Ego as friend – false pride as hindrance

May 7, 2010

Pride is the reasonable or justified sense of one’s own worth, based on the attainment of one’s values. But we also create a false image of ourselves, a grandiose image that we try to live up to, and false pride is what we feel when we try to live up to this false image. False pride is the tenuous feeling of worth based on fooling ourselves into believing we have attained our values. It is neither reasonable nor justified.

When our feeling of false pride is challenged, it fights back and says, “You’re not going to get the best of me!” When it is attacked and beaten down by the irrefutable facts of reality, it is injured, having to admit defeat or loss.

I’m now using the term false pride as most people use the term ego. Common knowledge in the trading world (and the world at large) suggests that ego, used in everyday parlance to mean an inflated or grandiose sense of self, gets in the way and pushes us to commit foolish actions. These include getting even, refusing to admit defeat or loss, not letting the market or market makers get the best of us, and other defensive gestures that protect ego from being assaulted.

But this is not really a problem based on ego, at least as it is viewed in the world of psychology. It is, more accurately, a problem of false pride. The everyday mind confuses what is actually false pride with ego. Let me explain.

To put it simply, psychologists view the ego as a healthy and necessary core organizing part of our mental structure that helps us maintain a sense of stability and continuity in our daily lives. Its prime function is the perception of reality and adaptation to it, to make sure we don’t get too far out in fantasyland or too caught in arising desires.

Metaphorically, the ego is like a good executive secretary who keeps control of the office. The various tasks of the ego include perception, including self-perception and self-awareness; motor control (action); adaptation to reality; and keeping us in touch with our thought processes so as to temper our impulses.

My point in distmguishing the term ego from false pride is that the everyday use of the word tends to be negative, seeing ego as a hindrance, as in: “Look at him trading in 2000-share lots¡ªhe’s just on an ego trip.” Ego is viewed as grandiosity, overexuberance of self, and something that needs to be controlled and even beaten down to size.

This is supported, incidentally, by the layperson’s belief that the work of psychologists is to “shrink” the ego, thus the common slang term for us is “shrinks.” Behind the use of this term is the idea that those involved in psychotherapy will have their large egos reduced to a manageable size. Because various forms of irrational thinking and behavior are confronted in psychotherapy, it may initially seem to the patient as if something is being taken away from them and that ego is being diminished, as they begin to shape a new sense of self. But nothing could be further from the truth of what really takes place. It is exactly the opposite: The ego is strengthened through skillful psychotherapy, not reduced by it.

Actually, ego is exactly what the disciplined online investor is trying to strengthen. We want the strongest possible ego we can develop. A strong ego is always the friend, never the enemy. Please read these last three sentences again and let them sink in before reading on.

The stronger the ego, the more we feel in control. The more self-control we feel, the more able we are to strictly follow a trading plan, and the more confident and secure we are in our in decision making.

The stronger the ego, the less likely we are to be overwhelmed by emotions of the moment and therefore make decisions based on fear or greed. This is what disciplined investing is all about. And anyone who tells you differently about ego being the enemy simply doesn’t have the psychological sophistication to know what this term really means.

Here is one example of how the confusion over the meaning of the term “ego” is evident. You will hear psychologically untrained market pundits talk about how “overconfidence” leads to making poor decisions, and how it is the “big ego” that causes this feeling of overconfidence.

Let’s be very clear: Feeling overconfident is not a matter of having too strong of an ego. It arises from a laziness and complacency that sneaks into our thinking and behavior. We stop questioning or taking in new information that might challenge our established view.

We stay firm and unyielding in our present positions and may proclaim how sure we are of our own beliefs and actions. This looks deceptively like “overconfidence.” But it is not a matter of confidence or of having too big of an ego. It is much more a matter of the “hardening of the mental arteries,” of refusing to let fresh information flow into the mind. And, if anything, it is the insecure ego that needs to be always right – not the strong ego – that blocks the mental arteries from taking in the new information.