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Före detta hedgefondförvaltare, partner och VD på Futuris som utsågs till Årtiondets hedgefond i Europa för perioden 2000-2009
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The ultimate answer to everything in investing and in life

Topic: The length of a piece of string

Summary: There are no clear cut answers to important questions. Embrace the ambiguity of life as well as the world of investments.

Style: Inspirational and philosophical think-piece connecting investments, golf, dieting, life, career, job interviews, and the superpositioned state of reality


The psychology of investing

I'm preparing a series of articles on the psychology of investing that I will start posting shortly. The series is meant as a reminder and an inspiration for traders looking to improve their game -not based on better number crunching but on managing themselves and their emotions better. It's based on the top insights from my e-book about managing a hedge fund but much more nuanced and practical.

The psychology of investing is much the same as the psychology of living, not least when dealing with problems and adversity or striving for long term ambitious targets. Noted exceptions regard maximizing volatility and the total upside in life, living impatiently and embracing strong emotions. In that regard, the preferred investment mindset is based on the diametrical opposites of living: minimizing error, managing and minimizing emotions, dealing with profits and losses with equanimity, and most of all being patient to a fault.

Wait, what - I went from saying, and credibly so, that investing and living follow the same general game plan, to claiming almost the exact opposite. Explain yourself, please!

Invoking the Douglas

I'm sorry. Inspired by the great Douglas Hofstadter I wanted to demonstrate by example: Sometimes it's all too easy to believe you have discovered the ultimate answer to every important question. I do that all the time, thinking "this is the way" and applies to all facets of life, be it relationships, investing, lifting weights etc. Luckily I rarely run with that thought for very long before realizing it's not that way at all, and actually understanding there's not even just one answer or solution to the single issue I started out with.

Instead, I often end up concluding that "it's a 'how long is a piece of string', or 'superposition' situation again". By that I mean the answer to most important question is "it depends, it's not black or white, it's both black and white at the same time, and at any particular moment a superposition of all possible answers collapsing into just one of fifty different shades of gray".


Do you want to lift?

Lifting weights is all about making perfect repetitions, it's about making the right compound exercises, it's about intensity, it's about programming, it's about making few and heavy reps while aviding failure, it's about making longer and lighter sets to failure, it's about eating enough protein, it's about timing your food - and yet it's not about all of those or of one of those things.

Living isn't about always investing, always being strategic, always planning ahead, always analyzing your every move, not trusting anybody else. Living can be that at times, but at other times it's about living in the now, quieting your inner narration, about trusting completely -and often you need to simultaneously combine two seemingly paradoxical tactics.

To diet successfully you need to strictly control your food intake and your exercise volume. At the same time dieting is best done on autopilot, preferably not thinking about yourself as dieting at all. Living on a diet is probably best done at both extreme ends of that range, as well as somewhere in between with the occasional cheat meal, with periods of strict control followed by periods of full autopilot once the habit is set.

Putting it in terms of golf, e.g., you need deliberate practice on the game and the swing. At the same time, however, you shouldn't think about the technical details at all once you're playing - except for sometimes. What can I say, it's complicated.

When investing, your gut instinct can lead you to the right decision (since your subconscious has access to all your knowledge and experience at the same time and can deliver its best response taking all those things into consideration at the same time in a way your million fold more limited conscious self can). On the other hand, you should never invest based on that 'blink' instinct, but take it as merely the starting point of your investigation of competitive position, valuation, trend, and other relevant and time tested factors.

Most importantly, you need a lot of relevant experience and deliberate practice and focused studies in order to have a subconscious able to make sense of an investment situation.

Trust your blink instinct for close friends and lovers. It's only in the blink real intimacy can thrive. On the other hand you shouldn't trust anyone, unless you've done a thorough background check, as well as observing their behavior, decisions and M.O. first hand for a significant amount of time.

In short, whatever you do, you benefit from oscillating between the extremes end of the spectrum every so often, while also welcoming the time spent in between.


How long is a piece of string?

Life is a superpositioned state of both black and white and all the grey in between, simultaneously. Just as in quantum mechanics, the truth is revealed by taking action, by the act of observing the outcome of an experiment.

There is never one final truth, a platonic ex ante truth. The answer to all questions vary from occasion to occasion and is decided ex post.

And, yet, A is A; i.e., it is what it is and nothing else - once it is decided. This seeming paradox illustrates the quantum nature of life. Everything and nothing is fixed - at the same time

How long should you stay in school, at a job you don't like (Whore Village), with a partner you're not passionate about? How much money do you need to retire? Do blondes have more fun? Are drugs bad for you? Is love all you need, or is it 'laughter'? When and how much and how to rest; when to sow, when to reap?

Heeding the 'no spoon' rule

First, you must realize there is no spoon; there is no definitive answer to any important question.

Then you can start exploring the ever changing options in between yes and no. Often, in my opinion, the answer is "try". Dare experiment, unless trying involves a significant risk of permanent and unacceptable loss.

 

What is 'unacceptable'? Well, I have this piece of string somewhere...

 

Quitting your job or relationship isn't dangerous, does not involve unacceptable losses. On the contrary, staying put, dwelling in homeostasis all but guarantees wasting your life.


Cityboy

Several years ago, I asked the author of Cityboy, Geraint Anderson, for advice on when to quit my job as a hedge fund manager. He told me to hang on in there, until staying two more years was more or less inconceivable, and then quit right away. So, I kept pushing a 30-month deadline ahead of me, until I in January 2014 just up and left*

*In practice I stayed on for another year, but only as the managing director with no investment responsibilities or partnership in the firm. As a perverse turn of fate, the fund was unexpectedly closed down in September 2014.

What if I hadn't quit? Had the fund been closed down with me in it? Then I wouldn't have been the (voluntarily) Retarded Hedge Fund Manager, but the Dismissed Doofus instead. Not quite the same legacy, or ring to it for that matter.


Summary

So, take the proverbial fork in the road, i.e., explore both extremes of your range of options before deciding.

Say yes, take action; say no, keep your integrity. I promise your life will be more interesting for it (which? yes or no? -Both!), although it just might contain a tinge of hurt and regret too.

However, don't be gullible just because you are a yes:er. And never fall for the "come on, dare say yes" lure. That is just not daring to say no, which is a no-no.

All in all, no matter if you're an investor or a weight lifter and are looking to excel, or if you're just aiming to lead a happy life; don't be too rigid, but don't slack off too much either. Try to alternate between the two to gain perspective and iteratively increase your level of wisdom.

By the way, over a decade ago, when interviewing applicants for the position of in-house analysts, speaking partners and would be portfolio managers at my hedge fund, we asked whether all the physical legal currency in Sweden would fit in a certain famous building. The question is pretty easy but takes a certain kind of triangulation and ability to shift perspective between a bird's eye view and a down to earth focus, while keeping legible notes. In that simple case we captured all there is to know about investing and living a meaningful and happy life. Or, perhaps we didn't learn anything useful at all.

How much is too much? Well...

Finally, in the spirit of the international "Trypod" movement, please recommend any podcast (or blog for that matter) to a friend that hasn't tried one, or that could use a new one. It doesn't have to be mine.

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