Four Principles of the Van Tharp Institute
Van K. Tharp, Ph.D.
“Dr. Tharp, how can you write such a
pessimistic outlook on the economy?
You are scaring everyone and that’s just not right.”
made similar comments regarding my last article about my outlook on the
economy for 2009. However,
if you really understand our entire program, you would never make a
statement like this. Our
programs at the Van Tharp Institute encompass four areas:
(1) understanding what is going on in the market, including
the current market type, and planning for it; (2) understanding
systems and designing systems to fit you and the current market
type; (3) using position sizing to meet your objectives; and (4)
understanding yourself and how you create your own results.
In response to the comment above, I’d like to review each
of the four areas. While
I stand by every one of the statements I made in my Outlook for 2009
article, it’s important for you to understand that I’m not
fearful at all. I’m
very happy and joyful, and you should be to.
If you are fearful about what might happen, then you are not
living in the now. Instead,
you are creating a future you have judged to be negative.
And that’s not a useful way to live.
the Big Picture
and the Current Market Type, and Planning for
I can remember
thinking when our official debt went to a trillion dollars,
“How can we do that? How
can we survive with that kind of debt?”
Well, the Bush administration managed to produce yearly
deficits of a trillion dollars and a total debt (including future
obligations) of over $100 trillion.
The Federal Reserve actually produced a study saying that the
U.S. was bankrupt, and when I looked at the suggested solutions, none
of them were palatable.
When you have a
high debt, the only thing that makes sense is to inflate it out of
existence, meaning that the debt becomes worth less and less.
For example, I recently bought a Zimbabwe 100 Billion note
for about a dollar. That
note, I understand, will buy about two loaves of bread in Zimbabwe.
Now, if we somehow balance the budget, stop spending, and
inflate to the point where 100 billion will buy a loaf of bread,
then our debt will be quite manageable.
I’m being a little facetious, of course, but only a little.
is another thing about debt. As
it gets bigger, it becomes riskier.
And risky debt must pay a high amount of interest in order to
keep people interested in owning it.
Buy we are not paying a high amount of interest for our
federal debt. It’s
effectively zero. And
who will buy t-bills without a decent return?
Our debt and our dollar are both risky.
Thus, my prediction is that the dollar will go down in value
and our debt has reached bubble bursting stage.
But why should
this evoke fear? It’s
just a statement. It’s
neutral. If you feel
fear reading it, it simply means that you have a lot of stored fear
inside of you and its starting to come out.
If that doesn’t make sense to you, it’s explained in both
the Peak Performance Home
Study Course and in the
Peak Performance Workshop.
important to remember is that crisis means opportunity!
There will be lots of opportunity in the current crisis, which
will become apparent soon. I’ve
already mentioned some of the interesting opportunities that have
surfaced as a result of this crisis (see the Outlook
for 2009 article).
It is also
important is that you understand what’s going on.
If you pay attention to the media and think this recession is
over and the market will start going up, then you could easily put
yourself in harm’s way. If
you think a bull market is starting when we’re in a volatile
sideways or volatile bear market, then you could easily put yourself
in harm’s way. Thus,
it’s important to know what’s going on and how to plan for it.
Low Risk Ideas and that It’s Possible to Develop a Holy Grail
System to Fit Any Particular Market Type
There are some
market systems that made a great deal of money during the last three
months: 1) some currency
systems during great moves in the U.S. dollar and the Japanese Yen;
2) being long in bonds as interest rates plunged to an all time low,
especially if you were leveraged; and 3) various option strategies
that capitalized on high volatility.
One newsletter claims to be up 1400% as a result of trading
various complex option strategies in 2008.
you understand the golden rules of trading, you should never be
hurt too much in any market. Cut
your losses short and let your profits run.
Know how your system will perform in various market types and
only trade when the market type is appropriate for your system.
If you put
what’s going on into perspective, you’ll understand that there
are plenty of ways to make money if you are prepared for them.
And if you are not prepared, then you should stay out of the
market until you are. So
the future is just the chance for more opportunity if you are
prepared. It’s nothing
to be fearful about.
Achieve Your Objectives Through Position Sizing Based Upon Your
System Quality NumberSM for that Market Type
professional traders understand this concept—only a few of the
best. The key concept
you must understand is that you achieve YOUR objectives (and your
objectives are probably different from someone else’s objectives)
through position sizing. Every
system you have will have a different System Quality Number for each
market type. But your
system itself has nothing to do with achieving your objectives.
The only thing that is critical is that the higher the System
Quality Number, the easier it will be to achieve your objectives
using position sizing. If
your objective is to not lose much money, then you can make sure
that you do that through position sizing.
If you lost 40% or more of your portfolio in 2008, it is only
because your position sizing was way too large.
For example, if you had all your money in a mutual fund that lost
50% in 2008, then you had no exit plan and your position sizing (at
100%) was too large…especially if your objective was to never lose
more than 10%.
Create Your Own Experience in the Market
This is the
most important concept of all and you can understand it from three
First, if you
understand the previous three
concepts the way I’ve laid them out, then you should have no
problem understanding how someone creates success.
Doing almost anything else will not produce consistent
Second, if you
make lots of mistakes, where a mistake is not following your rules,
then you will subtract from your performance.
You could even create a losing performance if you make enough
mistakes. Repeating the
same mistakes over and over again, no matter what the reason,
is an excellent definition of self-sabotage.
If you have a lot of fear, then through that fear, you could
create a lot of mistakes.
attract into your life what you think about.
If you are full of fear, then you will attract things into
your life that justify that fear.
If you are full of gratitude, then you will attract massive
reasons to be grateful. Furthermore,
if you believe this works, then it will.
And if you believe it won’t work, then it won’t because
you will always find ways to justify your beliefs.
One of my Super
Traders was an Irish mortgage broker.
And at our Super Trader meeting in December, he asked
everyone, “What’s the difference between an Irish mortgage
broker and a large pepperoni pizza?”
The answer was that a pizza could feed a family of four.
At the time of our meeting, his business had shrunk to about
85% of its former level and the buildings he owned were suddenly
worth much less than the mortgages he had on them.
Under those circumstances, he could
no longer afford to
remain in the Super Trader program and make his semi-annual payments.
Instead, I gave him a free 90 day extension in which he was
to do a lesson each day of A
Course in Miracles, listen to The
Secret audio book, and each day make entries into a gratitude
journal. Lastly, he was
to send me an email each day, telling me about what he’d done and
his experiences that day. Within
one month he was offered a great opportunity out of the blue.
He didn’t immediately accept the opportunity, but instead
asked for better terms—something he never would have done had he
not been going through the process that I had prescribed for him.
And when the terms were redone, he was given a new offer that
was even better for him than what he had proposed.
So let’s look
at my Outlook for 2009 from a different perspective.
Yes, the outlook is rather gloomy from the perspective of
what has been. It suggests that we are about to go through massive
change. But perhaps that
change will bring about a revolution of the system.
A system in which half the people in the world work for a few
hundred thousand people while the other half live in abject poverty
is not the best system. A
system in which one group of people think they are right and others
are wrong and seek to impose their will on the others is not the
best system. Perhaps
this change will bring about a revolution where we are all brothers
and sisters. Perhaps it
will bring about a revolution where there is no “right”
viewpoint, but rather a sense of oneness. Perhaps
it will be about a revolution where everyone is willing to love one
another rather than dominate one another.
Perhaps it will bring about a revolution in which we can all
be happy. And if that is
the case, then every hardship that we might go through to get the
better system will be worth it.
the four points that I talk about in this article are clearly laid
out in our Blueprint workshop. We
will be holding that workshop in Australia.
If you have been considering it, now is the time to
Van Tharp: Trading coach, and author, Dr. Van K. Tharp is widely
recognized for his best-selling book Trade Your Way to Financial
Freedom and his outstanding Peak Performance Home Study program
- a highly regarded classic that is suitable for all levels of
traders and investors. You can learn more about Van Tharp at www.iitm.com.