the intuition based guy.

But have you the world's moving towards more of the automated systematic type guy or girl. So have you seen more of those types come approach you? I guess I would have to say yes at this moment because I have three this year and three is probably at least two more than I've had in recent years. I went through a phase from, excuse me, I think it was, must have been January of 2008 till around 2011, 12, where I got on the Klont speaking circuit. And so I had lots of clients and conversations and was at lots of conferences and spoke on lots of panels i kind of actually took myself out of it but i've had clients i had a client who became the the cio of a quant fund and it's either sweden or switzerland i can never keep those countries straight but anyway he said denise i now have a thousand algorithms to choose from and And I have the same problem I had when I was actually trading stocks.

It's like, how do I know which ones to be running on any given day? Need an algorithm of the algorithms. Yeah, exactly. And so get in a little bit, if you could, to the, you call it the shawl method, right? Yeah, yeah. Right. And I go back to Barry Ritholtz. I think you're probably familiar with.

He had a good piece once saying our primitive brains aren't wired for the modern investment world, right? We have this wetware that's doing fight or flight and investing requires this other skill set where you shouldn't be scared or go after it. Yeah. Sorry, go ahead. There's not a question in there. Explain the method and how you kind of square that of the emotions versus you're kind of saying you need the emotions.

You want to embrace those. Well, you know, technically you can never prove anything in science, right? But we're as close to have proven that not only do you have to have emotion to make a decision, you always have an expectation of how a decision is going to make you feel in the future. And that cornerstone changes everything about how we understand ourselves and how we work with ourselves there's also a growing contingence of science that doesn't even believe in a primitive brain you could say they believe in fight or flight for a slightly different reason which i can come back to but that we're actually using all of our brain all of the time that it's not, you know, thought is superior to motion and thoughts in the frontal cortex. Like it doesn't

actually work like that. We're always predicting based on everything we've learned. I mean, in that prediction, there's always this expectation of a future emotion. So the real problem with the human brain versus the market is not this old fight or flight, you know, being on the Savannah doesn't apply. It's that we misunderstand both the game, because the game is predicting other people's future perception. And we misunderstand ourselves how we should play the game using all of our senses, feelings, and emotions, along with all of the knowledge that we've accumulated about what this game is. So for example, there is a handful, there are a handful of decent studies showing that uneducated people, meaning uneducated market participants, can, if they watch price action,

perform short-term price prediction relatively well. Like, how could that be? Well, how it is, is they are using something called theory of mind, which is I have a theory of your mind, which is our innate ability to predict other people. And they're relying on that. So as they watch prices move, they get a sense of what, you know, what's the speed and rhythm, right? What's the dance of this? And they don't know how they're doing this, but they're not using math, so to speak, at all. We get into the scientific debate about that, but they're just using their innate ability to predict other people and they're feeling it through the dance or the price action. And that seems like particularly true back in the pit days of Chicago with the guys just in that zone, right? And the really good traders could just feel where the pit was moving. Oh, certainly. I mean, you could see the other people and you could feel the energy and hear the volume and hear the intensity. But people have done it on the screen also, right?

And there's an actual experiment out of Caltech that showed ultimately, you know, people who know nothing about the market who could show they were good at predicting price action were using this part of their brain associated with people in social prediction. And they weren't using math at all. And even me, like way back in 94, it was like, how did I notice that Pfizer and Lilly and Merck were going up on a Friday

afternoon, told Bob Cantor, the chairman of the firm that we should get long drug stocks and came in in the morning, you know, Monday morning. And I don't know what it was, if there was an acquisition or what, but, you know, they were all up like $4. And he was like, you're amazing. I'm like, no, they were all ticking. It was two o'clock. They were all ticking up. I don't know what else to tell you. But that study, that 2007 Caltech study, it's called The Nature of Trader Intuition. And I mean, it was a real, first of all, it was Caltech. And it was done by an engineering PhD student.

So like, you know, this is a serious quanty kind of guy, right? And this is before GameStop and all this memes and all that kind of stuff back in 2020. This is. Yeah, yeah, yeah. What's your take on all that on the kind of YOLO traders and crypto bros and people just trying to make a gazillion dollars because they only live once? Well, if you step back again, like if anybody really thinks about what the game is, the game is to take a position. And what you're making a bet on is that other market participants are going to in the future, whether that features two minutes, two months, two years, two decades, whatever. Other market participants are going to value that position at a different price down the road.

Now, for some reason, my quant guy is actually very fundamental. And I'm sure when I read that email, it will be all about the projected earnings of these companies and how does that fit into his model. But it doesn't matter. If you knew what the vast majority of market participants or a good majority, I don't know if we're going to perceive in the future, you've got what you want to know, right? Well, the GameStop, et cetera, phenomenon was the professionals never, they always assumed that the retail contingent was wrong and take the opposite side. What they didn't realize is that a very large retail contingent had grown up during the pandemic and were operating to some degree as one unit.

So they miscalculated the other market participants. But that's in and of itself, like in this modern world, do you think there's more of kind of a hive brain that gets enabled by technology and social media and whatnot, that we can kind of have a better handle on what the group's perceptions are, or kind of artificially use the group's perceptions to either drive price up or down? But yes, but the truth is there are different groups with different levels of power. They underestimated the power of the retail

traders sitting at home with their pandemic capital and how many of them there were. I had a client slash friend who was always really good. He was always very intuitive. He used as much quant as he could, but still very intuitive. Who ended up mapping out different market participants' likely perception, for example, around a Fed meeting. that's an exercise I now take people through. Because theory of mind, the ability to predict other people, we all have it. Like you have to have it to walk, to drive, to do anything where other people are involved,

which is a lot of things. Is that guy actually going to stop at the stop sign or is he not going to stop? Yeah. And we're always on the, you know, on the highway, like, okay, is somebody coming around me really fast on the right. Okay. Like you're always doing it. So basically the game's been misunderstood and we've been misunderstood. But if you get the right understanding of the game and you get a better understanding how you really make a decision, the whole, we're not suited to do this is not as true as so many people say. Because we're all doing it together. Right. Right. It's not this abstract thing over here and we're doing it together. So we're suited to it because we're squaring off against the other human doing it. Exactly.

Except maybe I could argue maybe not anymore because we're more and more computerized and you're sometimes fighting against algorithms instead of humans? My client is a global macro guy who came out of the quant world. And he just keeps a regular tab on what he thinks the algorithms are doing any given day. You know, whole bigger process that has lots of other things in it. That's, you know, one leg of a multi-leg table or, you know, one. Now he's the only client I've ever had who's been as organized about that. Plenty of other clients will say, you can see the algos operating in this kind of price action, or you can discount some of these prices because it's

algo driven. Like there's a lot of clients who've become aware of it, but this particular one is very organized about it. And we, we see on our algorithmic execution group and they program these right, like iceberg orders and that kind of thing, but they can see the anti-gaming logic, the high frequency firms build profiles on some of these big traders, right? So when they start to see 10, 10, 10 come in, they know it's that, right. They don't know

who it actually is, but they'll say client 123. And based on all the past things, they know the profile of that client. So it's right. Okay. We know when 10 comes in 16 times in a row, there's another 2000 behind it it typically so what have they done they've just like memorialized some other market participants behavior exactly right to your point yeah yeah that's all it is i mean it doesn't you know like i love the book on jim i never know if it's simon's or it's simon's I guess, right? Yeah. You read that book. His genius. I mean, I'm sure now.

I got that one. It's the only, one of the only books I've like read cover to cover relatively quickly. But one of the things I was amazed about it was he talked repeatedly about patterns that I knew lots of people recognized in the nineties. Yeah. Just none of us thought to imply insane amount of computing power to prove they exist and then to trade them. That was his genius that came from his other background, that he knew that you could take all the market

data in the world and prove these things really happen and know what your actual statistics are. You know, this happens 55% of the time, or for that matter, he says in there at some point, 50.2% of the time. Right. That's a small. Everyone was trying to do that, but you ran into the belief. Like he created the belief that you could trade on it because they'd analyzed all the market data there was to analyze. It's not that different than what anyone else did. I love the bit where they were losing money, right?

And they dug back into the code and they were multiplying the contract by the wrong amount or something, right? Like a super simple mistake. Like you have all these computing wonder brains and you made the simplest mistake possible. Now you've moved a little more into more and more into the sports type clientele. Yeah. Yeah. What are some of the biggest similarities and biggest differences you've seen between those sports, the athletes and the traders? Well, let me talk about the situation first, then the personalities. You know, sports analogies get way misapplied to trading because the games are so different.

Like in sports, you know whether you're winning or losing. You know when the game's over. Like the game's over, score's marked, you get a break, then you get another try. Never happens in trading. The game's never over. You never really know whether you're winning or losing, right? You're winning this moment, you're losing the next moment, you're winning today, you're losing tomorrow. You never really know. And if you're even a fundamental long short equity trader and you're willing to buy on value, like if something pulls back, does it mean you should get out or does it mean it's an opportunity? You never know. So the markets are a totally different mental challenge in sports. Then probably the most important one is in sports, your job is to make

something happen. And in the market, you basically can't make anything happen. You know, the only, only sports you can sort of liken it to are sailing or surfing, you know, where you're trying to navigate the wind or the waves. But still, there are some physics to sailing or sporting that there are not to this. So you just need to realize that, you know, an athlete prepares in order to cause something to happen in a black and white time limited world we prepare in order to navigate a very gray unlimited unclear ambiguous world totally different mental problems um from a mentality point of view i mean the one thing that is similar is back to the theory of mind for the most part, you know, in most sports you're playing the other people. Like ski racing would be a little borderline because, you know, you're on the course by yourself and there's nobody else there right that second. Right. So from a mental point of view,

that's going to be a little bit different. So obviously in trading and investing, you're playing the other people. From a personality point of view, you know, if you're a professional or an Olympic athlete, you have spent your entire life becoming that person. And yes, you have a personality, obviously, but all of those personalities are so consumed with their craft that that's what you see with those people. You see their obsession with their craft. As opposed to like in trading and investing, we see these kind of different styles, a more engineering style

or a more momentum kind of style or a more, what I'll call the CFA. Like people, the stock price is going to go to the fair valuation of the expected future cash flows right like that's a little bit like playing different types of sports you know um you could argue like michael burry and right um the big short right was just consumed with that trade and sleeping in the office and finding that stuff but i you could also your side of it like he wasn't doing that every year for 40 years up to that point yeah or you know most of these most of the professional olympic athletes

i've dealt with you know they started five six seven years old. By the way, there's, there's information now that you shouldn't really do that. You shouldn't focus on just one sport when you're that young, but you know, which I've read all that. I have a 10 year old and a 12 year old and already the people are like, Hey, you should really focus more on baseball, get rid of these other sports. I'm like, haven't you seen the articles so like the youth coaches are still trying to push that well it makes them feel safe yeah well it makes i think it's for profit kind of travel teams and that kind of stuff too right if hey if you focus more and you come in and you pay for the time and the cages and all that um are you you're in chicago right yeah yeah kind of near wrigley

field roscoe village does that make you a cubs fan uh yeah cubs you well i'm kind of a cleveland indians fan because i grew up in cleveland um but marcus strowman is a client of ours and he's been public about it. So I can say it. New picture for the Cubs. Yeah. And actually one of my guys who was a trader at the Merck, John Burns and my client. And then eventually I needed help and I started giving him some clients. He's worked with Marcus. Nice.

Well, we'll see. We don't have high hopes for the cubs this year um and so where where does all this end seems every pro now has a mental coach every hedge fund or pop shop has people like you come talk to them like just from an edge perspective it seems like the edge is sort of gone and having this tool added to the toolkit. Oh, well. Like if everyone's doing it, is there still alpha in it? What are your thoughts there? A, is everyone doing it?

B, if they are. Not everyone's doing it, but even if they were. Okay, so forgive the hubris of this. Yeah. But if you get the model of the mind right, you have a way bigger edge and almost nobody's getting the model of the right mind right because they don't know any better they're only doing what they've been taught so for the better part of the past 50 years the cognitive behavioral

model of the mind well really the better part of the last 500 years but um you know we think and that creates our behavior we use our frontal thinking cortex to optimize our behavior. That's the model most everyone's working on. And it's wrong. Or to me, what you see most like the old golf thing, right? Like just focus on process versus results. Yeah. It helps a bit and it helps some people more than other people.

And it's not irrelevant, but you're still doing what you do based on how you feel and how you expect to feel. And that's being left out. Like almost no one knows it. Sort of the neuroscientists know it. Like Lisa Feldman Barrett is someone that we rely on a lot. You know, she'll say this old triune, three part of the brain is outdated. There's a great article called Zombie Ideas in science, 2019, you know, three-part brain,

which is, you know, superior frontal intellect, outdated, you know, emotion and reason separate outdated. So 90 some percent of the mental coaching going on out there is cognitive behavioral based on the old model, which is separate your emotions from the right yeah and that you can and that the savannah golfer right of like okay just be a robot do the same process every time keep the emotions at bay yeah but every time that you have that club in your hand you have a feeling you think you're supposed to override it. The way to get better is to listen to it. Because like, we don't decide based on data and facts and

analysis and even what we know our process to be. I mean, now sports has the aspect of you have a physical skill. You know, I don't think about how I'm moving my legs as, I mean, I think about it a little bit, but I don't completely think about it when I'm skiing. Right. But what is that? That's unconscious pattern recognition. That's knowledge that at one time was explicit the golfer does it, the more that explicit conscious knowledge gets pushed into the body as a feeling, as a sense. So the golfer senses, you know, the slope of the green, senses the wind. Like, they may consciously think about it, but that knowledge is bodily.

It's called visceral intelligence. It's physical. You can learn to use that intentionally, systematically in an organized way. And it tells you all kinds of things. And then it was interesting, like Bryson DeChambeau, right? He went the other way and said like, no, I'm going to math it all up. And so I'm not getting a feel for the slope. like bryson de chambeau right he went the other way and said like no i'm gonna math it all up and so i'm not getting a feel for the slope i'm actually stepping it off and measuring it before

the round and it's in my book and he's knows exactly how many inches back he's going to bring the putter and exactly how many inches forward to hit it to the um and just like simons, what he did in doing that was create confidence. He created the feeling that if he executed that system, it would work. And it's that feeling about his system that will make it work. So like, even if you go back to Markowitz, who, you know, first said we should allocate assets, you know, through a quantitative way. What no one notices is that Markowitz said the first step is taking your observations

and experiences and figuring out what you believe. And the second step is taking your beliefs and allocating to different asset classes. And he said, I'm not talking about step one in this paper. I'm talking about step two. In the paper that won the Nobel Prize. But then he said three times at the end of the paper, don't forget, you have to figure out

how to analyze your beliefs. And I think he said, I mean, so many people said this kind of thing, like Frank Knight and other of these academics talking about the market in the early 19th century, I guess, that beliefs mattered, but we don't know how to analyze them. I think you can analyze them and I think you can untangle them.

And I think you can, in doing so, you can create beliefs about your ability to do something, which is what, you know, the quantitative golfer or the quantitative trader has done. Or anybody, for that matter. And at some point, the whole process over results fails, right? If you're an Olympic athlete, guess what? You have to get results in order to make it to the Olympics, in order to earn a medal. So you can emotionally be

stable that you followed the process and you didn't get the result, but the goal is the result, right? And especially in trading and investing, the goal is the result. I can't tell you how many clients I have who, you know, will talk about focusing on their process, will have me help them clarify their process. You know, me help them clarify their process. I will get in a room and we'll write their whole process on a board. And I'll be looking for the discretionary factors and the factors that they really have confidence in and the ones they don't. And then they'll call me and say, how do I know when I can deviate from my process and use my intuition? Even the email that I'm not reading.

Because we have some way of analyzing anything we do. Out of that way of analyzing, we get some intuition, some sense of what's going to happen. We have some variable level of confidence in that sense. We might have fear that we would act up to slightly separate, or at least more complex, but like, that's how we do things. That's how any of us do anything. We have some level of knowledge. And in that we have some level of confidence in that knowledge. And out of those two feelings, which are really intuition and conviction or intuition and confidence, we act. And we act in the expectation that if we,

you know, take what we know and we predict into the future, that will get us what we want and we'll feel good. The prediction of a future emotion. And when you start to make that expectation of how this is going to feel in the future conscious like this whole world of decision making opens up where you get a way wider set of choices and you also get yourself really in the game you're playing because you start to be able to separate just your expectation from your past experience from whatever you know and whatever you're seeing in the moment. You can be more about like, what is this price action?

Or what is this market action? Or where should I hit the ball? Back to our shared mountain sports obsession. So your most famous client, perhaps, is Lindsay Jacob Bellis. Certainly my most famous client perhaps is Lindsay Jacob Ellis. Certainly my most famous. Jacob Ellis. Jacob Ellis. Jacob Ellis. So did she come, let's start with her disaster in 06, where you came after that? Yeah, yeah. I met a U S ski and snowboard in April of 2016. I was invited to come give a talk about emotions and sports for their like annual coaches meeting.

And at the end, this coach came up to me and said, have I got a project for you? And I was like, okay. And then he, I guess they emailed me the YouTube link and I didn't I mean I only had the most peripheral tangential knowledge of this ever happening um and I said okay you know she's whatever she was at the time 30 or 31 i'm like can she still do it he's like absolutely he he's like she's won like every medal and more medals than anyone but she's had a block in the in the olympics and i'll give people the quick she in 06 and what was it torino she was well ahead well ahead in the snow cross and the last jump, kind of tried to do it with some

style throughout and on the landing slip fell and they passed her. So she didn't get her medal. She got a silver. She snatched silver from gold. Yeah. Yeah. So, you know, I wasn't the first like performance coach they'd had in there. But I started working with her in the summer of 16. And like, I know this when someone's in a slump, you know, when there's a repetitive mistake that doesn't actually make any sense, given their ability, I would have known this, even if I knew nothing about her background.

Cause when a trader or portfolio manager comes to me, it's the same thing. Let's go back to when this started. I know in those circumstances, there's always a mistake the person regrets. Now with Lindsay, it was obvious what the mistake was. She regretted. And they've never been given the right help to process that mistake in the right way. They've been told, you know, shake it off, get it over. It doesn't matter, you know, in trading, you know, you're still successful, you know, and at, but they have a set of feelings about that mistake, you know, mad at themselves, embarrassed, all kinds of things that have never been worked through. And so like with traders, but it was same with Lindsay,

but with traders, we'll go back to when it started. I once had a trader who called me up and been in a slump for 10 years and managed to sort of switch from hedge fund to bank to hedge fund to bank. And like, you know, tried everything and hadn't solved it. And their wife had been kidnapped, actually. Crazy story. And she turned out to be fine. But they sort of felt guilty and responsible and never really processed it in the kind of, you know, be positive, think about the future kind of thing. So what happens is there's a lot of pressure to be

positive. But yet the person still has a whole set of so-called negative feelings about the mistake. And they're in there. Negative feelings in their pure form have information for us, but they also get really distorted because no one knows how to feel them or talk about them. And so many people can't cope with them and you get pressure to not have them. And so you never get to work through it in a grieving sort of way. Like we allow people to grieve you know when a family member dies

we don't allow anyone to grieve when they make a mistake in trading or sports they're supposed to just get over it right well guess what there's a grieving process flush it our little league coach tells the kids flush it right yeah immediately yeah yeah yeah and and apparently that works for a lot of people but there comes a point where it doesn't work and then the person feels guilty because they can't flush it like so they have the original problem the original thing they feel bad about and then they're given this advice which is use your intellect to get rid of the feeling literally that's what flesh it is um and sometimes it doesn't work and then the person thinks what's wrong with me so they have their original mistake and now they have the fact that something's wrong with them and the only thing that's wrong with them is you weren't given advice according to

the way your brain really works so anyway with lind know, I think, and I said this in the New York Times, so I'm not telling any secrets. I think there was an aspect of that that was a bit of a rebellious teenager. She had just turned 20. She'd been slated to be Little Miss Snowboard Queen for, you know, forever. It was the first time border cross was in the olympics you know consciously she was celebrating well consciously she what she thought it was she would like give the crowd something to cheer about right you know some people have said she was celebrating early i think these things always exist in layers so i think yes she was trying to give the crowd something to celebrate she was was celebrating a moment too early, which I think is partially a coaching problem, like

teach your athletes to cross the finish line before they do anything. Do you see in football, the guy holding up the ball before he crosses the goal line? Yeah, yeah. But a part of it, I think, was also defining herself as a separate human being that wasn't just an Olympic athlete. And no one had helped her process that. So our work together enabled her to see herself as Lindsay Jacob Ellis, who happens to be an amazing snowboarder, not Lindsay Jacob Ellis, the snowboarder.

Right. Or an amazing snowboarder named Lindsay yeah yeah so she came very close in 18 I mean she dominated really until the bottom third of the course in 18 we've actually always been suspect that there was some sort of wax issue even then but as she went into this year and I've worked with her basically the entire time, she's also a coach for us now. She's on our website and she coaches a young surfer. And if she ever retires, I think she'll do more than that. I know for sure. She was being herself.

Like the race right before the Olympics, she opted out of because she thought the course was dangerous and she just come into her own where she felt like it was okay to say that, not do what the coaches wanted her to do or anyone else wanted her to do. And that, her coming into herself was like, I think the issue back then, like, like I told her, like, look, if you've been a 20 year old girl at college,

you would have dated the wrong guy and your dad would have been mad at you. Instead you like blew the gold. Right. Did this thing with a hundred million people. That was the only thing you had to do. Cause you weren't in college with the opportunity to date the wrong guy. So all kinds of 20 year olds do things to define themselves. So once she could see it that way she could start to forgive herself and what does that mean so that's all you mean by processing it is just talking through it and identifying it there's an emotional logic to everything every human being does meaning

you can make sense of it from their perspective and they generally i mean obviously murder and stealing accepted like don't have to feel like something's wrong with them because they chose to do something that resulted in a mistake there was some reason. But we all end up beating ourselves up because we think we made some, you know, ridiculous mistake. And I mean, in her case, she was excoriated by her sponsors and the press. I mean, even in whatever year it was that the Cleveland Cavalier J.R. Smith passed the ball with like two seconds left when really he needed to shoot it because they were tied. So the next day sports illustrated did an article of like the worst sports bloopers of all time. And this was like 17 or 18. So it was, you know,

11, 12 years from, from Lindsay's. She was three. She was number three in the worst sports errors of all time, 12 years later in border cross so she suffered a lot like in she also when she went this year to the to the olympics said you know what i'm not going to answer the press's questions about 2006 and her coach said well you never had to answer them and she's like no you guys always told me i had to do the press stuff but this year she's I'm not doing it so she was she was just able to be herself and then I talked to her the Friday before her race which was Tuesday night here and then I texted her right before I'm like you just go be I'm gonna

start to cry you just go be Lindsay Jacobellisob Ellis and I knew she would say lindsey jacob Ellis like you know screwed up so I preempted and I said the lindsey jacob Ellis it's one every other like world cup and every other x games you'd be that lindsey jacob Ellis because that's the real one and you'll be fine so there's 99 of those and one of the other ones. Yeah. Yeah. Yeah. And that does it, do you think it matters what, if the narrative's even true or not? Like if you say, let's process all this, let's get a narrative around it of why it happened. Does it even matter if it's true, that narrative or not? Like a lot of in the investment world, a lot of times, right? Every day, the market did this because X, Y, Z, which it's usually just some made-up narrative right of why it went up or down it matters if the person's narrative about their behavior is true because if it's not it won't

have the power they need it to have it'll research because that little voice will be you know they'll have some sense that that's not really it which Which is what goes wrong, by the way, with the process, process, process. I mean, if a person can get to the point where they can, like, be completely dependent on the process with no self-narrative, but that's nearly impossible. You also have to be brain dead to do that. Yeah. You know, literally. have to be brain dead to do that yeah you know literally um so there's always that self narrative talk reflection assessment going on and human beings are really good at sensing what's true and what's not true we're just not taught to listen to it so when you're trying to create a higher level of performance,

getting the truth out about what someone's perspective is, which by the way is often not true. It's their truth. It's how they perceive themselves, but it's not objectively true, but you have to get that out on the table, you know, shine the light on it, untangle it. So they see what's what the way Lindsay saw, like, okay. And some level I was just being 20 year old rebel. Like everybody else does not under the spotlight. Then the person can go, okay, well, who do I want to be now? You know, who am I now? Like, that's my history. And then they actually get more truthful, not less truthful. Usually the self-expectations are a mirage. They're like based on some

misunderstanding from childhood. Like, you know, you're the youngest or you're the smartest or you're the dumbest, or you're the one who always screws up. Like we have these stories about ourselves that we get in the first 10, 20 years life and the market is a perfect place to play those stories out because it's like a rorschach blot you can project anything onto it you have this implacable unmovable authority figure immovable and you can make you know but why do so many traders feel like the market's out to get them? Or the Fed's out to get them. It's not personal. But it feels like it is. So when you untangle how it feels personal,

and that resonates with the person, they start to be able to detach that from how they would otherwise act out that feeling in their decision making. And so how do you approach the market personally? Like what do you do with your investments? You probably don't trade anymore. Do you still trade? I trade a little bit. So like in GameStop, I, during GameStop, I said to my husband who actually does the trading these days, I said, you got to short that thing. Like, and he's very much, you know, hedged, you know, long puts and calls at the same time,

they're going to play out and blah blah blah all that um i started with options traders but it's just time i think i was like no no no no no like just buy puts he's like what's that i'm like no no just buy puts so we you know bought some puts at like when it was like 340 or something then i looked at the screen and bought him back at 85 or sold them or whatever you do. But like, so my, that's what I, as I tell some of my clients, you know, my market knowledge these days, I keep CNBC on in the living room and it amounts to when I walk by the screen and see the quotes, like, and so what that enables me to do actually is some sort of what would it be called swing trading in a momentum sort of way, right? Because that's what that GameStop thing was, right?

Now I will have clients who will say, you should buy this stock. But you're able to practice what you preach and not get too emotional about your wins and losses. Well, what I'm really able to do is totally listen to my intuition. Totally listen to my intuition. Right. Do it with confidence.

Yeah. Like, and I can do that with everything now, but I mean, everything I've used in skiing, I do it in business decisions. I do it in personnel decisions. I do it. Like I do it when I meet a new client, like I first talked to somebody, well, what feeling do I get from this person? I mean, there is a phenomenon where human beings have induced feelings. So it not happen so much on the screen.

That's one of the things that doesn't work with Zoom. But if I'm on the phone, just listening to a person, I can feel feelings they're feeling, even if they're not telling me. That's called induced feelings and all human beings can do it. You can learn to do it. Yeah. So I use that, which is what?

It's a form of visceral intelligence. I was talking to somebody this morning and my jaw, my jaw was quivering. My jaw never quivers. That was, it was the person's anxiety. I mean, to really get crazy about it. I mean, this is people who have animals will understand this. My dog barks when certain clients start talking, you know, with their sense of hearing that he can hear the tone right through the, you know, I had one client with, this was a different dog. Literally that client would

start talking every Tuesday morning at 10 o'clock and that dog would start barking like crazy. I feel good. The dog hasn't barked during the pod. He's in the other room, but the door shut. But my point is there's this, there is a body of knowledge all human beings have. It's called visceral intelligence in research. It's what we call instinct, intuition, physical intelligence, somatic intelligence. You give lots of other

words for it. The best one is visceral, you know, intelligence in your body. It's what expertise is. I mean, I said this to a group of professionals just a couple weeks ago. Even if you're totally a math guy, you have visceral intelligence. You look at some problem that can be analyzed through math and you have this sense of what math to use right yeah especially at the higher levels of like how am i going to approach this this theorem right yeah you've learned all this stuff it's innate to you now it's in your body and you look at it and you go this is the right way to approach i couldn't do that because I don't have that expertise. So even if something is concrete, that becomes whatever, some algebra or calculus to solve some problem.

The person doing it has a sense of what's the right way to approach it. And that sense is the thing I'm talking about. That sense is something that everybody can get better at the task ends up being able to know what the dictionary on yourself is how does that sense feel versus how does something impulsive energized that you want to do for it is for some other reason other than just the problem that you're facing, whether that's market or engineering or whatever. That's a skill. That's the trick, right? How do you not let the intuition take over, so to speak, right? And we go with every whim and every... Well, you have to learn. You have to develop, as Lindsay calls it, mental awareness of what's really going on for you.

And this is a body of knowledge that anyone can undertake and will become an actual edge, particularly in the moments of stress, right? Particularly when it's like, should I get big now? Or should I get out of this now? Or, you know, whatever, should I take more risk? Should I take less risk? If someone starts to learn their physical signals, visceral intelligence, they can start to use them. And in a way, it gets easier, not harder. All the stuff about setting all of that aside and using only your intellect. You're just fighting the way human being

actually makes a decision. You're fighting your best self. Don't do it. Don't fight yourself. I know we got to let you go. Tell everyone where they can learn more about you. The website, all that good stuff. Yeah, yeah.

So my company is The Rethink Group and it's, all that good stuff. Yeah. Yeah. So my company is the rethink group and it's the rethink group.net. All kinds of information on there. Way too much information. I'm on Twitter is Denise, my middle initial K Schull, S H U L L. Perfect. Yeah. So all you hedge fund managers out there listening, give her a call. Improve your performance. Improve your results for our investors. Thanks so much, Denise.

It's been a pleasure. Hopefully we'll get out your way. Utah, maybe next year. We'll be there. We'll ski a run or two together. That'd be great. That'd be awesome. You've been listening to The Derivative.

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