SpreZZaturian
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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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24 juli 2017

The meaning of "negative" in a Variable Quattro Stagione strategy

Topic: Building a professional investment portfolio

Details: A specific question regarding adjusting the asset class weights in a diversified portfolio when an asset class has fallen in value

Summary: Any negative amount counts as a negative year and thus triggers an increase in weights

Nuance: It's still up to you how much, if at all to adjust the weights, since the system hasn't been scientifically optimized


This is my e-mail answer to a question from a reader in Hong Kong regarding when to adjust the asset class weights in a Quattro Stagione portfolio (that I talk about in this post among others that you can find here under Investments):

Regarding the VQS system, The Variable Quattro Stagione

I actually literally mean any negative amount for a market counts as time for adjusting the Quattro Stagione weights.

However, I haven't optimized the system statistically over time, markets, asset classes etc. for different thresholds. I'll leave that to you for your specific QS toppings. I do think "negative" is something most investors try to avoid, and that window dressing makes sure years typically end positive if at all possible. That's why "negative" is a kind of magical threshold.

That said, it's not inconceivable that +2%, -2%, -5% or some other amount would work even better as the cut-off point. Similarly, how much to adjust the weights hasn't been optimized either -- the Variable Quattro Stagione is more of a conceptual framework, and the best parameters will vary between regions, asset classes, time periods and so on anyway.

The reason the VQS should work better than fixed weights (i.e., less drawdowns or volatility for the same or better total return) is that market forces, crowd psychology etc. historically typically has produced a pattern of a handful of positive years followed by a couple of negative years. Actually, even without varying the weights you'll get some of the benefits from the "up much, down less" pattern, since you'll re-weight the losers upward to their default weight. Increasing the weights even more simply emphasizes that effect.

The pattern could be something like this in terms of years for stocks in one country: +6, -1, +4, -1, +7, -2, +5, -1, +9. Check a few asset classes yourself, e.g., gold, gov bonds, corporate inv grade bonds, junk bonds, US stocks, Chinese stocks, UK stocks...

That should give you a hint of the value of doubling up on an asset class after a few negative years, and reducing weights (possibly significantly) for classes that have just gone through more than 5 or 7 positive years in a row.


As an aside, right now, after 8 consecutive positive years (going on 9) for the western stock markets, I would keep the equity weight at a minimum, in particular if it's a country index.

However, the model actually states that you keep the default weight of 25%, and even increase it to 40% if this year ends below zero. My actual publicly listed net equity weight is just a couple per cent; 1-2% approximately (including my gold miners ETF exposure "GDX"). The reason I can't be more precise is that my gf Anna is managing a small part of my wealth and I have no clue what she's doing with it from day to day.


If you're new here, do check out my previous post where I listed all my investments and why I own them. Also don't forget to subscribe and read my book about investing.

Taggar (blogg): 
21 juni 2017

What does a famous retired hedge fund manager invest in in 2017, and why?

Topic: my view of a few macro indicators as well as my personal investments

Summary: growth, inflation and bond yields going lower; USD, stocks, housing going up; bitcoin, gold and uranium going up longer term, but first sideways and possibly down in a bottoming formation; stocks: undecided and binary; I'm 100% long stocks but only very specific companies, and no large caps or story stocks.

Lesson: make your own macro and micro run through, and make sure it holds water. Mine is a bit leaky...

/Sprezza-Mike, June 21, 2017

Svensk? Swedish? Testa gärna Nextorys erbjudande om en gratismånad med sommarens bästa e-böcker och ljudböcker på mobilen eller läsplattan här. Du kan avboka när du vill under perioden utan kostnad. Nextory-erbjudandet får du via min podcast 25 minuter.


It's the economy, silly

Many investors keep too close track of their investments.

I think I, however, might be too lazy and lenient with my holdings. Only every now and then, I summarize my views of the world, as well as tally my holdings to see if they make at least a quantum of sense.

I see no reason to monitor either macro or micro developments in detail. I do want them to be coherent and mostly compatible though. In short, this is my view of the general economy:

Right now I'm counting on continued economic weakness in most of the world, with Sweden as one notable exception. I'm also expecting continued monetary stimulus, including not least in Sweden with a deeply negative policy rate despite the booming Swedish economy*. Consequently I'm long risk assets, including private and public equity. Those holdings are complemented with more insurance like holdings in gold and private loans.

*The Swedish economy is heavily dependent on exports, not least to Asia, which means that serious weakness in the global economy will have adverse effects on Sweden. In addition, the Swedish stock index usually tracks the US indices quite closely, in particular when stocks are going down. Hence, my sanguine view of Sweden is both relative and temporary.


An overview of macro indicators

Growth: going down, weakening after the Trump head fake. His policies are all working for a stronger USD and weaker economy, not the opposite. After a long cycle, most low hanging fruit has been plucked in terms of employment and capital utilization. The cycle is not dead as some claim. More likely, the cycle will come back with a vengeance after this long experiment with ultra-low interest rates.

Inflation: flat to down after the Trump reflation hype. Inflation expectations were mostly based on just that: expectations, and not real factors. Commodities, e.g., are weakening, and employment and wages are not showing signs of strengthening ahead - rather the opposite, especially if the economy weakens, as I think it will.

USD: going up after the recent weakness (the weakness was based on unwarranted growth hopes in Europe etc). Other central banks will be more dovish again, and the US economy is still the least dirty shirt. Yellen seems set on "normalizing" the policy rate as quickly as possibly, quite the opposite of what the ECB and BOJ are doing. She will keep raising rates until the stock market breaks, at which point she'll save the day by rapidly cutting rates, thus completing the full retard cycle. Before that though, increasing interest rate differential and a relatively strong economy vs. Europe will push the dollar higher.

Bond yields: undecided, sideways with a downward bias. All economies are weak, the economic cycle is peaking (i.e., soon turning downward), weak growth, weak inflation. Bond yields always fall in recessions, even if they are already ridiculously low. They are a safe haven, the only one for investors shunning gold.

Bitcoin: due for a big correction downward, but I would still bet on it long term; looking to buy massively at 100-1000 (!)... or gradually wherever it may otherwise trade the coming year (even if that means higher prices than today). I hold very little in bitcoins today.

Stocksbinary, expensive, forming a peak, but there are islands of value in forgotten non-ETF stocks. Phase transition blow off upward as likely as a normal 10-20% correction downward (that could be the start of the real downturn of 50-60% with ETFs liquidating ETFs, margin calls on leveraged longs, euphoria turning to despair, falling margins and profits etc.). Beware of getting caught holding illiquid small caps if you can't afford to hold them for years to come. I'm not entirely comfortable with my portfolio of publicly listed small caps.

Gold: going sideways; trying to bottom technically, cheap vs stocks, expensive vs oil, probably need a catalyst to move significantly. In addition, commodities are weak in general and not getting any help from growth or inflation.

Real estate (housing): going up. It seems Swedish (Stockholm) apartment prices just can't go down (famous last words). When I bought my first apartment in February 1997 at 14 kSEK/sq meter, I was positive I was the last fool in ("but could afford it"). Twenty years later, at least one apartment in my neighborhood recently sold for 155 kSEK/sq meter. That's a 1000% gain in 20 years. My best guess, however,is that my apt is worth around 100 kSEK/sqm. The Swedish central bank is even more deranged than most other CBs, and the Stockholm economy is thriving with large numbers of qualified people constantly moving to the city, including boomers selling their houses and moving back into the city centre, while simultaneously buying apartments there for their kids.

Oil: flat to down, as other energy sources gain more and more traction, and US shale technology improves, while countries in the Middle East become increasingly desperate to balance their budgets. The price is already low so look out for temporary bounces, but the overall price direction will be down, I think.

Volatility: VIX going up. It could take a long time, but there is hell to pay sooner or later for anybody shorting the VIX. I'm not touching it either way though.


My holdings

Precious metals, Lemuria: A Canadian royalty streaming company exposed to gold, silver and platinum. This is my insurance policy against deep financial turmoil.

I hold rights to the physical product directly from the mines. The problem is that the company still hasn't invested most of the money. With a little luck precious metals will come down 10-20% over the coming 12-24 months in a final bottoming formation, enabling my company to put its capital to use. There is currently a 2x difference in valuations between small private companies and larger publicly listed companies in this sector. We aim for reaching critical mass for a listing within 2-5 years, providing me with x times leverage on the gold price and an additional 2x leverage on private vs. public valuation multiples.

Sweden, Polskenet: A Swedish investment company buying small services and manufacturing family owned businesses in the northern parts of Sweden. The investments will be made over the course of the coming 3-4 years, hopefully during a market and economic downturn, but present conditions are fine too.

This is my retirement fund; whatever happens to Sweden over the coming 10 years will be my fate as well - albeit with a decent leverage to the upside in terms of purchase private small company valuations vs. future publicly listed mid cap valuations.

Growth, Torped: A manufacturing start-up, designing, producing and marketing jet powered surfboards, targeting and expanding the PWC/MSB market. This is my main exposure to a real growth company. The aim is to start serial volume production next year and then expand from there. Given current sales numbers, consumer demand, the quality of competing products etc. this looks like a home run -- as long as the economy or this particular (luxury niche) market doesn't crash completely.

Human resources, Agerus: A private Swedish human resources software company. Software/app for measuring and managing the human capital in terms of knowledge, competence, motivation, authorization etc. This is actually my currently largest exposure (through both debt and equity). It's kind of a slow burner but there are some promising signs of explosive growth ahead, as well as possibly a structural deal and liquidity event. The important thing is getting the solutions out to personnel intensive companies and make a difference.

Trading, Anna: I have recently outsourced a small part of my listed portfolio to my girlfriend. Trading is too time consuming, and I'm neither good, nor interested in the activity. She seems to be happy swinging in bitcoin, large and small caps, IPOs, commodities (cacao, e.g.) etc. for a 10% fee.


Various private companies: (just a few million SEK in total) Fimbulvetr, Angel I, Barista, Lenovium, Creditsafe, Qvicket, 2i Invest.


Listed holdings:

Finepart (micro cap, manufacturing company, specialised precision tools, if/when they manage to get their machine delivered to SKF it has a real chance to double to previous highs of 10-12 SEK; currently 5.75)

Net Gaming Europe (gaming affiliate, operating thousands of SEO pages linking to online casinos; as long as Google doesn't mess with the SEO algorithms NGE should be able to produce very good results in relation to the current market cap. The upside is currently 50-100% with the stock at 9.75 [it bottomed, I hope, earlier today at 8.35])

Opus (vehicle inspection, testing and certification company; secular growth, consolidator as well as acquisition target. Reasonably valued at its current price of 7.40 [P/S 1.2 and P/B 2.1] but should be a steady grower for the long term). Should triple in five years but I'll probably get out at 10 if it gets there before a general stock market downturn.

Stockwik (recently re-aligned investment company just coming out of a period with a weak balance sheet, losses and poor operations. Profits from future acquisitions should form the basis for growth that in turn enables more acquisitions). It could be going nowhere..., or 5-7x in 5-7 years. It's trading at 0.037 SEK today, but I'm looking for 0.25 SEK in the next upturn.

Studsvik (nuclear consultancy benefiting from increased nuclear power build out; and possibly also from a quick de-nuclearization. My main reason for holding Studsvik, however, is the potential for structural deals, such as real estate divestments etc). Will most likely trend sideways with a slight negative bias until  and if it manages to present some major positive development. I think it's reasonable to hope for 25-50% upside (from today's 58.50) but also easily a 25% downside.

Simris Alg (16.90 SEK, a negligible holding for tax reasons and monitoring; a maker of omega-3 from algae [currently sub-scale and too expensive for consumers])


ETFs, commodities

URA Uranium ETF (currently 12.31 USD. An inventory overhang has pressured the uranium price the last half decennium or so. Around now, however [during 2018], there are reasons to believe we could see signs of underinvesting and future uranium supply deficit. When/if a supply deficit occurs it takes many years to get new uranium mines operational, thus creating a perfect storm for higher prices. Low oil prices and cheaper solar are two major threats, as well as increased opposition toward nuclear. Technically, I identify at triple bottom with the low point at 11.31 USD, and a recent bottom at 11.68 that I don't want tested.

GDX Senior gold miners ETF (currently 21.98 USD. Gold miners have had to streamline operation during the 5-6 year long downturn. When the gold price turns sigificantly upward, gold miners usually move 2x vs the gold price). As long as it stays above 21 USD and the gold price above 1215 USD/oz (1246) I feel pretty confident.

My holding in GDX is almost insignificant compared to my exposure to Lemuria, even when taking into account the leverage provided by miners vs. the metal.


Loans: I have no debts or mortgages myself. Instead I've lent out money to friends and acquaintances. Björn, Patricia, Jonas, Thomas, Robert ...


Private and public pension: Blackrock gold, Brummer 2xL (fund of hedgefunds), state pension. Enough to live off of quite comfortably, if all else fail


Apartment: A mortgage free, large apartment (200+ m^2 = 2250 ft^2, in the very central parts of Stockholm city -- coincidentally it's more or less the exact same size as the hotel room I lived in when I was in Las Vegas)


Conclusion

All in all my portfolio is mainly based on diversification, since I feel I know too little and the market situation is too unusual.

I feel incredibly uncertain these days: everything is expensive, investors seem to embrace all kinds of risk, and central bankers are growing ever more retarded. A crash seems as likely as a blow off top. Because of that scenario, I have spread my investments over several different asset classes, while avoiding debt altogether. If anything, the latter is at least different from most people. I probably should complement my portfolio with out of the money crash put options, which is how we often did it at Futuris (The Hedge Fund Of The Decade), but my current portfolio type doesn't allow derivatives.

Gold, nuclear energy, small caps, private companies, start-ups, loans, living quarters... How are you exposed, and what are your reasons?

Taggar (blogg): 
1 juni 2017

The covfefe lemma: How to choose between Time and Money

Topic: The covfefe choice between time and money

Summary: no 25-year old would trade places with Warren Buffet, but where does one draw the line?


Inspired by an interview in Framgångspodden, and several articles and tweets by Wall Street Playboys, here are some of my thoughts regarding time, money, retirement and the meaning of life.

I was 42* when I retired with an 8-figure net worth in US dollars. 42. By then I had read the Hitchhiker's Guide To The Galaxy more or less once a year since I was 18. So, 24 times, give or take. 42 backwards**.

*actually I said the magic words a few days before my 42nd birthday, but I stayed on a while longer as just the Managing Director without any portfolio management responsibilities, thus retiring at the age of 42.

**"42" referring to Hitchhiker's Guide To The Galaxy as The Answer


Time isn't money; time is covfefe everything

Life Utility Function: Optimize your amount of quality time

Quality time: Time spent doing what you want, what's rewarding, what's meaningful, what doesn't subtract too much from your health account, or -if possible- what adds to your life span without being too tedious.


There are a few minor snags here. For one, I don't know when my life will end (accidents, genetics, technological breakthroughs, lifestyle). Second, I don't know what my current wealth will afford me in the future (return on capital, money paradigm, war).

Did I say "minor" snags? I meant major. In effect, it's impossible to make any useful predictions so any solution will be highly subjective. Here is mine:

Choose something interesting to do; the most interesting and worthwhile undertaking you can think of for both you and others. If chosen wisely you will optimize your income, while still enjoying yourself and feeling relevant.

If your line of work is weighted more toward making money than being truly rewarding, quit (at the latest) when you have 5-10x the amount you think would sustain your lifestyle given a status quo economic system.

Why 5-10x?

Because once you have 1-2x, increasing that by 2-4x  only means keeping your momentum going for another 5-10 years or so (less time left means you don't need 5-10x the 1x amount from 10 years earlier), and that extra buffer can make all the difference once you get off the machine (in case it proves difficult to get back on).

With 1x you have no disaster buffer. With 2x you can support one other person if needed, but still no buffer. With 4x you can diversify your assets between, e.g., stocks, bonds, gold etc., and still be okay even if war strikes, stocks crash, the money paradigm changes, or similar non-linear changes take place. With 8x you can do the same for one more person that lacks funds.

I'm not at all advocating aiming for 5-10x the wealth you need, I'm saying any sane person should stop making money at that point, unless it's the most meaningful use of their time they can think of.


It's my time now

When I was studying or working I had basically no time of my own. It all went to following orders or templates, going to meetings and doing things for others... for money. I didn't read a single piece of fiction for years during that time. At first I did it because everybody did it. Then I did it for the money and to prove something. Eventually I did it out of loyalty (and maybe, by the very end, a little greed and/or homeostasis). Owing to growing tired of my Ferrari and Lamborghini, as well as a very disappointing test drive of an Itama 55, I realized I didn't care for stuff. I realized sleep, health and my time (which are all facets of the same underlying concept) were what I valued the most.

I'm not interested in clothes, cars, watches, boats or conspicuous real estate. I simply enjoy making my time meaningful, which for me entails reading books, listening to podcasts, talking to interesting people, learning, writing, playing with my dog, and occasionally using my body for something breathtaking, for exercise, for partying our dining out with friends.

That's basically it.

I really don't need more than 30k USD a year (including the condominium fee), or let's say 1m USD at 3% yearly interest, to sustain my lifestyle. Thus 10m is plenty -- in particular assuming I can get more than a 3% return on average over a very long time, not to mention slowly chipping away at the capital.

However, if you can't reasonably quickly get to several times the wealth you would need for your desired lifestyle, you should focus on optimizing your quality time right away.


The College-Buffett covfefe equation

Unless you're mentally ill, are afflicted by an extremely expensive disease, covfefe, or very, very poor, if you're in your college years you would never trade places with Warren Buffet, despite his 100 billion dollars to his name (74bn, according to Forbes). The reason for that of course is that he's turning 87 this year and most likely doesn't have more than a few years left to live.

Where do you draw the line?

Would you trade being 25 with 10k, 100k, 1m to your name for being 45 with 2m, 5m, 10m? How much are your 20s worth? Your 30s? Your 40s? Your 50s? What if you were 90 years old and about to die; how much would just 1 more day of quality life (as if you were 25 again) be worth? 1 million, 1 billion? The answer is, I hope: all the money you could ever scrape together no matter the amount.

I'm fully aware we all have different utility functions, and some are hopelessly stuck in a kind of competitive KUWTJ mode (Keeping Up With The Joneses, i.e., trying to outdo your peers for no other reason than outdoing them). It doesn't necessarily make their lives less enjoyable and meaningful. They might get just as much serotonin, dopamine and oxytocin as I do (though I doubt it). What's important is to think about it, really think about it, and optimize along the right parameters, rather than merely living reactively and driven by homeostasis.

Is it really worth it, slaving away with something you don't care for, in order to fit in, in order to buy better suits (for the work you don't like anyway), a better car (to show off for "friends", neighbors and clients) etc.? Have you thought it through? Have you compared the years you're giving away to others for the (few) years you leave for yourself later on when you're older and less agile?


An eye for an eye, a year for a year

Who's that extra year for? Who's that extra wealth for? If you're proving something (like I did), or seeking revenge for a poor or unjust upbringing, for whom are you doing it?

I'm not saying "skip college", "drop out", "quit your day job" to hitchhike around the globe, living hand to mouth. I'm asking you to make an informed choice between spending one more year doing what you're doing (mostly for others), and using that year for something you really like and would do without having to tell others about it.

I had the luxury to come into enough wealth reasonably young without even thinking about it. I also had the luck of understanding the choice outlined above and quit in time. I understand the lure of riches, luxury and conspicuous consumption, and how difficult it is to fathom their uselessness unless you've experienced it yourself. Thus, I urge you to try it if you think you want it, but I'm also asking you to make an effort to back out quickly once you realize time, action and community are more important than stuff and theatricals. In the coming era of automation and cheap energy, material wealth could soon become moot anyway, as Peter Diamandis alluded to here:

“The son or daughter of a billionaire in New York or the son or daughter of the poorest farmer in Kenya is going to have access to the same level of education delivered by an AI, the same level of healthcare delivered by an AI, or intervention delivered by a robot. So, we're going to start to demonetize all the things we think of as the higher stakes of living,” he said.


Summary: the covfefe lemma

So, at what extra unit of material wealth vs. on less unit of time do you draw the line? Where is your so called covfefe point, where you wouldn't trade more time for the amount of dollars you can add per unit of time?

Bookmark this page, share it, and subscribe to stay tuned for more of my musings on life, money, technology and financial matters. You'll get my free e-book about my time at the European Hedge Fund Of The Decade too.

Taggar (blogg): 
31 maj 2017

What to do when AI's beat us at everything, even reason?

Topic: Computers vs. humans, regarding reason, creativity, intelligence and consciousness

Summary: Very few humans exhibit clear signs of the above traits, and even those aren't very good at it


Echo chambers of flesh

What is creativity? Writing a song, a book, directing a movie? I'm not so sure, since it's all based on previous work anyway, just sampled, copied, emulated, or distorted.

Some doubt computers can be creative. I wonder if humans can be. Actually, not long from now, I suspect AIs might consider humans non-creative echo chambers of flesh. Very slow ones.

 

Emotional scientists

The other day I listened to an interview with professor Dan Sperber (author of The Enigma of Reason), in which he detailed his theories of the evolution of reason, its utility, flaws and likely roots. On thing in particular struck me: human cognition is so riddled with biases that reason typically can't be used for uncovering hidden truths of nature.

Typically we arrive at a conclusion based on emotion and stipulation; and then go about proving that conclusion with "evidence" found through various aspects of confirmation bias.

 

Reason is social

Sperber theorized that reason is mainly a social tool -- a tool to build trust and rapport, by providing agreeable "reasons" for a view, an opinion or a favor asked. Reasoning and reasons aren't there to uncover and understand truths about reality, they're there to show we are social. Showing reason, providing reasons are for demonstrating whatever we do or say is not just a whim, that the action or we aren't dangerous and unreliable... since it's built on reason.

To me, it simply sounds as if humans can't reason. At least not that many of us and not very well.

But, guess who can. Or should I say what? Artificial Intelligences. They won't be burdened by biases but can propel their knowledge base and themselves with the scientific method based on pure unencumbered hard logic and reason.

 

*****************

Why some drive on the left and other on the right

Way back in the UK, riding a horse on the left side showed you clearly held no dagger in your right hand

But later on in the US, it was more important to sit on the left side of the wagon to whip the oxen with the right hand; and thus more practical to drive on the right side of the road

****************

AIs can do away with irrational historical baggage like that and build their society from scratch.

****************

Strong General Artificial Intelligence is no longer a fringe idea

Recently distinguished astronomer sir Martin Rees said at a big astronomy conference "if we want to find intelligent extraterrestrial life, look for some kind of artificial organisms".

He's right of course. We've had digital technology for just about a century and we're already experimenting with robots, artificial intelligence, nanotech, biotech etc. -- trying to meld man and machine. Within another hundred years, I'm certain we will have brain enhancement implants. With time we're likely do do away with most, if not all, of our biological heritage. Will it take a hundred years? A thousand? I don't know, but my guess is rather sooner than later. Cosmologically, a few thousand years are equivalent to the blink of an eye. Consequently, for all practical purposes we will be a digital race for all of our existence.


Final thoughts

Neither reason, nor creativity are exclusively human domains, perhaps not even human domains at all. AIs promise to be not only smarter, but also exhibiting true creativity and pure reason. Now, is that something you could be interested in merging with?

They might even solve the big problem trifecta of the universe, life and consciousness. If so, maybe they can explain to us how it all began, how life came about and how consciousness arose, and whether humans are conscious and have free will or not.

Sometime in the future, asking a SGAI if it can "improve on the issue with global warming" might very well be like asking a human to help with the "pencil on the floor" problem if one happens to roll off the desk.

So, why is this important? Why should you care?

Mostly just because it's interesting in itself, but also as the path from here to there has implications for your career and life. You need to start thinking about how you will adapt to advancing technological capabilities, how you can take advantage of it, and not least avoid becoming collateral damage.

Taggar (blogg): 
29 maj 2017

How grit, time and practice leads to creativity

Topic: Creativity

Summary: Creative insights take years and decades of experiences to get, so you'd better engage your grit yesterday already


We are down on the month with just two days left. Get me something good NOW. Nobody leaves until we've fixed this. Be creative!

-Bobby Axelrod in Billions being his typical unreasonable and incredulous larger than life self

Be creative. Now.


Wanting to be creative just doesn't work

Sometimes I want to be creative.

Sometimes I feel as if I haven't produced anything of value for some time, and just want to make something worthwhile, be it an investment, a blog post or just a witty or insightful tweet.

Blank

That's exactly what I typically come up with. Regarding investments, that's probably a good thing.


The silent YouTuber

The same goes for my YouTube series in Swedish: Listening to several hours of scientific and economic podcasts every day usually triggers shareable thoughts by the handful. However, if I don't write them down the insights are often gone just like that. OK, to be honest, I can keep a few fresh in my mind for several hours if I really want to. The problem is that forcing my memory that way severely limits the amount of new information I can digest.

What's sometimes frustrating is that despite churning hundreds of ideas through my mind and commonplace each and every month, if you (or I) put a video camera to my face and request I pull even one out of my theoretically shock-full hat of ideas...

Blank

It's not stage fright. I mean I can say something. I can whip up some old wisdom about patience, or whether to aim high or low. I can even be a bit witty, talking about investor mistakes (mostly my own), or gym stereotypes. What I can't do is create something new, connect some dots, do what some people seemingly effortlessly do all day long in social media. (oh, I know most of them only do it when they have those automatic strokes of insight, when they're hit by that strange type of boson called inspiratons, just like I am every now and then)

I have no problem accepting this, not least as I know I'll have new ideas tomorrow.


Inspiratons hit those heavy in experience

That's the message here really, that you'll get your inspiration when you get it. That there are no short cuts to creativity, that it's not like lifting weights or some other performance activity. That your moments if insight are the product of everything else you have done over days, weeks, months and years. When you hear something new, creativity is the automatic process of connecting dots from that to the sum total of your experiences.

At least that's my perception of creativity. All the books I've read, all the podcasts I've contemplated, all the deep conversations I've had, all the projects I've struggled with, it has all taught me something and given me a platform from which to interpret everything else I come across today. Trying to force creativity in the moment just blocks it for me, but constantly seeking out interesting and rewarding experiences means I will get strokes of insight in the future.

So, you want to be creative?

You think you're entitled to?

You want the truth?

You can't handle the truth!

My apologies..., I couldn't help myself. Perhaps it's some lingering effects from the creative brainstorming activity from last week.


Anyway, to be creative you need 1) experience, knowledge, and 2) curiosity to find and identify input.

I suggest you start experiencing as much as you can: reading, listening, conversing, doing, experimenting, all the while keeping structured and interlinked notes of what you're doing and why. Creative insights will come "for free" once you've had enough exposure.

However, "for free" doesn't mean you can be lazy about it. Including in "experience" is working for it, working through tough projects, reading and understanding complicated articles and books, engaging in and losing arguments etc.

Failure is the mother of creativity. Sweat its father.

The dark part of this message is that if you've already spent the better part of your life watching action comedies and soap operas, scrolling on your phone during your commute to and from work, you won't become creative overnight. Because creativity can't be plucked from thin air. The inspiratons are only attracted to bodies heavy in thoughtful, gritty experience - sometimes referred to as deliberate practice.


Summary

Nevermind trying to be creative.

Focus on learning and experiencing.

Your insights will come later, once you know enough, understand enough. Put your mind to connecting dots whenever you can - keep flexing that muscle - but don't expect true creativity until you truly understand a topic.

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Taggar (blogg): 
22 maj 2017

How to silence the noise and come up with new (investment) ideas

Brainstorming

The other day I tried a writing exercise I do every now and then - though not as regularly as I probably should. I simply sat down with a pen and paper and wrote down everything that sprang to mind. The start was a bit awkward, but after a while more or less useful ideas started pouring out of me.

"I can't think of anything to write"

"I'm comfortable"

"I wonder who developed the very keyboard I'm using right now"

"How stupid am I? Can't I think of anything that's not right under my nose?"

"Have I lost my ability to manage money? To think? To write?"

"What do I want? Can't I even think of that?"

"Maybe I should write a post about my portfolio and why I've chosen those items. I could, if it weren't for the fact that I've already done that"

"Perhaps I should jot down my current views on interest rates, currencies, bitcoin, stocks, the economy, gold, oil, real estate etc."


At about that point, maybe 2 minutes into the exercise, I began getting surprisingly useful results.

I consider it a kind of meditation, a variant where the idea is to trigger as many thoughts as possible, as well as get them out of the way by writing them down.

I can't claim it's a new thing. I mean I essentially just brainstormed. I can't even claim it's useful, since the brainstorming wasn't directed at a certain topic.

However, it felt really good, it was calming, and I came up with ideas in areas I never planned to. On top of it all I used longhand, which is particularly good for processing information and cementing the corresponding neuronal pathways.


Summary: try it; write a word a day

I won't make this post longer than it needs to be.

Just take this as a strong recommendation from me to try writing (at least) just one sentence a day by hand. Keep a nice journal; write down a word, a feeling, a thought, something to do; sometimes keep going and make 10 seconds into 1, 2, 3 or 10 minutes.

  • It's (probably) good for your brain.
  • It can be useful, but you won't know that until you've tried it for a while.
  • It should make you happier, positively so if you write down things that make you grateful.
  • If it's new to you, it's good for you

Oh, don't forget to subscribe to my weekly-ish newsletter, and get my e-book for free (investment lessons from 15 years at The European Hedge Fund Of The Decade)

If you get too many ideas, not least investment ideas, try bubble sorting them.

Taggar (blogg): 
12 maj 2017

Bubble sort: how to bring order to chaos on financial markets

How to be a stock market genius (OK, perhaps a little hyberbolic)

Idea: bubble sorting: one of the first things they used to teach in programming, i.e., in a list of items try them against each other and see which ones "float" to the surface. After a maximum of n-1 iterations the ranking is finished.

Summary: Find your style of investing, including asset classes, ranking principles etc.. Then start bubble sorting the alternatives in your domain. Put your top choices in the portfolio. The rest is details (sizing, stop-loss etc.)

No matter your level, you can bubble sort your alternatives and avoid being paralyzed of too many choices. If you know nothing at all, just list a handful of industries or stocks that you come to think of. Compare one of them with all the others, one at a time, letting it sink to the bottom if it keeps losing out. The best alternatives (based on your comparison criteria, whether it be charts, valuation, business idea, owners, founders or what have you) will "float" to the top like a bubble.


Hard made easy

Do you sometimes find it hard to know where to begin when choosing investments among the thousands of alternatives that exist? Just begin anywhere, make a list of what springs to mind and bubble sort the list. Add more items and bubble sort those. There, a complicated problem is suddenly made ridiculously easy and mechanistic.


Guidelines for bubble sorting

Start with a "universe" of investables - however you define that. The rest is just a question of ranking them and deciding how many of the top alternatives to invest in.

  1. Choose method, style, assets and time frame, including how much time you'll spend on your investing and how much of your portfolio will go into a certain asset class
    1. Style
      1. Value (the only style as far as I'm concerned; what cash flows will the company's assets produce to me, regardless of what others think they're worth)
      2. Trend, model (identifying fads, hoping to sell to bigger fools, based on charts, stats and math)
      3. Derivatives (fundamental, technical, arbitrage or perhaps some other strategy; not for beginners)
      4. Special situations (ahead or after earnings, take overs, news etc.)
      5. Arbitrage (taking advantage of market imperfections)
    2. Asset class (don't limit yourself to stocks, in particular public, domestic stocks) 
      1. Stocks
      2. Bonds
      3. Commodities
      4. Currencies
      5. Private equity
      6. Real estate
      7. Precious metals
    3. Time horizon
      1. Investor (years)
      2. Swing trader (weeks)
      3. Day trader (minutes)
      4. High Frequency (micro seconds)
  2. Bubble sort, e.g., industries and then stocks within industries (e.g., 5-7 industries, and then let 1-2 stocks per industry bubble to the top)
    1. Industry based on view of macro picture (see below)
    2. Relative multiples (see this previous article for more on relative multiples)
      1. PE, PS, yield, P/B, PEG (and many more; you find multiples you like and trust)
    3. Absolute measures
      1. Growth rate, DCF valuation, various multiples, ROE
  3.  Market (it might be worthwhile taking the general market into account, but remember that individual stocks trump markets):
    1.  trend (go with the trend, if possible)
    2. internals (be careful if technicals look shaky from a historical perspective; divergence between various gauges instead convergence caused by indiscriminate risk seeking)
    3. valuation (if the market is ridiculously expensive and set for a correction, perhaps avoid going all in on your investments)
    4. exhaustion gap (Hussman recently wrote about peak signals such as exhaustion gaps close to all time highs)
  4. Macro:
    1. central banks (easing or hiking cycle; when do you prefer to take more risk?)
    2. GDP (growth tail winds can't hurt... unless they can)
    3. point in cycle (long in the tooth, or new and shaky?)
  5. Details:
    1. stop loss (well, do you want one? Do you feel lucky? Well, do ya, punk?!)
    2. stop profit (my own invention, I don't like the idea of letting profits run)
    3. sizing (size according to knowledge, level of certainty, form...)
  6. Read these books:
    1. Margin Of Safety (mindset)
    2. The Most Important Thing (risk)
    3. Reminiscences of a stock operator (execution, holism)
    4. possibly Valuation, by Copeland (math)
    5. or The Intelligent Investor (booooring but perhaps useful basics for beginners)
    6. TAOS (my own psychological framework: The Art Of Sprezzatura)
    7. The Retarded Hedgefund Manager (my own book about 15 years at a successful hedge fund)
  7. Find a few blogs or newsletters you like, e.g.,
    1. Hussman (clear and instructive, lots of useful charts and thoughtful comments on macro, valuation, financial history and more)
    2. GMO
    3. Marks' Memos
    4. Find your own favorites
  8. Start small, make your big bets later when you are more knowledgable. There's no need to hurry
  9. Document every decision in a way that can be evaluated afterward on other parameters than profit/loss or volatility
  10. Read up on my other articles on investing, such as this one on portfolio construction. You'll find the rest here under Investments

P.S. Bubble sort your final portfolio as well as the individual stocks vs. a market index. If they don't beat the index why would you bother with individual stocks? And, if all your components are better than the index, why not buy more and short the index against the portfolio?


Final thoughts: try it, it's fun and easy

Start easy. Take your current portfolio. Bubble sort it; try them against each other until you know which one you'd sell now if you had to, and which one to double up on if you had to.

If you have more than ten holdings, do that; sell the bottom one and double up on your best holding (unless you already have an outsize holding).

Next up: bubble sort the 10-20 stock market industries or 5-7 sectors. Which 5-7 sectors would you want to hold the most? Bubble sort within each of those industries and find the 1-2 stocks within each industry you prefer. Take those stocks and bubble sort them. Invest in the top 8 stocks, but make sure they belong to a minimum of 4 industries.

Taggar (blogg): 
4 maj 2017

Predicting the future, one small step at a time - for happiness, relevance, work and investments

Summary: I'm not writing about, or predicting, the future, I'm asking you to do it, mostly as a brain exercise, forcing you to actually think

Length: very short


So, you doubt the Singularity* will happen?

[* the technological Singularity, when one generation of tech improves the next generation in such a rapid pace that normal humans can't keep up]

Then, why not make your own prediction.

Start with one technology or piece of hardware or software you're familiar with. A cellphone, e.g., or glasses, TV, internet, cars... Extrapolate what that tech will look like in the future. Never mind how far into the future. Take it one step at a time and imagine what the next iteration will look like, and the next, and the next. Again, disregard the time aspect, and focus on the generations. Don't forget to take into account that whatever that piece of tech turns into with enough iterations, it can be used as a tool for improving and accelerating other tech areas.


Where do cell phones get you in a hundred significant iterations? Computers? How big, how fast, how competent? Where do they go, how are they powered?

Keep doing that for cars, planes, space ships, contact lenses, software, computer games and movies, 3D glasses, brain implants, artificial agents and so on.


You might not be an expert in any of these fields, but consider what an AI can do in the future if it's already mastered Chess, Jeopardy, Go and Poker. Where does Crispr-Cas9 gene editing take us in a hundred iterations? Robots are currently stumbling around in Alphabet's labs, but what will they be doing in a thousand years?

When, if ever, e.g., will a team of robots beat the best team of soccer or american football players? In 2050? Sooner? Later? Never?


Do your best at imagining the future piece by piece, and please tell me if you see a hard stop anywhere. If not, the Singularity will happen. Sir Martin Rees, a distinguished astronomer, has suggested that genetically and cybernetically enhanced humans/cyborgs on Mars could be the first artificial intelligences.


We can already build simple nanomachines, edit genes and create artificial life. There are brain implants controlling neurodegenerative diseases, there are eye implants making blind see (low res for now, but with Moore's law it won't be too long before they can see better than ordinary humans, and a wider spectrum of light).

I see a very bright future, a future where we can widen our intelligence, and live to the fullest. Others see a dystopian scenario of obese and non-thinking human remnants merely being tolerated by the only intelligent life on earth, AIs. Yet others see nothing at all, since we'll soon destroy the Earth before being able to leave.


Where do you see yourself in a world of AI and AR?

While you're at it, where do you see yourself in that future? Not just the end game, but the transitional period in getting there. How will you and your children create a rich and meaningful existence in the coming 25-50 years?

  • How will you educate yourself?
  • What will you work with?
  • How do you plan your investments?
    • Stocks?
    • Bonds?
    • Gold?
    • Real estate?
    • Crypto currencies such as Bitcoin?
  • What will governments look like?
  • How will laws evolve?

Where's your worth when power shifts from governments to tech giants, when cryptocurrencies make current tax regimes impossible to enforce? How do you plan to stay relevant in the future, a future where technology might be able to do everything you can do... for free?

4 maj 2017

Gauge your T-score trading status for better performance, or risk wrong-sizing

Summary: Cornerstone habits tend to make the other pieces of life  click into place


Gauging your status before trading

Before making any trade on the financial markets each day, I'm sure you calculate your T-score*, i.e., subjectively measuring your cognitive and physical status to get a feeling for how balanced and reliable you are. The T-score can be put together in a multitude of ways and works best if it's individually tailored. However, the following factors are probably relevant for most investors:

(* actually, I'm quite sure you don't, but perhaps you should start)

  • How much have you slept, how tired are you?
  • What's your current relationship status, are you arguing with each other? Are you feeling lonely?
  • How's your economy, how's your trading been lately? Are you worried about paying your bills? Do you have a losing trade on that's eating at you?
  • Are you hungover?
  • Are you rushed, did you have to cut your routines short this morning?

Making a quick check on your T-score every morning could do wonders for your investment performance, using it to make sure you don't trade at all (or size your trades responsibly) if you're emotional, tired, stressed or unbalanced in some way.

Remember that the most important thing for great long term investment performance is minimizing your number and size of mistakes. Going over your T-score every morning could in addition have positive knock-on effects on your investments and life in general.

The very act could wake you up, make you more alert and aware, perhaps cause you to do other positive things such as going for a morning walk.

Read on for more on such cornerstone habits.


Cornerstones

I build my days around dog walks and workouts. I take my dog out 3-4 times a day, either taking a walk or throwing balls for about an hour.

My sleep, food, meditation and mobility work follow from that. I get tired around 11 pm and typically fall asleep around midnight. I get up when I'm done sleeping, never using an alarm. I tend to wake up at 7 in the summer and 8 during winter. I rise, go out for a walk, then have breakfast including the day's single cup of coffee.


Further, exercise (and mobility work) makes me sleep better, which quickens my recovery and increases the quality of my workouts. Both make me naturally crave better food and so on and on in a synergistic cycle. During my walks and workouts I listen to podcasts on science, exercise and finance.


Investing

The same principle of cornerstone habits holds true in investing (not mentioning how important a sound body and mind are for an investor).


Keystones for an investor

If you device a plan, a well thought out strategy, it becomes easier to temper yourself, not trading on emotion, which in turn provides time for doing the warranted research and math, which makes for a solid base to actually both improve on your strategy and actually following it. Whether you start with the plan, with controlling your emotions, with doing the math or with practicing patience isn't that important. Adhering to just one of the habits tends to strengthen the other. That's the magic of keystones.

The 12 components of TAOS, or the 4 major themes that the twelve build upon are those cornerstones when it comes to my style of investing:

StrategyPatienceResilienceEnduranceZealZenAgilityTemperatenessUnbiasednessResolutenessAdequateness, and Self-analysis.


Have a plan

Do the math

Wait

Be unemotional


Through this link you’ll find the special artwork that Imcite has crafted based on my ideas, if you are interested in a physical reminder of what I consider the most important cornerstones of investing.


What daily/weekly routines and habits can you think of that would A) fit your life and B) have synergistic effects on the rest of your life, i.e. catalyzing other positive activities that in turn strengthens the original key habits? Check out this post about my keystone habits if you need some inspiration.

  • How about setting aside an hour every Sunday for preparing and scheduling your work for the week?
  • Or, why not walk outside for half an hour every day right after work (perhaps start with 5 minutes and build from there. Aim low to get high)
  • A wild card might be gauging your cognitive and physical status before trading (T-score), and adjusting your sizing and preparations accordingly

Hey! Subscribe to my newsletter or share this article with your social network if you want to make the world better.

Taggar (blogg): 
25 april 2017

Why religion is the lazy coward's way

Summary: Religion is to science what snacking and TV-addiction is to exercise and deep work; a little bit like how technical analysis relates to fundamental analysis in investing.

Disclaimer: Before bashing on religion you should always ask what kind it is, i.e., exactly what the believer actually believes. When I'm talking about religion, I mean the existence of a personalized God that can and will communicate with people, governs some kind of extra-material realm, as well as can break or change the natural laws. All of that is of course complete bunk.


Religion is lazy, indulgent, and intellectually cowardly.

A scientist has to work much harder at uncovering the true nature of reality.

It takes centuries of missteps and breakthroughs, of courageous individuals and diligent teams challenging and building on each other's findings, to chip away at the big marble block of nature, piece by piece revealing what's beneath.

In contrast, any child can succumb to an overactive amygdala, and assume agency in every occurrence. God is a childish invention, where the familiarity of grown-ups controlling and creating the child's world spills over into adulthood, infecting the mind with shortcut solutions to complex problems.


It's the snack eating, TV-couch dwelling, dopamine addict personality that turns to God for a quick fix; whereas the curious and diligent homeostasis breaker works hard and deeply, knowing that the satisfaction from accomplishment beats any short term sugar rush.

You can tell your bible touting friend the next time you see him, that he's nothing but a feeble-minded, childish addict that's too lazy or too scared to try to understand the true nature of reality.


Hey, if that made you think, why not subscribe to my free newsletter (and get my e-book about investing for free)? After all, I did receive the only European Hedge Fund Of The Decade award to date. Or why, not check out this summary of my 12 investment lessons from the book.

Taggar (blogg): 

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