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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3 januari 2017

A golden age:2017

Summary: How to make 2017 your best year ever, based on a review of my 2016 and outlook for 2017

Topics: Investing, exercising, blogging, podcasting and writing

Philosophical base: Wu wei (consistently baby-stepping toward a state of sprezzatura; no big NY resolutions.)

Tip: Take stock of where you were a year ago; what your targets for 2016 were; what you accomplished, and make plans for what (and how) you want to achieve going forward the next few months

Get your priorities straight: What books will you read, what podcasts will you listen to, what investments will you focus on (country, industry, asset class), what exercise programs will you follow? What career path will you follow (plan for the next step)?


Financials: Short stocks, long gold looked good for a few weeks

About a year ago I wrote about "going short stocks and long life", in my review of 2015 and my plans for 2016.

Well, that looked really good for a handful of weeks, but since mid February or so, I've kept losing money on my shorts... The "long life" part however panned out really well.

This article is a story of both my personal and financial investments during 2016, and my outlook for 2017. As per usual I don't have any New Year resolutions - and neither should you.


Baby-steps

Instead of making big overwhelming promises, make small changes every day. Start with taking stock of the year just passed, and think about any little improvements you'd like to make. Then make just one of those small changes. Today or tomorrow. Aim for just once.

For example:

  • Try having water instead of beer or soda with dinner just today
    • Hopefully you might do it tomorrow too, but you can worry about that then
  • Start a commonplace book and make just one single entry in it
    • investments
    • projects
    • decisions
    • a relationship or a pet
    • book summaries
  • Order a useful book (see my recommendations) and read a few pages in it today (perhaps instead of checking your social media accounts).
    • Hopefully you'll read another few pages tomorrow... but don't burden yourself with such big plans today.
  • Do not check Twitter/FB/Snap etc. the next hour (unless it's your job ofc.)
    • Who knows, in a few weeks or months you may last for a whole day or week without checking
  • Video summary. If real books just are too much for you, watch just one 10-minute video of Fight Mediocrity's book summaries.
    • I think this one (less than 5 minutes long) suits perfectly this time of year (and every other time as well). Or start by trying my 20-second summary below:

The Slight Edge: Reading 10 pages of a good book every night or morning would get you to 14 610 pages over the time span of a 4-year college education. That could be around 50 books on psychology, investing, physics, history and other useful topics.

The "investment" is just the 10 pages a day, but the payoff is huge. Having read 60 good books by the time you finish college would put you leagues ahead of most of your peers.

Now, is that something you might be interested in?


My year in review... the website is still ugly

In my last year-end review I wrote "In 2016 I want to fix that [ugly website look], maybe get help with the design."

Ooops, I haven't done that.

The blog still looks awful. However, it actually is improving, just very slowly.

And, I did get help with the design and formatting of my e-book The Retarded Hedge Fund Manager. Now it is ready for Print On Demand (although I haven't put it up at any POD service). I'm also just about done with a poster that summarizes the Sprezza Art Of Investing (I'm not involved in the design),


I'm still stubbornly short the Swedish stock market just as last year. In my previous post you can read how I still managed to survive, owing a lot to good timing and diversification.

One example of pure dumb luck was this stupid trade:

In 2015 I shorted Fingerprint with "magical timing". In December 2016 I was long the stock (about 400k USD) as a joke... for 4 hours or so, before selling the position an hour before close. The next morning it plunged by 15%. Phew! Dodged that one. (In my commonplace book for trading I wrote: "really stupid trade")


Full review of 2016 targets

This is what I had to say last year about my plans for 2016:

I’ll stay short the stock market in general in 2016 – stocks are hideously expensive, economies are sandcastles built on zero interest rates, malinvestment and speculation on unicorns.

Well, at least I did exactly as planned (sic), no matter how stupid.

Fortunately I had the good sense to reduce my shorts on downturns. Too bad I added to them again during surges. However, I'm nevertheless down to 2/3 of my position at the start of the year, thanks to prioritizing lending out money and buying private companies.

In 2016, I’ll buy small amounts of interesting companies on sharp drops.

I’ll announce my purchases after I’m done with them, unless I feel there is more downside left. Some people perceive my information as recommendations. To prevent unduly criticism, I’ll keep my investments to myself until after I think we have seen the trough.

In 2016, I've bought and sold shares in various amounts and order in 18 different public instruments (my Buy / Sell price ranges during 2016, bold means I still own some right now):

  • H&M 244.50 / 255.20
  • Olja S 16.51 / 19.18
  • ShaMaran 0.29 / 0.81
  • Catella 17.80 / 18.10
  • Stockwik 0.041 / 0.056
  • iShares Silver 14.05 / 19.35
  • Opus 3.98 / 6.35 (+0.10 dividend)
  • Peptonic 4.76 / 8.35
  • Fingerprint 74.70 / 75.10
  • BrainCool 12 /13.90
  • GLD sold at 131
  • Gaming Innovation Group 2.98 / 4.22
  • PHYS (gold) 10.44 / 11.26
  • Simris Alg 14.90 / 18.90
  • Studsvik 56.50 / 70
  • MQ 32.10 / 33.10
  • iShares GSI commodities sold at 15.10
  • XACT BEAR 78 / 118,41

...and here I go around saying I don't like stocks or trading...

Well, despite incredible timing in many instances, my losses on index shorts (XACT BEAR) have more or less neutralized the profits in other instruments. Perhaps I should do more trading and less long term speculation in doom.

Anyway, last year I said I planned to slowly reduce my shorts:

I’ll cover my index shorts very slowly, 1% or less at a time, to finance small incremental purchases of select stocks, gold (GLD and GDX, and probably some physical as well) and oil (Brent ETF/certificate). I have no plans of initiating any shorts on single stocks.

All in all, I kind of followed my plan:

As my portfolio stands today, I don't own any gold ETFs at all, and my private royalty streaming company ("physical" gold) hasn't invested anything yet, meaning whatever GLD I sold at 131 has been parked as cash until further notice. Hence I've benefited from the surge in the dollar while avoiding the plunge for gold.

Further, I've reduced my shorts by about 1/3, which is more than planned, and I've kept buying shares in Studsvik as well as relatively small amounts in GIG and Peptonic (plus marginal amounts in SimrisAlg and Stockwik).

The main divergence is that I don't own any oil or oil related stocks right now (although my gold exposure is also involuntarily paused). Reducing my shorts and accumulating select stocks is perfectly in line.


Moving on to my plans for pumping iron

During 2015, I increased my squat PB to 155kg and reclaimed 135kg in the bench. In 2016, I’m aiming for a 200% bodyweight deadlift (C. 180-185kg [up from 172.5kg]) and 142.5kg benchpress. Apart from that, it would be nice with a 100kg clean (and press?!)

I almost made it.

If it hadn't been for my (ganglion) foot surgery, I probably would have made it. I did get 140kg in the bench (my old PB) and I managed a 182.5kg deadlift at a sub-90kg bodyweight, i.e., more than 200%. Regarding the Clean And Press, I cleaned 97.5kg, I think, before focusing on other lifts instead - not to mention foot surgery. I never pressed more than 90kg though.

Last year I wrote: A year ago, I had a job (well…), a girlfriend (since 10 years back), an expensive Swiss watch. Now I have a blog, a dog and a podcast, but no job, girl or watch.

The only thing that has changed since then is that I started dating in early 2016, and after a few false starts eventually found my match in August. Just a few weeks ago, she (and her little pomchi dog) moved in with me in December 2016.


Looking forward to 2017

The biggest change in 2016 was Anna (and my little sister Sanna) moving in.

Financially, my biggest changes were reducing my short position by 1/3, and investing in a private Canadian gold (and platinum) royalty streaming company, as well as a private watersports start-up, that I hope will begin making waves in 2017.

There are already interesting game-changing developments regarding the Canadian company too (a big platinum deal). It might actually be listed or sold within a year, potentially giving me twice my money.

E-book: During 2016 I had a few good runs regarding writing my next book, but I kept losing track and prioritizing other things: dating, Anna, my podcast, this blog, reading, working out, watching Game Of Thrones, partying...

In 2017 I will finish writing the book.

The outline is set; the chapters have been filled with ideas that just have to be made into sentences and illustrated with silly anecdotes; the intro has already been written, and so on.

I'll make a plan for prioritizing making small incremental strides every week and have it done at the latest by the end of 2017. I'll make it available as a POD at first, since I think the content will be more useful when presented in a hard copy format.

Gym: I will get that new bench PB during 2017; at least 142.8kg (315 lbs), as well as keep setting new PBs in the deadlift. Next up is 185kg. The squat, however, is just considered assistance training for me.

Podcasting: In 2017, I will try to change into a more natural and conversational style, away from my current newsreader monotone. Hopefully Ludvig will be ready to jab with me.

Periscope/YouTube: I'm thinking of starting a video channel; a "daily catch" of interesting or entertaining snippets of technology and financial insights I get from all the podcasts I listen to.


Wu Wei - a philosophy of sprezzaturian progress

I often talk about progress and self-development.

Just as often I talk about making the changes feel, look and be easy. I've expanded my thoughts on this in articles and mantras like "Just One", "Just One More", "Zero Threshold" and "Aim Low".

I think it all comes together in the expression Wu Wei, or Do Nothing (but Accomplish Everything). That will be my mantra for 2017; making small, all but negligible, changes and nudges in the right direction in my main life priorities:

  • Writing (finishing my book and starting on a new one; I have many ideas lined up, both fiction and non-fiction)
  • Podcasting (making the conversation sound more natural)
  • Blogging (more succinct and to the point)
  • Periscope (summarizing my daily thoughts and lessons)
  • Investing (possibly reduce my shorts further, albeit mostly on downturns, and probably add on surges just like in 2016)
  • Weight lifting (small new PBs in the bench and deadlift)
  • Mobility (daily minutes, for hips, back and shoulders, to maintain my current level)
  • Meditation (daily minutes instead of just ad hoc micro meditation)

Summary: take stock, aim low, go

Okay, so you skipped to the summary? Good choice. Here are the take aways:

  1. Commonplacing - take notes of what you learn this year and enable tracking your progress in your main areas of interest
  2. Take stock of your progress, using your commonplace notes
  3. Set new targets for the coming months and quarters (avoid too long-term and overwhelming game changers)
  4. Awful makes perfect - break down your targets into ridiculously easy parts and just start hacking away at them.
    1. The sooner you start the better. You'll be awful in the beginning but that's exactly how you get better - and eventually perfect

Now what?

Just do this one thing right now and you're off to a good start for the year:

  • Open your commonplace (download Evernote for free if you don't have one).
    • Create a master note and write down your main interests (e.g., work, decisions, finances, trading, family, vacations, hobbies, investments, projects).
    • Make one new note for one of the areas and write one single entry, e.g., create a note for Finances and write down a "best practices" rule for yourself.
    • Right click that note, copy note link, paste it in the master document next to "Finances"

Wait, wait! Have you stretched your psoases today or at least this week? And how about 30 seconds of meditation? OK, but at least give me a Johnny Drama roar. Now.


P.S. Did you lose money in 2016? Read my previous article and please e-mail me your story anonymously. I'll soon summarize whatever patterns I can discern from the tales of tail-spins in the divergent markets of 2016.

P.P.S. Fun fact: 2017 is my first real "future year". It's the first year I've always felt represents the future. I guess it started around 1985-1987 when I was in my first teenage years. Sure, 2015 was far away but still didn't have that special aura of the true future that 2017 did.


New visitor?

Do you want more free and valuable analysis and inspiration?

Join tens of thousands on my site, and sign up for my free newsletter. There is a free investment lessons e-book waiting for you. 

Are you curious, philosophical, and looking for truth, understanding and happiness?Do you know more people like us? Please share my ideas about how to live a happy, healthy and wealthy life in modern society.

Limited. Sooner or later I might introduce some kind of a latecomer fee to finance the growing list. However, it will always be free for incumbent, active subscribers.

Share. I sincerely hope my myriad of mistakes and insights can be of use to you and others; share this article and my site with your social networks if you like.

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Taggar (blogg): 
27 december 2016

GOLD, bonds, stocks, FX alike; the struggle is real in 2016

Diverging trends on the financial markets

Topic: Losing money in 2016 is probably more common than you think. 

Summary: High and low alike, a lot of people are losing money despite new all time highs. I think divergent trends are a harbinger of a big move (down or up) 

Help: Tell me your story and I'll put together a collection of market tales that comfort and warn other traders of the risks associated with trading an aging bull the same way you would a strongly trending market

Length: short (a few minutes)


How was 2016 for you financially?

Have you lost money on the markets despite new all time highs?

I've got a message for you: You are not alone


  1. Many hedge funds representing a wide range of strategies have struggled this year
  2. Several legendary investors have lost money, gone short or given up and left the markets altogether in various ways.
  3. Dr John Hussman has noted that his measures of "market internals" have broken the bull pattern of trend uniformity. Instead of individual stocks, industries, sectors, spreads, rates and asset classes marching together and signalling indiscriminate buying and a high appetite for risk, they have started to diverge. Read his amazingly pedagogically and instructive weekly comments for free here.
Not alone

The changed behavior is a sign of buyers becoming less convinced of the bull trend, and thus increasingly prone to taking profits, buying downside protection, and rotating between different investments in search of the few things that are still "working" on the upside.

The bull market is getting increasingly narrow with fewer (albeit big) winners and a lot of lagging securities. This lies behind the poor performance of hedging strategies, since the indexes are setting new highs, while the few reasonably priced investments underperform.

Anyway, that's a problem for the institutional side of the market and hardly hurts anybody who can't afford it, right?


What about you and other semi-professional day and swing traders?


I think the market is changing in more ways than one and that that has made it increasingly hard to consistently make money trading the markets. A few observations during the last few years:

  1. Algorithmic funds have since the crash of 2008 come to dominate the market (80-90% of trading volume is estimated to be made by autonomous software programs), causing unusual trading patterns that disrupt traditional signals and thus devalue the power of classical technical analysis.
    1. I'm not even mentioning frequent flash crashes in single stocks... or currencies for that matter. Oooops.
    2. Or all time high "P/S"-valuation for the median U.S. stock. Yes, higher than 2000 and 1929.
  2. An aging bull market with diverging trends, making all kinds of strategies and tactics moot: hedging, momentum trading, spread trading
    1. Not even mentioning valuations here...
  3. Newbies. A high and increasing proportion of active traders that have never seen a bear market. No, the spring of 2016 doesn't count. Not 2015 either, or 2014, the summer of 2013 or 2012 either. No, definitely not the Greek debacles and debt ceiling tussles of 2010-2011... If you think so, you are one of the newbies.
    1. The newbies are bullish, ignorant, risk-willing, driven by FOMO and envy
  4. A market Cult. An unprecedented market and trading culture, thanks to a high availability of  trading software and online market access - not to mention social media like Twitter to share your progress on.
    1. The market cult draws in yet more newbies, as well as sways some old souls into thinking "perhaps this time is different, perhaps technology means higher growth, higher margins, lower interest rates, more leverage and higher valuations forever".

I think the next downturn will catch a lot of newbie investors (active since 2008 or later) wrong-footed, buying one time too many on dips, or using too much leverage.

Actually, I think it might already have started, even before the market has turned downward, and that many have already felt its effects.

They have cast fire into thy sanctuary,

they have defiled by casting down

the dwelling place

of

thy name to the ground


Your time to shine

Here is where you come in.

To help others avoid committing irrecoverable mistakes on the markets, I encourage you to anonymously tell me your story of your big losses in 2016. Maybe you've averaged down one time too many on your favorite stock; maybe your portfolio of small-caps just never seem to catch a break; maybe you've shorted the wrong high-flyers or acquisition targets; maybe you tried catching the wrong knives (GoPro, Twitter...)

If you'd like to contribute to this research, please leave a detailed comment or e-mail me your story of how you've been had by the market gods this year.


At the very least other traders nursing big losses could find some consolation in seeing they aren't alone, aren't stupid... In addition, we might be able to find interesting patterns in the stories of losses, and possibly inspire some to reduce their risks, their use of leverage, avoid unduly concentrated portfolios etc.

So, please help me help you, by telling me how you lost big in 2016, despite the constant stream of new all time highs.

I'm looking forward to hearing from you


My losses?

The only loss talking about is my big short on the Swedish stock market. It's been a disaster since I started building it but 2016 wasn't bad at all.

Since it's an index (that didn't rise that much) and I've traded it successfully during big events like the UK referendum and the February downturn, I only lost a few per cent in total on that one.

In addition, I don't use leverage (except the built-in 50% on the index position), I have a limited amount of my wealth invested on the stock market and I actually own my apartment (no mortgage).

Further, I happened to sell my GLD and GDX (gold) at the very peak - and the proceeds haven't yet been invested by the private Canadian royalty streaming company I bought instead, meaning I simply made big gains on gold this year instead of losses. Pure. Dumb. Luck.

Yet more luck (intuition? fooling myself? natural diversification?)

  • When I sold my gold, I withdrew some extra money from my active trading account for the "Toronto gold trade" to make it an even number :p.
  • When I invested in a a few private companies I withdrew some more, reducing my bear position significantly.
  • And, finally, when I lent out a few million to a friend, that organically limited my exposure to the stock market (in effect, the bear position) even more.

So, I'm sorry I can't lead the way. I'm simply still standing... until the next unexpected flash crash or market blow off blindsiding me, that is.

Riding the wave of the future?

I still think there is a story here. A story of "weird" markets, a story of markets not feeling familiar anymore, of patterns fluctuating and breaking.

I think currency traders have their version of it, bond traders theirs, small cap traders theirs, gold traders... You get the point. The problem is that few trade many different asset classes at the same time, and those are often computers, secretive or both.

That might mean the early signals of a downturn remain ignored longer than they have to be. Perhaps we can crowd-source the full picture.


This is your chance to make a difference by sharing your story and help put together the bigger jigsaw puzzle of (possibly) divergent trends. Anonymously of course.

E-mail me at mikael.syding@gmail.com or tell a friend you think might find this article interesting.


New visitor?

Do you want more free and valuable analysis and inspiration?

Join tens of thousands on my site, and sign up for my free newsletter. There is a free investment lessons e-book waiting for you. 

Are you curious, philosophical, and looking for truth, understanding and happiness? Do you know more people like you and me? Please help me spread my insights about how to live a happy, healthy and wealthy life in modern society – tell others about this site, share it in your social networks.

Limited. Every now and then I clean my e-mailing list from inactive subscribers, to make room for new ones. Sooner or later I might introduce some kind of a latecomer fee to finance the growing list. However, it will always be free for incumbent, active subscribers.

Mistakes are the foundation of my knowledge, not least in my private investments since I retired from professional investing.

Share. I sincerely hope they can be of use to you and others; so please share this article and my site with your social networks.

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Taggar (blogg): 
19 december 2016

How to use macro research for equity investments

Topic: How to (if at all) use macroeconomic data for trading the financial markets. Length: 3400 words.


What do we want?

-Returns!

How do we get returns?

-Know when stocks are going up, and buy beforehand! Then sell in time.

How can we know?

-Macro!

-And micro!

-And Technical Analysis!

No! It doesn't work that way

Meh!

wall-street-2


Topic: How to (if at all) use macroeconomic data for trading the financial markets

Summary: It's mostly worthless and a dead end, but it can be used in combination with other gauges of stock market sentiment.

Start with establishing your own rudimentary macro view and refine it. Iterate between micro, macro and trend and risk gauges to construct a consistent view of respectively the economic cycle and the stock market trend.

Length: 3400 words ("a few pages")


In theory, practice and theory are the same thing...

In theory it's pretty simple. At constant valuation multiples; fundamental gauges of economic production, such as sales, profits and cash flows, should drive stocks.

Further, from a top down perspective GDP growth drives sales (and thus also drive profits and cash flows, after some adjustments for private and public sector changes in debts and deficits).

Consequently, GDP should drive stock prices

-and it does... over centuries.

market-cap-over-gdp-hussman
Chart borrowed from Hussman's latest (today Dec 19, 2016) weekly update

Predicting GDP with PMI new orders surveys

The typical sequence of events for predicting GDP growth starts with PMI surveys for new orders and production, continues with real sales, real production and real income in that order. Finally, more or less lagging, come numbers for new unemployment claims and changes in payrolls*.

* see, e.g., Hussman weekly February 2, 2015 and March 23, 2015, 9 November 2015

So, it's a piece of cake then... Take stock of the aggregate of corporate plans for new orders and manufacturing. Predict sector and national GDP growth from that, and rotate among sectors and size your longs accordingly.

Perhaps you could even refine the strategy by complementing the official PMI series with proprietary micro data (on investments, hiring plans and management body language) from company visits and interviews.


...in practice, they are not

It turns out that GDP growth, valuations and stock market returns are mostly uncorrelated even measured over decades, and for some periods even negatively correlated. Just take a look at China's GDP and stock markets the last quarter century, if you want one salient example.

The problem is that, even if you manage to forecast GDP growth, you would still have to forecast it's short term correlation with profits and other key ratios, not to mention the valuation multiples the market is ready to use at any given time (based on interest rates, risk tolerance, debts etc.)

Key ratio (e.g., Earnings per share)

times

valuation multiple of that key ratio (e.g., P/E-multiple)

equals

value

Thus, unfortunately no matter how good your data series and your statistical acumen, you won't improve your stock market returns by analyzing GDP growth. By the time the changes in GDP matter for stock market returns, years and years after your diligent measurements and forecasts, the growth numbers are since long public goods and your edge is gone.

Actually, to ensure capturing the underlying GDP growth in your stock portfolio, you have to be extremely long term in your investment strategy. For life, in practice.

Either you invest really long-term, i.e., just Buy And Hold until retirement, or you futilely try to predict shorter term fluctuations. In any case you'll struggle to add any value whatsoever.

Tom summarize, going with the Buy And Hold strategy more or less means you've given up altogether. And, getting into the short term forecasting business demands that you:

  1. Predict the outcome of certain events like central bank meetings, national and international statistics releases, elections, natural disasters, unusual weather etc.
    1. The future is inherently unknowable making this impossible
  2. Predict how the outcome will affect the real world [profits]
    1. Relationships are not stable over time, partly due to the reflexivity of the complex and nested psycho dynamic feedback loops that make up economic systems
  3. Predict how other investors will perceive, interpret and value the effects
    1. Varies in a wide range over time

In other words, there is no fundamental and logical way in which to use macro variables to predict short term stock market movements. And if you're long term you're long term and thus simply Buy And Hold forever - and there's consequently nothing of value here for you as a trader.

unpredictable macro events => uncertain GDP growth => uncertain uncertain short term transmission to sales => uncertain transmission to profits => uncertain valuation multiples => value


Micro analysis is for single stocks and sectors. If you know and understand enough, you might be able to pick company and industry winners over various periods of time.* That's a different story though, for another post, and won't help you associate GDP forecasts with overall stock market returns.

* Beware though; Apple almost went bankrupt despite its popularity before becoming the most loved stock of all time. And Facebook almost didn't happen at all, and maybe should have lost out to the industry leader MySpace. Similarly, Google was the latecomer to the search business. Could you have known that their algorithms would beat those of Altavista and a dozen other local and global search engines? And Amazon still hardly makes any profits. What about Microsoft, Exxon, Enron, and the car manufacturers GM/Ford/Chrysler that all almost went bankrupt? Tesla, SolarCity, SpaceX? Do you know enough to make predictions? Does even Elon Musk?


Technical Analysis

That leaves TA, a.k.a. Tea-leaf Analysis

Interpreted freely, TA entails everything that isn't "fundamental", such as historical movements in various market variables like stock prices, currencies, interest rates etc.

Various patterns, spreads, spread changes, combinatory changes, trend convergence or divergence etc. are assumed to predict future movements in the price series itself or in other prices, since they have exhibited similar patterns several times before.

One of my teachers at business school used to say it's about as useful to use TA for investments as looking at patterns in tea leaves would be. On the other hand I think he believed in the Efficient Market Hypothesis fairy tale too...

tea-leaves

Most people using TA typically draw nice lines, waves, triangles, Head And Shoulders and other more exotic patterns in charts, mainly based on seeing those patterns in a book.

They then predict share price movements based on how certain patterns have evolved in the past.

Most just take the formations for granted and never back test individual indices or stocks to see how often certain patterns have played out to the upside or downside, or how that correlation and likelihood have changed over time.

What technical analysts often fail to acknowledge is that, these days, millions of algorithms are constantly evaluating old and new patterns, and are evolving using machine learning in a speed that no human can match. This algo activity exploits and neutralizes old patterns' predictive power and create new ones.

That means the old paradigm of "human psychology is essentially the same which means old technical patterns are still valid" is over.

Machines rule today, and they can calculate the probability of any pattern recurring, no matter how complicated or visually unappealing. A human with a pen, a ruler and a Fibonacci or Elliot wave theory software has no business doing TA in this environment, since he probably couldn't even detect today's important patterns even if they were described to him; let alone calculate the probability of success. He could just as well check the bottom of his tea cup after breakfast.


Maybe human intuition still has a role to play in the shortest of intervals (seconds to minutes, not the microsecond universe of HFTs) and the tiniest of amounts at play (less than a million dollars), but when you start swinging for longer periods and with millions you are breakfast toast for the machines. In very particular situations with small illiquid stocks, and large positions shifting owners, maybe human psychology-based TA and old school patterns still work, but those situations could be very hard to find and know about beforehand.


Single stock fundamental analysis

My view is that macro research is useless

-just as useless as tea leaves and technical analysis

 

Single stock and industry research could, however, be worth the while - if you are diligent, systematic, disciplined, and most of all patient.

-Patient in looking for good companies.

-Patient in waiting for the right price.

-Patient in waiting for the market to acknowledge what you have found.

That, however, is a topic for another day. Today we're talking macro.


Combining macro and TA could add value

So, finally, the light in the tunnel: I think a combined approach of a certain kind just might work, when it comes to predicting* major bull and bear markets, and possibly help detecting cyclical bulls and bears as well.

I find the following model intellectually appealing:

  1. Track valuations (cyclically and profit margin mean reversion adjusted)
    1. Increase your stakes at low valuations and decrease them at high valuations
    2. NB: this is not based on index movements but on valuation changes
      1. Buy cheap, sell expensive; not Buy high, ell low
  2.  Track leading economic variables such as PMI new orders, and combine them with, e.g., data on debt growth to look for likely turning points for the economic cycle
    1. This might help a little in forecasting profits
    2. Don't confuse the deluge of economic variables with the ones that actually are leading
  3. Use market based trend variables, like the 200-day moving average for the S&P 500 stock index, and market breadth to gauge possible turns in trend and overall sentiment
    1. A narrowing and rising market means more hands chasing fewer stocks; the only stocks that are "working"
  4. Measure risk appetite based on "rising tide lifts all boats" indicators.
    1. If various stocks, sectors, asset classes etc. diverge from the bull market trend of uniform advances, it's an early sign of falling risk tolerance. Market breadth is but one of dozens of established indicators
    2. The big idea here is that no single indicator is that important, it's the syndrome of how "all" indicators change their behavior relative each other that can be the harbinger of markets pivoting from bull to bear - IF valuations are high, and the economic cycle appears stretched

In other words, let valuations be your main guiding light for long term investments; and a very specific kind of trend research (uniformity of market internals rather than typical TA pattern analysis) your cue for likely turns in market sentiment.


And a little macro

As an added extra, but more or less unneccessary, keeping an eye on macro indicators could tell you if the cycle is long in the tooth and if certain variables* are near exhaustion (as measured by historical highs for example).

* private debt, government debt, covenant light loans, IPOs, share of unprofitable companies going public, inflation, commodity prices, interest rates, share of algorithmic trading...


Economic history only rhymes at best

Even if you have crafted the perfect model, using the best statistical analysis possible, and even if you have found a system with strong signals and relatively few errors, no two cycles are the same.

Thus, beware of distortions from politicians, new generations of leverage-happy consumers, demographic changes, new technological paradigms and wars, since they can all shorten or prolong whatever cycle you are assuming is underway.

In short, you know nuthin' John Snow.


I still love macro research though.

I keep trying to use it for my investment decisions; just not in any direct way, and definitely not short-term such as for single quarters or years.

I devour newsletters and updates from the likes of Hugh Hendry, Jeff Gundlach, John Hussman, Jeremy Grantham, Marc Faber and others, and I listen to the MacroVoices podcast with Erik Townsend as soon as I get up on Friday mornings (as well as the Real Vision TV encores a few days later).

What I aim to get out of it is a general sense of recent history as well as the current state and direction for various economic superpowers over horizons of 5-25 years.

I want to "know" if the dollar's strength is sustainable over the coming decade or just a dead cat bounce. I want to know how the deflation/inflation long game might play out. I want to gain new insights into the likely long-term movements of interest rates, profit margins, government deficits, consumer loans etc.

Not least I want to know where we are and where others think we are in the economic cycle.

I'm not using macro research to micromanage my investments, but to decide whether my overall asset allocation seems reasonable for the coming decade(s). I'm not looking for rockets taking off, but for not being blindsided, for not making fatal mistakes.

In a way, I'm also on the lookout for turning points, not in order to profit from them per se, not for calling tops and bottoms, but for understanding if the current trend is likely to continue for a long time, or if we are more or less close to a major trend change.


Right now I do think we are close to several important inflection points, but I am in no way certain about the general economy as a whole. Here are my thoughts regarding a few key variables:

Profit margins going down: Close to historical highs, due to government and household deficits feeding into higher corporate profits, since consumers can afford to shop more at lower wages. Software models and increased automation can stretch the system further for individual companies, but will likely prove difficult at the national or global level for the foreseeable future.

Productivity staying low: has been very slow the last decade and if anything seems to be slowing, despite technological progress. I am quite surprised by this development, and 50 years out, e.g., I'm expecting immense productivity gains. Regarding the coming decade, however, it seems much of the low hanging fruit in terms of productivity has been picked already (urbanization, globalization, know-how sharing, computerization and not least leverage and capital per employee).

GDP growth (risk of recession): low productivity growth, low population growth, low employment participation rate, aging population, peak stimulus, debt burdens all speak for weak GDP growth the coming decade. That also means substantial risk for more frequent recessions.

Monetary stimulus have possibly peaked: Extreme for a decade, but can always get more extreme, so impossible to call a turning point

Inflation should take off after a bout of more disinflation: Given all the stimulus, all the money printing, asset price speculation and lower investments in productivity causing a stagnating global economy, limited room to leverage housing, credit cards and students, I see a definite risk of inflation turning upward for the long haul. However, I think we're first due for a recession and (debt) deflationary bust

Interest rates going up: have been falling for 35 years; I think they are very close to turning upward for the long term, due to inflation and normalization of policy rates. Given the likely weak economy, interest rates are unlikely to go very high though.

USD going up: I understand the strong USD short to mid term (flight to safety, policy rate increases, the dismal state of the European Union etc.), but given the state of the US economy and its future obligations, there are so many other assets I'd rather own than dollars, like, e.g., precious metals.


Summary - macro is useless

-unless used as a complementary tool

It's very difficult if not impossible altogether to trade stocks using macroeconomic analysis.

Not only is the future unknowable.  Macro outcomes' correlation with profits and valuations is tentative at best. If you can't forecast the events, and can neither forecast profit outcomes of such events nor the likely valuations of those profits, there is no way of connecting macro guesses with future stock prices in any relevant way, except regarding very long term asset allocation decisions.

Macro and TA can only tell us what has happened and maybe where we are

-At best

And give an indication as to what often used to follow

-If ceteris paribus (which never holds)

In any case, make sure you at least separate leading indicators like new orders and real sales from coincident and lagging indicators like employment numbers.

Ordinary technical analysis is probably useless in the absolute majority of cases, partly due to the algorithmization of markets over the last decade. However, long term moving averages for major stock indexes might carry some value in turning points, if taken together with valuations and real world variables. They have performed that function historically.

Gauges of risk appetite (based on the degree of valuation convergence, interest rate spread development and trend uniformity of many different asset prices) could in combination with various other factors, including valuations, long term moving averages and the cyclical state of the economy, indicate if the market is closer to a top or a bottom.

Hence, focus your investment efforts on single stock research, using a "margin of safety" and long term mindset when it comes to business models, valuations and long term trends; since, unfortunately, macro is mostly worthless.

I would suggest you use macroanalysis  as an overlay for identifying possible turning points, for hedging, for positioning your long term asset allocation, and for fine tuning your single stock research (with macro factors driving competition, input prices, debt, growth etc. for your single stock), but not your main investment tool.


Now what?

  • Start with subscribing to or benchmarking a few select macro resources.
    • I you want a non-stop shop for free research, register for Macro Voices free newsletter and check out the links of free research provided each week. Gradually bookmark and subscribe to the ones  you like the best (and go against your own view of the economy if you have one).
    • macro-voices-pic
  • Establish and write down your own macro view in your commonplace book for investments, tag macro
  • Check if your investment portfolio is resilient to the kind of macro environment you expect.
    • What are the important drivers for your portfolio companies
    • What do you expect for interest rates, currencies, GDP growth, inflation...
  • Read the company reports and other news from your portfolio of investments to complement and fine-tune your macro view. Update your commonplace with notes for your micro and macro views. Make sure they are consistent.
  • Identify a dozen of risk appetite variables that seem relevant to you. Update your commonplace #investment #risk table. Analyze their long term data series for trend uniformity and convergence/divergence and try to find patterns around market turning points.
    • What happens when the P/E-valuations of growth and value companies converge/diverge? What happens when corporate debt spreads compress/expand? What happens when advance/decline numbers increase/decrease? What happens when bank, realty, industrials, tech etc. industry sectors' valuation multiples converge/diverge? What happens when the yield curve flattens/steepens? And on and on. What happens when x% of the indicators diverge or converge at the same time?
  • If both the economic cycle is long in the tooth and trend and risk variables point to a change in direction, you might want to heed that warning and reduce your risk exposure. If on the contrary the economic expansion is fairly young and investors seem indiscriminate in their hunt for returns, causing convergence and trend uniformity, keep buying with both hands.

Too time consuming for you? Too boring? Doesn't seem to provide enough of an edge? Seems kind of useless? Too long term for you? Well, then investing might not be for you.

Good luck!

Sprezza out


New visitor?

Do you want more free and valuable analysis and inspiration?

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Limited. Every now and then I clean my e-mailing list from inactive subscribers, to make room for new ones. Sooner or later I might introduce some kind of a latecomer fee to finance the growing list. However, it will always be free for incumbent, active subscribers.

Mistakes are the foundation of my knowledge, not least in my private investments since I retired from professional investing.

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Taggar (blogg): 
7 december 2016

7 secrets to top level investment performance

Topic: Tips for mentoring a trader (or weight lifter)

Executive summary: Focus on the big picture in investing, weight lifting and life: The 7 most important things to consider as an investor

Length: Fairly short


Big mistake, huge

My biggest mistakes in life are typically associated with suboptimization.

Sometimes I've focused on the wrong thing, climbed the nearest hill instead of the right one. Sometimes I've tried too hard, sometimes too little.

aconcagua summit underwear
Aconcagua summit

What I should have done is mapped out the entire landscape, identified the desired area and put in an adequate intense work effort there and sustained the effort for a long time.

Sure, I did pretty well anyway, albeit in my signature ad hoc, haphazard fashion. The hedge fund industry between 2000-2014 turned out to be a good ant hill to climb. And the way I happened to play it was with enough intensity (well, the right colleagues at least) and long-term enough to win The European Hedge Fund Of The Decade award.

But, I could have done better... and faster in the world of finance. I could have provided more value for clients, contributed more to my colleagues; and learnt more and advanced faster, got out earlier (or enjoyed staying).

Not least, I could have done way, way better in the gym by, e.g., sleeping better, eating better, and focused on the big picture (programming, recovery and long term progress), rather than maximum 'effort' in every set and workout. 'Failure' is just one of the options for a set ;) 

My worst trait is being stubborn

Grit is probably my best

- It's kind of the same thing

My natural independence has been of great value to me

Whereas my contrarian streak often gets me into trouble

- You get the point


Big picture thinking

I listen to podcasts every day during my dog walks and weight lifting workouts. My main interests are science, health and economics/finance (as you can tell from this list).

The last few days I've been listening to several episodes of Sigma Nutrition Radio (an evidence based exercise and nutrition podcast).

Some of the more important points from episodes 148-153 have concerned big picture thinking, as opposed to being myopic or esoteric.

One thing that struck me - among the information about gluten sensitivity (possibly caused by a poor diet and suboptimal microbiome), the importance or not of drinking water and how to gauge your hydration status, how food composition and timing affects your body composition or health, whether you're likely to be a hard gainer (no, you're not), and how dangerous or healthy red meat and coconut oil* really is for you - was the weight to put on applying an 80/20 mindset to what to do and how to do it.

* note: forcing down water seldom is a good idea, and hydration mainly takes care of itself if you drink when thirsty (unless you're an extreme athlete), food composition and timing hardly matters unless you compete at the national level, red meat usually isn't the culprit and coconut oil is bad in large and concentrated doses.


80% machine, 20 % human

What really hit home with me were the following two points 1) Greg Nuckols' statement about envisioning the entire lift, rather than paying too much attention to parts of it and 2) Giving clients mostly what they need long term, and then a little of what they want to keep them happy short term

Those weight lifting and coaching mindsets can be applied equally well to life in general and investing or trading - whether a mentor/master or apprentice:

  1. Health: Eat whole and right 80-90% of the time and more or less whatever you want the rest of the time; as long as your energy intake is what you want and your macros satisfy a minimum required level. Sleep enough. Do compound exercises for an hour or two about every second day. That's the 20% giving you the 80%.
  2. Trading: Be Analytical, Unemotional, Strategic and Patient most of the time (A USP for you and SUPA for Swedes), but do experiment, gamble and have fun some of the time (sometimes a lesson learned, sometimes free money) if that's what keep you ticking.

An effective choice of endeavor is more important than efficient task execution

The general idea is to avoid wasting time and energy on unnecessary nitty gritty details, and put quality effort into doing the right things adequately well (instead of aiming for 100% comprehensive scope or detail).

matterhorn

Cutting to the chase, here are 7 things I would have improved, if I had a do-over as an investor. They are all about being systematic, unemotional, mindful and focusing on true value drivers (statistics, learning & people):

  1. Start a commonplace book for investment decisions
    1. List of best practices
    2. List of mistakes
      1. why, what "happened"
      2. what you could have done (before and during)
      3. Be quick to realize and remedy mistakes
        1. That doesn't necessarily mean "tight stop-loss levels", but regarding fundamental mistakes in logic or turn of real world events
      4. See if the lesson can be formulated as a best practice
    3. List of wins
      1. why
      2. was it luck or skill - be brutally honest
      3. what you could have done even better (before, during and exiting)
      4. Best practice?
    4. Read the notes regularly
      1. always check your best practices before an investment
      2. keep updating best practices with new insights
  2. Read more books and articles, less sell-side research reports
    1. Take and keep notes of actionable investment wisdom
      1. distill best practices check lists for research, for investing, for interviewing, for discerning causal relationships
    2. Read book notes regularly
      1. repetition
      2. new insights
    3. Read research reports (only) for very specific purposes
      1. to poke holes in your own thesis and conclusion
      2. to find new ideas (but then you need to research them yourself as if from scratch)
      3. searching for data series for certain (proprietary) variables
      4. enable further questioning of analysts or company management
      5. gain new perspective (read reports with different conclusions from yours)
  3. Think more about thinking, think ahead, be proactive
    1. Prepare what you want to get out of a model, meeting or conference before going
      1. all too often I would go to meetings and just react
      2. sometimes I started on a model with no plan and continued and finished it purely driven by homeostasis
    2. Spend at least 1-2% of the time (1h/week?) on strategic planning, structuring and streamlining your work in a systematic fashion (commonplacing)
  4. Be more systematic and evidence based (statistics) when inferring causal correlations
    1. Document exactly why I think a certain correlation is meaningful
      1. fundamentally (causal), or short-term market-wise 
      2. is the covariation large and stable enough to matter
      3. regularly re-check if the correlation still holds
    2. Define a maximum of maybe 5 variables for forecasting, e.g., sales, and move on to more important things
      1. Don't get bogged down updating detailed information that hardly matters
    3. Forecast only what you can reasonably have an idea about
      1. be clear about what you don't know
      2. forecast very wide ranges for unknowable factors, if need to forecast at all
      3. make sure your forecasts are expressed as ranges reflecting the actual underlying uncertainty
    4. Use your intuition by all means, but only as a starting point. You still should do the research from scratch, using your best practices list
  5. Less "face time" and showing off
    1. Focus only on what matters (very different whether you're a PM or a sell side analyst)
      1. PM: investment decisions
        1. understanding value drivers
          1. "fundamentals", including allocation flows, ownership structures etc.
          2. technicals (widely defined)
        2. not time at the office
        3. not memorizing facts to appear knowledgeable
      2. Sell side analyst: getting more commissions
        1. appearing clever
        2. keeping PMs happy (take blame, give praise, let them win arguments and in golf)
        3. keeping clients
        4. being a good host at trips and conferences
    2. Deep work: Work when work. Relax when relax
      1. Clearly define which is which, and what the purpose is.
      2. There is still room for mingling, partying, gossipping, team building - just know when you do what and why
      3. Be systematic; assign time slots using Deep Work and Pomodoro techniques
    3. Do nothing
      1. Block off your calendar for meditation, walks and serious mobility exercises
      2. Regularly take several days and weeks off from the financial markets
  6. Meet more people
    1. The right people, not wasting times on lunches and cocktails unless for pure unadulterated fun, team-building or similar
    2. Discuss matters IRL instead of over e-mail or just reading reports
    3. Move during meetings, preferably walk outside in natural surroundings
  7. Ask more 'stupid' questions
    1. Disregard everybody else, e.g., during a telephone conference.
    2. Ask "why" 3-5 times in a row to get to the root cause
    3. Make sure you understand, instead of trying to appear clever
      1. Ask again; if they can't explain it clearly there is probably something fishy going on
      2. If needed, go back and research the topic, look up the definitions, then ask again

KISS

ONE thing I actually did do really well was using increasingly simple models for forecasting sales, profits and cash flow. Since you can't know the variables and outcomes in any detail anyway, that's just not where you should spend most of your time, unless you're an analyst trying to impress your boss or client.

Keep

It

Simple

Stupid

If you're a PM or private investor you need a minimum of modelling for a ball park estimate of the development, in order to gauge if things are going as planned or not. Depending on your position you might need a little more nuance if the SEC or a higher level director demands it.

If you're a buy side analyst you might need a lot of details to be able to ask any kinds of questions from bosses, authorities and clients.

Finally, if you're a sell-side analyst there is no end to how big and detailed models you can build to impress everyone in your ecosystem - the only snag is it won't help you make better investments. Make sure you remember to change your style to something more practical should you advance to a PM position.

Summary - start commonplacing
Lifters and investors alike should focus foremost on the big picture.
 
A lifter should focus on compound lifts, overall programming, sleep, calories and threshold level macro nutrients, before anything else.
 
An investor should be strategic, analytical, patient and unemotional, before experimenting or going by his intuition.
 
Mindset: you'll get very far - far enough at least - by just avoiding stupid mistakes. Trying to optimize every little detail could on the contrary lead to really stupid mistakes and misallocations of your resources.
 
7 important tools for every investor:
  • Start a commonplace book
  • Read more books
  • Think more about thinking
  • Be more systematic
  • Less face time
  • Meet more people
  • Ask more stupid questions

Do you want more free and valuable stuff?

Join tens of thousands on my site, and sign up for my free newsletter. There is a free investment lessons e-book waiting for you. 

Are you curious, philosophical, and looking for truth, understanding and happiness? Do you know more people like you and me? Please help me spread my insights about how to live a happy, healthy and wealthy life in modern society – tell others about this site, share it in your social networks.

Limited. Every now and then I clean my e-mailing list from inactive subscribers, to make room for new ones. Sooner or later I might introduce some kind of a latecomer fee to finance the growing list. However, it will always be free for incumbent, active subscribers.

Mistakes are the foundation of my knowledge, not least in my private investments since I retired from professional investing.

Share. I sincerely hope they can be of use to you and others; so please share this article and my site with your social networks.

Subscribe

Taggar (blogg): 
22 november 2016

Making a career in a future of abundance and increasing inequalities

Is free energy something you might be interested in?

Energy will soon be freely available, as I told the "Shark" and the "Onion" - two Swedish daytraders - yesterday. And when energy is free so will everything else be.

How will we live, educate us, work, invest?

interest

But, I'm getting ahead of myself. Let's start from the beginning.


Power is all around us

-and we have already begun to capture it

A couple of hour's worth of sunlight energy falling on the earth is worth about a year of global energy consumption. In short, it's enough, and it's basically everywhere.

If we build enough solar cells, some of the energy collected could be used for the construction of an automatic cleaning and maintenance system for the energy infrastructure.

That would give us free electricity.

Read it again if you didn't understand.

moth-eye-solar-panels

Yes, I'm aware of the challenges in terms of making new kinds of efficient and sustainable, "green" solar cells, as well as making enough of them and designing a fully automated maintenance system. Just give it time. 


There will be robots

-a myriad of robots of all sizes, taking care of us and each other

Then use the surplus energy created to power some robots to add more solar cells and build more robots. Voilà, we essentially have created a free labor force of solar powered robots.

Sure, we'll need better robots, autonomous vehicles, robots being able to build robots, better solar cells etc., but we are getting there.

No matter what the elite wants, it won't take long until everybody has his own solar cells and robots, or access to a pool of such resources. When? I don't know, but very probably within half a century.

nanoporegraphene

Once energy and labor are free, so will water (large scale desalination is only a matter of energy input), food (robot-tended vertical farms with artificial light [reverse solar cells]), shelter (as if I need explain how solar powered robots can collect any material and build/3D-print any type of structure according to open source specifications on the internet (10 houses in 24 hours), transportation (vehicles are robots and thus free as shown above; cars, planes, ships and roads will be powered, built, driven and maintained automatically in much the same way as everything else) and communication (the easiest task of all in the scenario of free energy).

robot


There will be no blood

-in the meantime however, artificial blood, made from skin cells, is saving the day starting by the end of this decade

artificial-blood

The only urgent challenge remaining will be death, and its cousin, disease.

The good thing is, with everything else free; every intelligent man, woman and child will be free to think, collaborate and barter, in order to develop the technologies necessary to prevent aging and illness.

Scientists are already chipping away at the longevity problem piece by piece. They are increasingly referring to the idea of immortality as an eventually curable disease, rather than an inevitable law of nature.

Craig Venter and Peter Diamandis have, e.g., formed the company Human Longevity, Inc. in March 2014, aiming to use big data on tens of thousands av sequenced genomes to combat cancer and extend healthy human lifespan.

The trick is to live long enough to live forever, helped by the following technologies:

Nanotech robots (this year's Nobel Prize, in line with Drexler's and Feynman's pioneering ideas)

molecular-robot

Genetic research (aided by the Crispr-Cas9 would-be Nobel winner, not to mention Craig Venter's work on synthetic biology/life)

Artificial intelligence (If there were a Nobel prize for computer research: IBM's and Google's realizations of machine learning, and Kurzweil's ideas about hierarchical hidden Markov models. Perhaps in the future, one of the efforts to map the human brain connectome will result in a Nobel prize in physiology or medicine)

connectome


Immortality for the rich

-solar powered robots, VR and material riches for the poor

The battle for immortality will most likely be a tough one. And only for the elite for decades to come.

The rest of us will spend our time in luxurious mansions, dining like kings and living it up every day on 3D printed designer drugs with no hangovers, or being super-humans, or as depraved as our darkest desires allow, in the virtual world of our choice. Still slowly dying though; never forget.

never-forget

The more creative of us could spend our days creating and sharing, both in the material world and in the virtual ones.

How we will share and trade with each other? Perhaps there will be a currency like Bitcoin, perhaps millions of digital currencies. Perhaps digital agents will negotiate ad hoc services barter deals for everything without any kind of currency.

For an early example see how the excellent Real Vision TV production is bartering reruns, 'encores', for ad spots at the equally excellent podcast show Macro Voices.

Who knows? The idea here, however, is that your worth and potential for an above average existence will be decided based on your ability to create unique solutions/blueprints that can be traded for other unique services.

If you can't... Tough luck*, you'll just have to do with whatever you can produce with the help of free labor, free energy and free open-source templates for material and virtual assets.

* not so tough after all; I imagine the bodily and mental pleasures freely available will be unimaginable to the present day human. A pretty nice upgrade from the Roman strategy of Bread And Circuses, after all.

 


Deprived, not necessarily depraved

Now, this is not what I intended to write about today

What I meant to discuss was all the things modern society has deprived us* of and how that risk making us weak, allergic, depressed, ill, apathetic, catatonic and miserable. What's worse is that we have replaced walking with sitting, beans with bacon, natural weather with AC, sunlight with artificial light, bacteria and viruses with sterile environments etc.

sitting

Unfortunately it turns out all that comfort we are constantly seeking is an evolutionary mismatch of homeostasis. For example, if the immune system has nothing to do, due to a lack of pathogens in the environment, it sometimes attacks the body instead.

* such as viruses, bacteria, parasites, extreme temperatures, fright, loneliness, walking, sad music (what?!! See pic below) and calm meditation

I didn't find enough time to deal with the issues of education, work and investments either, although the general direction should be clear from the above discussion: Automation, Robots, AI, Energy

Oh, well, I'll just have to leave it for another day. Perhaps later this week...

sad-music


For today, let's keep with the Everything Is Awesome theme.


Summary

Energy will be essentially free in a few decades

Consequently all other material needs will be satisfied without cost: food, water, shelter, transportation, communication. Every individual will thus finally be able to live independently in material abundance "Every man is an island").

So, is free energy something you might be interested in?

interest-2


Do you want more free and valuable stuff?

Join tens of thousands on my site, and sign up for my free newsletter. There is a free investment lessons e-book waiting for you. 

Are you curious, philosophical, and looking for truth, understanding and happiness? Do you know more people like you and me? Please help me spread my insights about how to live a happy, healthy and wealthy life in modern society – tell others about this site, share it in your social networks.

Limited. Every now and then I clean my e-mailing list from inactive subscribers, to make room for new ones. Sooner or later I might introduce some kind of a latecomer fee to finance the growing list. However, it will always be free for incumbent, active subscribers.

Mistakes are the foundation of my knowledge, not least in my private investments since I retired from professional investing.

Share. I sincerely hope they can be of use to you and others; so please share this article and my site with your social networks.

Subscribe

Taggar (blogg): 
9 november 2016

Why you should plan for sleep all day - and how

Length: short

Topic: how to structure your daily activities around sleep (manage and plan for sleep all day)

Executive summary: Sleping is the holy grail, the fountain of youth. Sitting is to sleeping what the anti-Christ is to God; what sugar is to salmon.

People claim to know and understand how important sleeping is, but they do next to nothing more than pay lip service to the fact. This article tells you how you should start planning for next night's sleep as soon as you get up (even before, really; no alarm)


Sleep is incredibly important

Sleeping too little affects your intelligence, concentration, memory, ability to learn and make decisions

full retard

So what?

Sleeping reduces the positive effects of working out (makes you less muscular, e.g.)

robot sprezzaturian

So what?

Sleeping too little increases the risk of diabetes, alzheimer's, stroke, cardiovascular disease, cancer, depression etc.

butt of the joke

So what?

Sleeping too little hampers your will power and makes you hungrier, and more susceptible to hedonistic temptations (sugar, coffee, alcohol, TV, snacks). In short, you risk getting unhealthy and fat which make you sleep even worse. 

kju

So what?

Sleeping too little has adverse effects on your immune system

influenza

So what?

All of the above make it difficult to sleep, thus creating a vicious cycle, making you an increasingly fat, lazy, depressed and stupid, not to mention tired, version of yourself

So what?


You risk getting a cold if you sleep too little

Oh! My! God! Tell me what I should do.

sleep-better-2


Sleep enough

-start with the average need of 8 hours a night, wake up without an alarm and pay attention to how you feel. Then adjust from there.

Yes, yes, OK, but how?


Manage your sleep all day long

-This is where it gets really interesting

sleep-a

Take care of your sleep throughout the day:

  1. Eat right for your microbiome
    1. Your bacteria controls much of your behavior, immune system, sleep and hunger hormones etc., and your food governs the microbiome diversity
    2. Eat a varied and fiber rich diet of beans, leafy greens, fatty fish, nuts, fruits
  2. Manage your caffeine and alcohol intake
    1. Avoid caffeine much later than mid-day
    2. Don't drink coffee too early in the morning
    3. use coffee for focus, not to force yourself awake when suffering from sleep deficit
    4. Alcohol ruins the quality of your sleep; don't regularly drink alcohol close to bed time
  3. Expose yourself to sunlight, as much as possible during the day
    1. The circadian (=approximately a day) rhythm needs sunlight to function properly
      1. it's also associated with early day DNA repair and the body's daily battle against cancer
    2. Take walking meetings outside if possible
    3. Eat outside
  4. Avoid sitting
    1. Sitting is to sleeping what the anti-Christ is to God; what sugar is to salmon
    2. cardiovascular disease, neurological diseases, cognition, depression, etc. What sitting causes, sleep remedies 
  5. Lift weights, run and do mobility exercises
    1. Poor circulation, weak muscles, poor posture negatively affect your sleep, and can even cause Willis-Ekbom's disease (restless legs - here is how to fix that by the way)
    2. Inactivity makes you apathetic but not sleepy
  6. Sleep enough
    1. Plan your day around sleep not the other way around; make room in your schedule for sleeping enough.
    2. ...but refrain from taking too long naps during the day, if it affects your ability to sleep at night
    3. To really drive the point home, sleeping too little makes you mismanage points 1 to 5
      1. eating more sugar and bad fats; sleeping too little catalyzes "the munchies" through the same pathways as the use of cannabis
      2. drinking more coffee and alcohol
      3. staying inside (tired and apathetic and thus less prone to walk outside, less effective and consequently staying by the computer)
      4. sitting more
      5. skipping gym

sleep better


Here you'll find an earlier post by me about sleep: 18 points to make you sleep better

And, if you're Swedish, check out Styrkelabbet's excellent podcast episode about sleep.

 


Summary

Start with your sleep requirements.

Then plan everything else around that, such as where to live (commute), what to eat and drink, work and meeting habits, screen time, choice of furniture, outdoor exercise routines.

Don't turn sleep on its head, making it a mere residual of work, play and gluttony

my bitches
sleeping

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Taggar (blogg): 
9 november 2016

Trump meditations for a trader

So, Trump is the new leader of the free world, huh?

-Winter's come

snow-fall-9-nov-2016
This just in! (my roof terrace this morning)

 

 

<script>


Is the election result important?

Really? How so?

Will it affect you?

Can you do anything about it?

If not, focus on something else.

trump
Probably no better or worse than the alternative

For example, have you meditated today? One minute off social media for relaxed, solitary and quiet contemplation is enough to set you off in the right direction for the day. Don't tell me you're "busy" tweeting and posting on Facebook what you think about the election outcome.

Come on!

One single minute

Either just breathe,

or pay attention to all your body parts,

or solve a problem and make a decision 

Do you have food, water, shelter, friends, fun...?


Long or short?

If you're trading the financial markets, instead of wasting time commenting the election, I'm sure you're all over its short and long term implications for greed and fear, the likely growth, volatility and valuation trajectories going forward; the parallels with Brexit etc.

brexit-2

Long or short? This morning, this afternoon, next week, the coming 2-4 years? Which countries, industries, companies? Which asset classes?

I'm also sure you're not wasting any time chest-thumping or whining about the outcome. A trader turns off his amygdala when working, or at least trades his screens for a walk outside whenever feeling it* calling for attention

* the amygdala, that is


What I'm doing?

Yesterday I covered a fair amount of shorts (sic.) to make room for a new unlisted investment. It's secret for now, but if all goes according to plan there just might be an IPO during 2017. Stay tuned.

tin-foil-hat-2
Making mind reading and election predictions difficult since 1927

All my other investments remain as they were: Long gold, long love (oxytocin company), long fun (GIG), long nukes (Studsvik), long friends (lent out money) among other things (see more in this post about news resources and my 21 main investments).

army of lovers gold dildo
For the love of gold - Army Of Lovers

I have no intentions to make any changes whatsoever based on Trump becoming president.


By the way, do you remember how the title "president" originally was meant as a derogatory term, since the president wasn't supposed to have that much power or get any ideas about grandeur? Up until then, and a while longer, a president was a more or less ridiculous and unimportant figure presiding over the local golf club or similar.

obama


Summary: it is what it is

No matter whether you're a trader or just seeking happiness, A is A. There's absolutely no use crying over spilled milk; or, as it is in this case, predictions about milk possibly being spilled in the future (will Trump actually change anything at all?).

Turn of your irrational emotions, meditate for a minute or two, and see how you can tweak whatever curve ball being thrown to your advantage.

Will markets react at all? Will they move decisively (more than +/-20%) the coming year? What will central banks do? What about volatility, currencies, gold? Should you go long, short or neutral? Which specific companies cold be significantly impacted by new US policies?

milk

Happy trading!

P.S. What I think? Just as with Brexit I think this is a symptom. I also think it's a harbinger of worse things to come. Right now, the economy and the financial markets are running on thin air, just not realizing the game is over and that central bankers aren't omnipotent this time either. I'm not saying the world is coming to an end, I'm just saying that -50% for the S&P index never hurt anybody.

wiley

Taggar (blogg): 
31 oktober 2016

Investing is easy: keep notes, stay humble and avoid/admit mistakes

Topic: beginner's guide to trading and investing

It's easy, but you still have to do the work rather than waste time on social media

The most important thing is to not stray outside your circle of competence; do what's easy for you, what's compatible with your level of effort and dedicated time.

Start carefully, don't rush, don't use leverage, don't short, keep notes, admit to and learn from your mistakes

Then it's easy.

Length: perhaps a little on the long side, 15-30 minutes

eniro-yellow-pages
In the long run... you may lose 100% of your money

Interview with a blood sucking vampire squid

I was recently interviewed (together with Ludvig at SGM) on the basics of trading, investing and health.

Some of my answers were met with disbelief and denial. That inspired me to write a short summary of the interview and elaborate a bit on my answers and thoughts about investing.

Note of caution: be prepared for contradictions such as "buy and hold, but use stop losses... and double up on falling shares", "track just one important value driver, but never trust just one indicator", "never trade on tips, but listen to the information content in them". As with everything interesting, the answer is not binary, but a superpositioned state along the entire spectrum.

vampire-squid-feeding
Full disclosure: I never worked at Goldman Sachs

Investing is easy

On the one hand I said investing is easy (anything works, literally)

On the other I said you have to believe you are better than average if you are aiming for being an active investor or trader. I clarified the latter by stating it meant being better than thousands upon thousands of other interested, intelligent and hard working private and professional investors with access to sophisticated tools and research.

In a way, I can understand how those two statements seem contradictory. However, they aren't.


When I claim it is easy, I mean that if you consistently spend, e.g.,  half an hour a day or 4 hours a week (Tim Ferriss style...) on focused study, "deliberate practice" (Anders Ericsson), of the fundamentals of a particular stock, index, instrument or other financial phenomena, you probably will become good enough to make decent returns sooner or later. With "a", I really mean just "one".

How did

Dr Strange

become such a good surgeon?

-Years of deliberate practice.

There's just a small catch; you actually have to do it, rather than spend those four hours mudslinging on social media forums.

surgeon-cum-magician


The most important thing

Some of the most important things you need to know are:

You are biased in numerous ways (1, 2, 3, 4, 5). Counter that by keeping thorough notes of your profits and losses, of your reasons, decisions and outcomes.

  1. Investing Psychology, Tim Richards
  2. All I Want To Know..., Peter Bevelin
  3. The Most Important Thing, Howard Marks
  4. Predictably Irrational, Dan Ariely
  5. Thinking Fast And Slow, Daniel Kahneman

No social media. It is very difficult to extract any valuable information from social media forums. Whatever time you are currently spending touting and defending your own investments, or arguing with strangers over things neither of you actually know anything about; invest that time reading books and annual reports instead.

fingerprint
15 years of lost opportunities... or dozens of buying opportunities

Listen to your "adversaries"; try to see the other side. They are usually neither stupid nor evil. More likely they (or you) are just misinformed or not seeing the whole picture. Try to understand exactly why they think your undervalued stock is overvalued. Write down what it would take for you to change your mind. Could that ever happen?

 

Are short sellers* stupid,

evil

or both?

*of your favorite stock

 

The biggest mistake is not admitting your mistakes and taking corrective action in time.

You are going to make a lot of mistakes. Some of them will be of your own making due to carelessness ("I'm on a roll"), a sense of urgency (never trade in amygdala mode, i.e. when trapped in the strong fight/flight/love feelings of your so called reptile brain), too little knowledge or believing your own Excel spreadsheet forecasts. Some mistakes will be turning a blind eye to changing fundamentals for too long.

Hope is not a strategy

So, since you are only human (Thinking Fast And Slow*, Predictably Irrational*) and since the future is unpredictable (The Black Swan*) you will make a lot of errors. That's fine as long as you are being honest and objective about it. Never "cross your fingers" (1), rationalize ("margins could be a little higher in the future") or moralize ("central bankers are evil, they shouldn't...") in order to defend a losing position.

*see my book recommendations here, and specifically my investing recommendations here

  1. Hope is not a strategy
  2. Nobody cares what price you bought at and neither should you. You should always evaluate your position with total equanimity, not hope for a magical return to your break-even price.
  3. Take your stop loss as soon as the fundamentals tell you too
  4. Don't try to make up for your losses in the same stock, or by increasing the risk

On catching knives. If you are not ready to double up on a falling stock (given unchanging fundamentals), you probably should never have bought it to begin with (your analysis was wrong or sloppy), and consequently you should get out altogether sooner rather than later.

  1. Don't just initiate stop-loss procedures for the sake of it (unless it's part of a time-tested strategy)
  2. Buy a little (more) on the first sharp drop. Buy a lot more if it falls by a lot after that. Again, given fundamentals remain intact (see how I did it in Opus here)

opus


You need to be patient

  • Patient when commencing your studies
  • Patient when scaling up your operations, learning from experience, realizing where your strengths and weaknesses are, getting to know your biases, before increasing your risk taking
  • Patient when waiting for opportunities
  • Patient when waiting for the effects of compound interest. Rushing profits often leads to losses. If you feel hurried, don't trade.

Should you invest in stocks at all?

Actually before even considering investing or trading in stocks or similar instrument, you should first ask yourself the following questions:

  • Will I put in the required amount of time and effort?
  • Could I be better off by investing in, e.g., cash (the most hated asset class right now), bonds, education or a business of my own instead?

Remember that the current New TINA* Paradigm meme is all wrong

*TINA=There Is No Alternative (to stocks)


The unbearable lightness of investing:

It is easy.

However it's just as easy to trick yourself into thinking it's even easier.

  • Confidence. The less you know about a topic the more confident you are likely to be
  • Authorities. In particular in areas of great uncertainty (such as in the case of the random walk of stock markets) it's easy to fall prey to camouflaged charlatans; false authorities giving away stock tips. Several experiments show certain cognitive and questioning parts of the brain are less active when receiving orders or suggestions from a perceived authority (which in the case of stocks is anybody talking confidently or exhibiting an impressive track record).
  • Availability bias: it's all too easy to simply analyse whatever stock or piece of information that happens to fall into your lap, instead of systematically screen a certain "universe" of stocks and then systematically look for the most important value drivers and analyze those.
    • For example, you do not know or understand Apple just because you own an iPhone, or WalMart because you shop there. Burning batteries in Samsung phones may or may not be relevant for Apple's share price, but be sure to check in what way and to what extent. What if Apple is using a similar design or battery supplier? What if Android users will only look for other Android replacement phones?

Don't over-analyze. Spend a reasonable amount of time on the most important value drivers and then track them. Spend much more time on finding out which drivers are the more important ones, than trying to track dozens of more or less relevant data series.

Actually you could begin with tracking and investing based on only one single driver, such as the number of iPhones sold, their gross margin or, e.g., H&M's number of new stores. I'm not saying it works, but it's a start.

Don't believe the hype

No holy grail investing. There is no one magic macro indicator that will tell you whether we are in a bull or a bear market. No matter if you find correlations between total stock market returns and, e.g., NYSE margin debt, the Fed model spread, the yield curve or the Shiller P/E, you just shouldn't believe it will hold in the future or reliably provide a timely signal when to go all in on buying or selling the market. The same logic usually applies to single stocks as well.

The chart below, however, is one of the indicators I think you should keep in your tool box.

Never trade on tips - it's one of the most stupid things you can ever do in investing or trading (this piece of advice seemed to be perhaps the most contentious one during the interview). The reason you shouldn't is that you don't know who the tipster is, what his agenda is, how well founded his reasons are etc. And even if you do, you can never count on getting the sell tip in a timely matter in the future.

Do the math yourself instead. See for yourself, both when to buy and when to sell. Genji Gambashi. You could of course use a tip as a starting point for your own research, but then you wouldn't be trading on the tip.

Never trade on momentum - for much the same reasons as the anti-tip tip above (I mean, if the trade turns sour, what do you do? When? Why did you actually buy to begin with?)

Well, that is unless you are already an active, experienced and competent day trading professional that know what you are doing and are good at stopping your losses. But if you are, what the f* are you doing here, reading this article? :p

Don't buy what you can't afford to lose (If I got a comeback on that one?: "but then you would never dare buy anything").

The thing is you will lose sometimes; Just since the year 2000, the stock markets have halved at two different occasions (for short, 2002 and 2008), and it's not unlikely they will soon again (all relevant variables are at the same or worse levels than they were right before those two downturns, not to mention a few others during the last century).

It's better to understand this before it happens than after the fact. Remember though, that there is a difference between what you definitely can't afford to lose and what you'd just rather not lose but actually could and are willing to bet.

Don't use leverage and don't short the market. In the context of not betting what you can't lose, I'd like to caution against borrowing to invest or speculate. Speculating with borrowed money implies you are in a rush to make money (bad idea in itself), and could lead to forced selling just when you actually should buy more.

I'd also like to point out that shorting stocks or the entire market is very difficult and should be limited to between 0 and 10 percent of the time (some should never attempt it), and only if you are very experienced, know exactly what you are doing and can afford to be wrong.


Investing is a piece of cake

-if you're systematic and humble:

  1. Investing is easy (kind of... however, if you think it is you might want to think again), if you put in the adequate amount of work for your investment strategy
    1. Certain hedge funds and index funds require less work than, e.g., some investment companies.
    2. At the top of the pyramid you'll find individual stocks where you'll compete with thousands if not millions of smart and ambitious people. Do you actually know or understand something they don't? If not, study more or go back to level A.
    3. Yes, you need to know more than others, work harder than others, or consistently have more luck than others (sic), if you want to make bigger returns than others. And, no, high risk does emphatically not guarantee higher returns. It wouldn't be called "risk" then, would it?
    4. This might be a bit over the top for most... but my post here still could serve as inspiration for the aspiring value investor
    5. Take a complete break from investing for a week or a month every now and then, i.e. close all your positions and start from the beginning. You were probably on the sidelines for decades anyway when you were a kid. 
  2. Be systematic and humble. If you aren't humble and ready to learn and abide by several unwritten rules (this article lists a few), you are probably better off being a passive investor: buy whatever will make you sleep well and never look at your investments, until you want to use them for a large purchase or your retirement
  3. Daily exercise is very good for your investment successes. It makes you smarter, more creative, happier and less stressed, not to mention able to keep at the game for decades longer
    1. Take a walk whenever feeling stressed or about to take a decision based on emotions rather than facts and cold reasoning. Just getting out of the box relieves stress, clears the brain and prevents you physically from making passion trades (a big no-no). Walking new paths stimulates new thoughts as well as the general ability and willingness to break out of homeostasis.
    2. Walk briskly for half an hour every day (take a de-tour on the way home, get off a few stops early and walk the rest of the way, buy your lunch further away from the office...). It counters aging and promotes growth in the thinking parts of your brain (pre frontal cortex), not to mention stimulates creativity and happiness in the moment
    3. For the advanced walker, make small 10-second spurts every now and then. If it feels uncomfortable, not least in a suit, save that for the gym or track later
  4. Additional resources from my archive
    1. Gold
    2. My quattro stagione investment strategy
    3. Top ten investment mistakes (consistently avoiding stupid mistakes is much more important in investing than hitting homeruns)

Summary - do a little with excellence

-not a lot poorly

Investing can be easy, if you just avoid the worst mistakes instead of looking to hitchhike with rockets taking off:

  • Be patient; do the work, don't bet the farm, don't borrow, don't short
  • Do only what you can and have time for - take breaks when needed
  • Study, not argue; truly listen to the other side (Ender's Game)
  • Readily admit and remedy mistakes. Losses are just lessons (Dao of Capital)
  • Keep notes of your decisions, your mistakes, your best practices; and consult them before investing (Commonplacing with Evernote)
  • Trust no one but yourself, be independent - neither contrarian nor wall street meat (a pretty good book). Never trade on tips.
  • Stay humble
  • DON'T PANIC
Taggar (blogg): 
26 oktober 2016

Navigating the 6 degrees separating fact from wisdom

Executive summary: How to remember and make use of the abundance of information available. 1) Remind yourself of your purpose 2) Don't speed read 3) Think about and write down your insights and conclusions (not too many; one is enough)

Length: 2 minutes


Information overload?

This post was originally a late night e-mail answer to how I remember and connect the dots between so much diverse information I digest every day.


Hi,

I think you overestimate how well read I am.

I seem to stumble upon people everywhere that devour books at a much faster pace, and often with a focus on non fiction, whereas I "waste" 80% of my reading time on sci-fi.

What little non fiction books I do read these days I read slowly and thoughtfully, actively asking myself "How can I use this", "Why am I reading this".

Of course, I do read a lot of articles and blogs, and spend several hours every day on podcasts (100% useful, scientific, economic etc and 0% fiction). So, yes, I digest several hours of al dente scientific information every day.

However, I don't have a system for it. Not like Ludvig at SGM with his book reading book with dozens of entries per book. Not like James Clear or Eric Barker who write long articles and reviews for every book, or combine several books into one single article.


What I do do is write down one single or half a single sentence of whatever I find intriguing in a podcast. I write it down in Evernote as inspiration for future tweets or blog posts and tag it with whatever I come to think of (cancer, immunotherapy, BDR4, glioblastoma polio treatment, or whatever comes to mind).

When I set out to write a new blog post, I check Evernote for inspiration, just reading through a few of the 200+ Blog Post notes I've got there.  I pick one I feel for that specific day and just start writing.

While writing I often enter a state of flow and the associations spring up freely. It seems that the act of being very present when digesting the information, often walking and repeating the most important points silently to myself and then rehearsing it when writing down the single sentence, makes the information stick in my mind. Not unlike how taking longhand notes during a lecture works (the processing and condensing of the information make the essential parts stick).

In any case, I don't have a fool proof system, just a highly functional association mechanism built in to my LAB (Light Asperger Brain).

Also, please note that I only started using Evernote less than two years ago...


Summary: 6 Sprezza steps to wisdom

If anything, my "system" can be summarized as follows:

1. Read slowly, thoughtfully, think about what you are reading, what the practical lesson or possible use is.
2. Review the book (or podcast). Grade it. Ludvig likes to write down a lot of info, I only write down how good it was on a scale from 1-5. However, I probably should try to summarize my books with, e.g., one sentence after reading them. Actually, my review posts perform that function.
3. Read the book again a few years later - if it's really good; a 4+ or 5. A good book read twice is much better than two books read half heartedly. Then again, two good books read with intent and focus are much much better
4. Keep a journal or notebook of ideas... a bit like I imagine Altucher does. You could associate the ideas to particular books, but I like free ideas better and don't care that much about references. The ideas are more important than the authors
5. Tag. Still, though, I have no system for maintaining a web of association between ideas (except Evernote tags). I'm just lucky they stay in my mind. I think it's because I mull the same few ideas a lot. It's like an alphabet of the same 26 ideas over and over again that I combine to words, sentences and paragraphs.
6. Pattern recognition. By listening to a lot of diverse podcasts I get reminded again and again of what overarching main ideas there are and how they could be related to each other. Whenever I experience an Eureka moment, connecting the dots between two previously unrelated ideas, THAT connection is jotted down like an idea of its own. My approach saves energy and time (I don't write down everything all the time) and is thus less stressful and encouraging.

Good night sir

Best,

/Mike


P.S. My latest reads (October 2016):

Predictably Irrational

All I want to know is where I'm going to die

Darknet

Olja för blåbär

Find more of my book recommendations here


Please share this article with a friend who struggles with finding, remembering and using relevant information

Taggar (blogg): 
10 oktober 2016

Obfuscated Fundamentals and the Fed (and gold)

Executive Summary: Saving enables investment, growth and higher stock prices, not the other way around.

Deranged wag-the-dog strategies by the Fed lead to price distortion, speculation, malinvestment, and eventually a flight to safety in real assets, e.g., gold

Bonus: thoughts on the usefulness of trading courses

Length: medium, 15 minutes?

Quirks: references to "How an economy grows", "Gödel Escher Bach", Nobel Prizes 2016, topology, the value of knowledge


Real world, Ideal world, Mental model

I recently listened to an interview with the fascinating and brilliant physicist Sir Roger Penrose.

He touched upon his idea of how just a slight sliver of the field of mathematics is used in physics, and how a just as small a piece of physics is used to explain the chemical and physical processes in a brain that leads to consciousness, and finally how a tiny part of that consciousness is used to develop the world of mathematics.

mathematics/Platonic "ideal" world/philosophy

=> Actual world/physics/chemistry

=> Mental realm/perception/consciousness

=> mathematics...

So what?

What use can you or I possibly have of his musings?

Just being aware of the recursiveness of nature can enhance our understanding of the economy and financial markets.

And, thinking about the existence of a real, fundamental world every now and then can be refreshing after stumbling around in the hall of mirrors that make up the investing landscape these days. More about that and the current Nobel Prizes below.

 

Wag the dog

Central bankers, e.g., are hard at work exploiting confusion about cause and effect in the economy/banking/market complex:

- The last few years CBs have distorted various price signals, including interest rate levels and the yield curve. They have tried to make the tail wag the dog, by boosting asset prices in a deranged attempt to stimulate unwarranted exuberance and pull forward demand.

They hope that debt-financed consumption will kick-start other, supposedly dormant, parts of the economy, thus stimulating enough growth to take care of the debt burden. Given that too much debt and pulled-forward consumption already lies behind the current economic woes, hoping more debt will solve the problem is of course beyond retarded.

The real relationship looks like this:

Save => Invest => Tools/Innovation

=> Increased productivity => Surplus

=> Invest/Produce/Consume or Save =>...

This virtuous cycle gives rise to ever increasing productivity, production and profits, creating the basis for savings, investments, higher economic growth, wealth and stock prices.

Surplus (profits, dividends, investment, growth)

=> Increasing stock prices (at constant valuation)

During this process there are also cycles of irrational exuberance, malinvestments and corrections/recessions. As long as they are identified in time and debts are not too large, they amount to minor cleansing periods and healthy restarts.

Unfortunately, somehow the US Federal Reserve was allowed to hijack the system. With increasing centralization of power, Greenspan, Bernanke and Yellen have focused their attention on masking the most important price signals of the underlying health of the economy, in order to:

...push asset prices higher in a futile attempt of creating a wealth effect,

that would lead to higher consumption and thus more investments in production and employment,

creating the growth and consumption power that could warrant the preceding run-up in stock prices (valuations instead of profits)

 

Distorted price signals and speculation instead of wealth creation

What instead, quite predictably, has happened is that more and more resources have been directed toward financial speculation, stock buybacks etc., while real investments in productive assets and employees have dwindled (with the exception of robots and other means of automation, thanks to the low cost of financing those investments vs. taking on additional employees -or keeping the ones already on the payroll for that matter).

Central bankers have targeted interest rates and the yield curve to distort signals about the economy; and the gold price and inflation measures to distort signals about the health of the monetary system - including the value of fiat money.

The next step is the ban on cash, since negative rates just don't work when you can hide your wealth from the authorities in the form of dollar bills (or gold, gems or bitcoins).

"The aim of the Kurodas and Yellens of the world, the DI*CKs / DY*Cks, is tantamount to stopping (hiding) global warming by manipulating thermometers" - heard here on the superb podcast MacroVoices I think.

* Ingves/Yellen

 

Gold or not gold?

Anyway, this is not a post about Bug Out Locations, the merits of gold, Bitcoin or other alternative investments. I just want you to start thinking about everything in terms of recursivity, as in the phenomenal book Gödel Escher Bach by Douglas Hofstadter (e.g., food, environment, education, happiness, exercise, investing).

However, while on the topic of gold, just take a minute to think about what could happen to the demand for gold by criminals, if (when) 100-dollar bills and euro notes are outlawed. Gold doesn't leave a digital trace, it's easy to carry or hide, it's resilient to weather and chemicals...

Personally, I've sold all my listed precious metal assets this summer, including GLD, GDX, PHYS and SLV. Instead I have invested in an unlisted Canadian company that buys gold production options from many different gold producers.

My exit strategy is to either list the company, sell it to a bigger company or to take delivery of the physical gold.

Alrighty then, since you ask... If everything is overvalued, rates are negative and some catalyst or other (falling profits, inflation, chance) topples the system (making banks intolerably risky), where would you, could you, put your money - whether a criminal or law abiding ordinary person? Did I hear gold?

I almost miss my clunky old Hublot Big Bang now. My Jack Ocean bracelet is more nimble but a little light on gold in comparison. 


Investing is hot these days

It's becoming more and more apparent that this bull cycle is long in the tooth. Everything seems to be related to investing in start-ups, IPOs, growth companies, dividend kings etc. Never before, except for a few brief moments before a major crash, has the willingness to accept risk been higher* - and the prospects for reasonable returns been lower.

* several gauges, including covenant-lite loans, debt levels, valuations, IPO/M&A activity etc

As the icing on the cake, there are courses on macro, investing, risk, technical analysis, derivatives and trading flourishing everywhere and by everybody it seems. By the way, the demand for my presence at various seminars is definitely a manifestation of the latter.

In defense of such courses I have the following to say: They are useless.

However, I still think you should go.

What? Wait. Why?

I think you should go to see what others are thinking, what others are teaching, their lines of reasoning. Then find your own style of fundamental and technical filters, while hopefully avoiding the very worst mistakes you pick up among other course attendees. In addition you might find some new friends or speaking partners. Anything works, except what doesn't, as I stated in this post.

In line with the recursiveness of nature and of the economic/financial complex, there are important parallels to the world of macro trends, research, technical analysis and investing. They are all interconnected and feeding off each other.

- Actually, to a certain extent Harakiri Kuroda and Janus Yellen have got it right: you can wag the dog a little, for a while. As long as you ignore the exponential costs that follow.

Thus, study it all, just as Jesse Livermore in Reminiscences of a Stock Operator did, starting with technical analysis and proceeding to global macro strategies and cornering various commodity markets (btw, a friend ff mine made a fortune cornering the white fish market back in the 1990s).

Just don't think you understand it all or can control it (any of it). Remember that investing is mostly about psychological pain tolerance, and much less about mathematics, models and predictions. Please read the books Margin of Safety and The Most Important Thing for a deeper understanding of this crucial knowledge. Check out my other book recommendations here.


I'll write a full post further down the road on how I think a newbie should tackle the markets, including what to pay attention to in macro, micro, momentum, trading, options, technical analysis etc. Not today.

"Do you remember when people thought TA patterns established decades ago were still relevant today, despite machine learning and rampant algo trading? That was fun"

By the way, have you seen anybody detailing the current likelihood (37%) of a certain pattern (flag) leading to a certain outcome (+/- >10%) or is it all just nostalgia and pretty drawings?


A final note on the Nobel Prizes this year. The physics prize referred to mathematical topology, the chemistry prize to another (shape) topology, and I often refer to life topology (a third notion meaning the schematical principles of a non-uniform life).

I would encourage you to pay attention to similar quirks of the language as well as the underlying reality. It's a useful brain exercise that primes you to see things from other vantage points and could help you spot flaws in your reasoning.

In addition, the Nobel prizes serve as a well-needed reminder of the real world, as opposed to the la-la land of monetary policy, economics and stock valuations.


A macro course might very well be superficially useless, since you won't be able to predict the economic trajectory afterward anyway; just as a trading course probably won't help you identify better trades. Nevertheless, knowing what others think they know, and knowing what biases govern their decisions and what mistakes they are likely to make might prove valuable.

So, go, study their jargon, find others like you, accumulate as much peripheral knowledge as possible; and then find your own personal style of investing in terms of time horizon, preferred asset classes, risk level, short term tactics and longer term strategies. Are you a trader or an investor?


Summary

Oooof, so what was the message here really?!

There is a real physical world out there, governed by fundamentals

However, over periods shorter than a decade fundamentals can often be ignored altogether, in particular when the real world is deliberately hidden behind Potemkin facades

I think such a decade is drawing to an end (thus the shorts and gold), but hey, what do I know; the future is unknowable

Nevertheless, keep studying all aspects of markets, fundamentals, science, language and life, to more readily spot cracks in the facade before others - or to identify good buying opportunities where others dare not tread.

Don't forget to wear a high quality tin foil hat at all times to protect you from the authorities


Are you new to the site?

Apart from weekly articles on investing and health among other topics, there is a free e-book about 50 investment lessons waiting, if you sign up for my free newsletter. Go ahead, join tens of thousands of other seekers who seem to find value in my work. 

My guess is you and I are similar in many ways; curious, philosophical, looking for truth and happiness. The only material difference is perhaps that I've reached a later stage in life than you, which is exactly why my work may provide some utility for you.

I'm writing in order to spread my everyday insights about how to live a happy, healthy and wealthy life in modern society. All I ask of you is to help me in that endeavor - tell others about this site, share it in your social networks, if you think it's worth sharing. Can you do that for me to keep this going?

FYI: I'm thinking about limiting the maximum number of subscribers, since MailChimp keeps increasing the price to maintain it. I recently deleted 1000+ subs that were too inactive, in an attempt to keep the list clean. Perhaps I'll have to introduce some kind of latecomer fee sooner or later, or sell something. Well, that's a question for a later day.

I've made a lot of mistakes in my investing career, probably more than most. That's not least true of my private investments since I retired, in particular my bearish view of stock markets and my short position on the Swedish stock market since 2012-2013.

Nevertheless, or perhaps owing to my many mistakes, I've done a few big things right as well. That's why I am in a position to write my articles and books. I sincerely hope they can be of use to you and others.


Read them, spread them. Help me help you.

Go forth and multiply my site visitors

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