SpreZZaturian
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23 mars 2017

The Art Of Sprezzatura investing

Have a plan

Do the math

Wait

Be unemotional


Over the course of the last three weeks I have published 12 articles covering what I consider the most important traits of an investor. You can find them through these links: 

StrategyPatienceResilienceEnduranceZealZenAgilityTemperatenessUnbiasednessResolutenessAdequateness, and Self-analysis.


My overarching message is that the psychology of investing is much more important than the numbers. Sure, you still have to do the math, using actual facts not opinions. And you still have to assess the competitiveness and endurance of the companies you are researching, or other fundamentals that are relevant to your style of trading or investing.

Most of all, however, you need to keep yourself in check:

Stay calm, discard good deals and wait for great ones, don't let others rush or deter you - investing is absolute, not relative; avoid trading on emotion; use check lists to counter psychological biases...

Investing is an evolutionary mismatch and thus potentially a source of both great misfortune and opportunity. If you master your own psychology and manage to avoid easy but very human mistakes, you will find yourself leagues ahead of most market participants. It's easy. But hard. It's...


The Art Of Sprezzatura

What follows is an attempt at condensing 12 long articles, and even more years in the hedge fund business, into one single short article about how to become a good investor. If you haven't already I suggest you go back and read all twelve, before or after finishing the below.

Start by forming a strategy that has a logical underpinning, as well as is a good fit with both financial history and your own temperament. I prefer a value oriented style, grounded in the microeconomic business logic of single enterprises, and supported by a macro backdrop of longer economic and stock market trends and cycles. Further, I don't like single large bets or frequent trading, instead focusing on long term investments with geographical, industry and asset class diversification.

Practice patience both in and out of markets. I myself am patient to a fault not seldom venturing into the swamp of denial.

Keep track of your decisions and trades, your entry and exit points, your logical thinking and your feelings around those decisions. The aim is to make sure your learn something from every loss, from every gain - making you a stronger investor with every trade, no matter the result. That is the meaning of resilience. I for one could definitely do better in this area, as I occasionally exhibit unbecoming streaks of ad hoc thinking, laziness, complacency and hubris.

The screwest thing you can do

is think you’re a master of the universe

We’re all just little cogs,

and the universe will go on without us

We have to fit into it and adapt to it.

-Howard Marks

It's easy to advise against going all-in, but harder in practice. Sometimes certain opportunities just seem so good greed gets the better of you. It might help considering that if an investment is that great, you don't have to put very much in to make a killing. In any case the risk reward is much better that way than risk getting killed altogether. Not least, make sure the deal really is as good as you first think, rather than relying on your own track record and superiority. Talk to other people with other opinions and complementary knowledge; triangulate valuations and market positions from various vantage points

Finally, strive for a growth mindset, always learning, always improving. Analyze your hits as well as your misses in order to identify which traits were in play, which traits can be improved and how.


Money is nothing but a gauge of your progress

toward self-actualization and freedom

Investing is a lot more than just money

----

Investing for me means building, growing, learning

and acquiring tools for

continuous learning and improvement


Summary

The 12 traits of an investor, The Art Of Sprezzatura, can be grouped together in 4 themes, where several traits often fit in the intersection between two different themes:

Patient: Wait for the right opportunity, in accordance with your plan and math

Analytical: Do the math. Track. Improve.

Unemotional: Avoid herding, hubris, greed and fear. Hope is not a strategy. Stick to the plan.

Strategic: Have a plan, a good, well-founded, one; one you can trust.


More than anything else,

what differentiates people who live up to their potential

from those who don't

is a willingness to look at themselves and others objectively.

-Ray Dalio


 

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Occasionally, I will offer subscriber-only material in my newsletter. Please sign up (it's free, and it includes my book about hedge fund investing), if you want to make sure you don't miss out on freebies, offers and subscriber-only discounts on special products.

Taggar (blogg): 
23 mars 2017

Self-analysis creates a feedback loop of improvement for all TAOS components

Supercharging the engine

Okay, I know nothing about engines, but I think there is a way to increase the efficiency and effect by feeding some of the exhaust fumes back into the carburetor - or something like that.

A positive feedback loop works in a similar way, with your introspection insights strengthening the other facets of your game.

In practice self-analysis means you should track and study various aspects of your investment process as well as the results.

Why did you gain or lose money in a certain investment? Did you adhere to the other 11 TAOS guidelines?

Did you follow your strategy, was the strategy well-founded? Did you wait patiently for the right entry and exit points? Did you size your position responsibly? Did you go the extra mile, doing the math yourself rather than trusting an authority? Did you keep your calm and rationality? Did you explore other sides of the story or did you fall prey to availability bias and selective perception? Did you become cocky, thinking "I've got this"? Did you follow your best practices and other procedures to discover and neutralize dangerous and biased tendencies? Did you stick firmly to your own conclusions or were you swayed by clever salesmen or the cozy feeling of belonging to the herd?

For every TAOS trait, an intellectually honest analysis can reveal mistakes and weaknesses as well as strengths and strokes of genius. Feed back whatever you learn from both your winners and losers about the way you handle the other eleven TAOS traits of a great investor. Maintaining a habit of introspection can refine and enhance both psychological, technical and and mental aspects of your method. Thus cutting out unwanted aspects, creating boosters and brakes, checks and balances that make you perform more consistently on the markets. 

The naked ape

Desmond Morris studied humans from the perspective of a zoologist, as if humans were just one more primate. Do that with yourself. Make an impartial FBI serial killer profile on yourself, as you would any other portfolio manager. What is your style really? How do you actually take decisions, follow up on your trades etc. Try to categorize if your actual investment decisions are value based, trading oriented, impatient, emotional, ... and so on. How do you actually behave and how would you want to behave? What's been the difference between your game plan and your actions or failure to act?

Please notice that there are at least two aspects to this. One is identifying your strategy. The other is mapping out your psychological profile in order to gradually modify your temperament.


Scrutinize your own Modus Operandi


Remember that both successes and failures need to be analyzed

It's easy to only pick apart your bad trades, but don't forget about the winners. Sometimes they were the result of a good procedure, sometimes luck. Sometimes you made a lot of mistakes, being impatient, reckless and emotional but got a good result for other reasons. So, take a good, hard look in the mirror, whether your bank account just got fatter or thinner.


Inspect

your successes

and failures

thoroughly


Preemptive strikes

We are all burdened by biases, by homeostasis, by laziness, by greed and fear. By identifying which ones are your worst, you can put systems in place beforehand, e.g., best practices check lists and filters, that preempt unnecessary mistakes. Counter your cons and boost your fortes with clever routines and habits, based on your commonplace notes and self-analysis.


Identify your irrational tendencies, biases, inclinations and flaws

without preconception

Preempt your own reflexes and emotions,

and control them with bespoke tactics and strategies


In my book about 15 years at the best performing hedge fund in Europe over a decade, I list 50 rules of investing.

This post is one in a line of articles detailing and explaining some of my most important insights from that time. Taken together I believe they will make for a useful and inspirational reminder for evolving and consistently improving your investment habits.

Whenever having a bad experience in the markets, or exhibiting signs of hubris after a lucky streak, refer back to these twelve ideas, thus combining your own experience with mine to maximize your investment wisdom.


Strengthen your strengths


Self-analysis means realizing your investments are prone to human error.

It's not enough to gather numbers and pictures, you have to actively fight against and try to shrink your blind spots of cognitive biases. Sure, knowing Apple's strategy, numbers and image is a good start. But if you don't keep your own human irrationalities under close guard, or forget to constantly improve and evolve your method and execution, you'll find yourself on the losing side sooner or later.

Know yourself. Keep track of yourself. Analyze yourself. Implement brake systems for your worst psychological biases, and reward your strokes of insight. Allow yourself to consistently improve by feeding back lessons about yourself, fully owning both your strengths and your weaknesses.


Your investments are made in the interface

between you and the world

You need to know both to get it right 


Self-analysis is the twelfth and final article in my 12-part series of TAOS - The Art Of Sprezzatura. If you missed the previous eleven articles you can find them here: StrategyPatienceResilienceEnduranceZealZenAgilityTemperatenessUnbiasednessResoluteness and Adequateness.

Did you like the series? Do you know somebody that should read it? Tell them about it; share this post with them. If you please.


Subscribe

Occasionally I will offer subscriber-only material in my newsletter. Please sign up (it's free, and it includes my book about hedge fund investing), if you want to make sure you don't miss out on freebies, offers and subscriber-only discounts on special products.

Taggar (blogg): 
21 mars 2017

Adequateness - being pragmatic, analytical; guided by empirical evidence

There is no such thing as supernatural beings

That is an indisputable fact; since everything in nature is natural, and given nature is defined as everything. So. I'm sorry to break it to you, there are no werevolves (for context, see last week's article on Vampires, Werewolves and Resoluteness). Well, unless werewolves are natural of course.

Which they might be; it's just that the probability for humans living on Earth in the 21st century ever coming across a true shape shifting werewolf is so close to zero there really are no reasons to take the possibility into account. However, should one happen fall into your lap... 

 

Facts, facts, facts

(Nope, that's not the opening scene in "Four weddings and a funeral")

That's the gist of Adequateness right there:

1) Reality is what it is. A is A, and all that

2) Be curious in investigate reality; just don't get ridiculous regarding probability weights*

3) Be open to exactly what reality entails, what the empirical evidence actually tells you

* The probability of the existence of God, a tea kettle orbiting the sun or a spaghetti monster - or intelligent design for that matter - is for all practical purposes zero (at least down to the hundredth decimal place), whereas, e.g., the principles of evolution and the natural law of quantum mechanics have been confirmed in a multitude of clever experiments (and never refuted). There is nothing "50/50" or "You have your view and I mine" about it.


It's all good and well having a great strategy, being patient enough to wait for the right moment, learning from mistakes, never going all in, being thorough and calm, exploring unexpected vantage points, avoiding hubris and biases, not to mention being rationally resolute.

However, if you fall prey to superstition or start assuming instead of investigating all your hard work will be for naught. It's the facts that count. It doesn't matter how great your model is if your input is garbage. You need all your zeal and agility to collect the facts, and all the other psychological facets of TAOS to implement the facts and execute the investment. But first of all you need the facts.


Shit in

Strategy, Patience, Resilience, Endurance, Zeal, Zen, Agility, Temperateness, Unbiasedness, Resoluteness

Shit out


What facts?

I am not a rigid financials and economics professor type, claiming only cash flow and interest rates count as facts. Perhaps a bit surprising, I'm quite open to any kind of empirical evidence of relevant causal correlations in reproducible research; be it HFT trading algorithms mined by machine learning systems, or more down to earth value based methods using publicly available financial reports - or a combination.

I don't care what kind of facts you use, as long as they are facts - and you are open to those "facts" being wrong, misinterpreted or evolving.

 

Oil facts?

Maybe the Cushing oil inventory level at one point was a relevant variable for the price of oil. Maybe OPEC production quotas and their communication once was important information. Maybe open speculative interest was. But now or later, maybe they aren't. Maybe new flexible storage capacity, new exploration technology, new pipelines or zero funding costs are changing the "facts".

Maybe even the very underlying fundamentals of production, demand, storage, transportation, energy substitutes and human speculation, aren't that important for a prolonged period of time due to tens of trillions of dollars having been conjured from nothing over the last decade. Perhaps the machines have thrown everything out of whack and are running circles around us mere humans laughing at our feeble attempts to participate in the game.

Perhaps. Perhaps not.

 


Watch carefully where you are going

Investigate and analyze

the actual evidence; don't assume


Stop, collaborate and listen

Whether the AI scenario above is relevant yet or not isn't the issue. My message is that it's up to you to research the relevant data for your investment style to find facts that hold water, rather than assuming heavy objects fall faster than light ones, or that high density objects fall faster even if there is no air.

If you want to pour a ton of liquid steel, you'd want to check the metallurgical facts thoroughly first. Treat large investments the same way - research what needs to be researched for your style, sizing and risk level.

Sometimes the truth hurts, but better sooner than later, better the ego than the wallet. Or in the above case, better stand corrected before than a statue after.

So, if things don't evolve as expected, take pause to take stock of the evidence. Listen to your "adversaries" and cooperate if possible to establish the truth. Then you can apply whatever different models and methods you prefer to massage those facts into investment decisions. Your ego, your assumptions, your self-image, your status are all irrelevant to your investment prowess. The only thing that counts is the facts of your entry point and your exit point. To get those things right you have to stand back to reality, be interested in and love reality. It's there, no matter if you want to or not. 


Reality is what it is

Be curious and pragmatic


In my book about 15 years at the best performing hedge fund in Europe over a decade, I list 50 rules of investing.

This post is one in a line of articles detailing and explaining some of my most important insights from that time. Taken together I believe they will make for a useful and inspirational reminder for evolving and consistently improving your investment habits.

Whenever having a bad experience in the markets, or exhibiting signs of hubris after a lucky streak, refer back to these twelve ideas, thus combining your own experience with mine to maximize your investment wisdom.


Don't be stubborn;

Look for and allow new empirical data

to change your investment thesis


Adequateness means establishing facts and truths, ruthlessly discarding obsolete heuristics, misconceptions and prejudices.

Adequateness means conforming to reality, analyzing what is actually there, rather than what you'd like it to be. You can't close your eyes to reality. Well, you can, but that won't stop the train/lion/stock.

If you actively pursue and accept the facts you can analyze them rationally and take action accordingly. But if you stay in the denial phase for too long, panic will sooner or later hamper your ability to do anything about the fact of the hammer hitting you on the head. Hope is not a strategy based on adequateness.


Be analytical while you still can

Ignoring the facts won't mitigate

the extent of the eventual losses one iota 


Adequateness is the eleventh article in my 12-part series of TAOS - The Art Of Sprezzatura. If you missed the previous ten articles you can find them here: StrategyPatienceResilienceEnduranceZealZenAgilityTemperatenessUnbiasedness and Resoluteness. One final installment is coming tomorrow.

Do you like the series? Do you know somebody that should read it? Tell them about it; share this post with them. 


Subscribe

Occasionally I will offer subscriber-only material in my newsletter. Please sign up (it's free, and it includes my book about hedge fund investing), if you want to make sure you don't miss out on freebies, offers and subscriber-only discounts on special products.

Taggar (blogg): 
21 mars 2017

Resoluteness - how to foster the rational conviction to swim undeterred against the stream

The resolve of vampires and werevolves

There is an ongoing battle since time immemorial between two seemingly immortal clans of mythic creatures. One sucks its sustenance daily (or nightly), while the other comes out once in a (blue) moon to feast on the weak.

I'm referring to respectively Buy And Hold investors on the one hand and Value investors on the other. The former just keep sucking away at cheap and expensive markets alike, whereas the latter wait for the lure of the full moon before making the effort to attack weak and abandoned companies trading below fair value.

Superstition aside, both investment models have nice track records. They have performed more or less equally well over the last 100 years.

The thing, however, is that even if they are comparable over longer time periods, their performance can differ significantly over half-cycles of, e.g., 5-10 years. An investor lacking the right conviction and resolve could be forgiven for switching from a Value Investing based strategy to Buy And Hold after a long bull market (such as today, in March 2017). He's in good company. Well, in numerous company at least.

 

The curse of always being too early

Value investors typically buy too early on the way down and sell too early on the way up. VI investors thus miss out on the last run-up of a bull market, in particular any kind of manias. Thanks to avoiding large parts of downturns, a well calibrated VI system still captures a similar return over time as a BAH:er; with significantly less volatility and draw downs (in theory opening up for leverage).

To get the full benefit of either the VI or BAH style the investor needs to stick to the chosen model. The worst time to switch, by the way, is when your model has performed relatively poorly over several years. If both models are to keep producing the same long term returns, periods of underperformance are followed by overperformance.

At the peak of a bull market, valuations are too high for value investors, whereas BAH:ers couldn't care less. Right when switching from the poorly performing VI model to the obviously better performing BAH model is the most appetizing, that's when the timing is worst and your resolve is the only thing standing between you and a market timing disaster. BAH:ers on the other hand could get lucky if they unexpectedly decide to abandon their gleaming ship for the apparently decrepit VI system. Further, adherents of BAH shouldn't switch half-way through a bull market, persuaded by the VI Cassandras's cries of (were)wolf (too high P/E ratios) right when the real bull market party is about to get going. 

 

Resoluteness: choosing a method and sticking to it

There are of course many other ways of investing. The point I'm trying to make is simply that, after some length of lean times it takes a certain kind of inner strength and tenacity even to stick to a system you "know" works. Making use of some of my earlier investment principles help in reinforcing that resolve.

 

Fear and greed should only happen to other people

 


Sticktoitiveness demands rational conviction

If you don't know how your system works; if you don't know why you're using a certain method; if you don't base your strategy on a logical and rational solid foundation, any conviction you started out with is both unwarranted and likely to be subject to erosion under pressure. The reason model based hedge funds don't second guess their models during losing streaks is they trust whatever work they put in to create those models. Their conviction and resolve is rational, and they know it.

That kind of solid base is a prerequisite for lasting psychological strength in the face of financial and verbal insults. 


Trust your well-defined and back tested method

enough to base your decisions on sound reasoning

and cold calculation

in pressing times

without second-guessing

-Trade only as scheduled 


In my book about 15 years at the best performing hedge fund in Europe over a decade, I list 50 rules of investing.

This post is one in a line of articles detailing and explaining some of my most important insights from that time. Taken together I believe they will make for a useful and inspirational reminder for evolving and consistently improving your investment habits.

Whenever having a bad experience in the markets, or exhibiting signs of hubris after a lucky streak, refer back to these twelve ideas, thus combining your own experience with mine to maximize your investment wisdom.


Resoluteness means staying the course when the times get tough, when your funds are shrinking and you are being ridiculed by fair weather traders.

Resoluteness means swimming undeterred against the stream, secure in the conviction you have a strong strategy that works over time, the right risk management and patience to wait out temporary setbacks. In short, you have a system that insulates from biases, herding and sudden whims; and thus have the rationally based psychological strength that is a prerequisite for independent and successful investing.


A good strategy

is like

a cage for your reptile brain 


Resoluteness is the tenth article in my 12-part series of TAOS - The Art Of Sprezzatura. If you missed the previous nine articles you can find them here: StrategyPatienceResilienceEnduranceZealZenAgilityTemperateness and Unbiasedness. Two more are coming over the course of the next two weekdays.

Do you like the series? Do you know somebody that should read it? Tell them about it; share this post with them. 


Subscribe

Occasionally I will offer subscriber-only material in my newsletter. Please sign up (it's free, and it includes my book about hedge fund investing), if you want to make sure you don't miss out on freebies, offers and subscriber-only discounts on special products.

Taggar (blogg): 
21 mars 2017

Unbiasedness - making sure nuanced facts rule opinions and wishes

Investing with biases is like playing tennis using your weak side

In investing there are two major groups of enemies:

1) other people

2) yourself

Unbiasedness means focusing on the actual data and established causal relationships, while actively avoiding other people's power of persuasion, and mitigating adverse affects and cognitive blindness due to psychological biases.

Focus on facts not opinions

With unbiasedness I mean not caring about how and why you came into a holding, only what its future return characteristics are. With unbiasedness I mean not letting your investment process be unduly affected by history, by friendships, by juicy sales pitches, by half-truths, by wishful thinking, by group-think and reluctance to speak up.

With unbiasedness I mean both freedom from external pressure and irrelevant information, and systems for managing your own cognitive biases such as herding/social proof, availability, anchoring, confirmation, hindsight bias etc.


Unbiasedness - the holy grail of investing

I admit I often label traits being of paramount importance or indispensable. Unbiasedness is no exception. If your investment process is biased rather than founded on reality, you inevitably will make worse decisions. Most likely that will in turn lead to lower or even negative returns.

If you let yourself be swayed by charismatic snake oil salesmen, online stock forum "friends", brokers or incumbent owners you're more likely than not to be positively biased and paying too much. Sure, you can get lucky, but you can also end up buying IT companies at the peak of the 1999-2000 technology bubble; or mortgage brokers, house builders and banks in 2007.

Similarly, your own biases can play tricks on you. Since you want to be rich, since you want stocks to rise, since you only have limited research resources you hope whatever stocks you investigate will rise. You invest in the first companies you come across and then adjust your models until the stock is a strong buy. You keep adjusting if the price surpasses your initial target...

Unbiasedness is the holy grail of investing, since it's so difficult to attain. And maintain.

Your mind keeps blinding you, fooling you with plausible narratives, telling you to conserve energy (preserving your homeostasis), encouraging you to pursue the path of least resistance, of following the herd, of always being contrarian, of simply confirming what you already think, of hiding news to the contrary from your attention. Unless you have the right infrastructure in place you won't even suspect you're biased. That's part of the very definition of bias. Even if you do pay lip service to unbiasedness by superficially entertaining the opposite side, you're most likely to just pat yourself on the back with a congratulatory "I checked so at least I'm not biased"

 

Carefully weigh all facts and arguments against each other

Form your investment opinion with a minimum of external influences

Make decisions and take action with freedom of mind.

Stand up to yourself your ideas

as long as the data support them

but not longer

 


In my book about 15 years at the best performing hedge fund in Europe over a decade, I list 50 rules of investing.

This post is one in a line of articles detailing and explaining some of my most important insights from that time. Taken together I believe they will make for a useful and inspirational reminder for evolving and consistently improving your investment habits.

Whenever having a bad experience in the markets, or exhibiting signs of hubris after a lucky streak, refer back to these twelve ideas, thus combining your own experience with mine to maximize your investment wisdom.


Unbiasedness means focusing on facts, actively subduing any psychological biases, using check lists and best practices to counter greed and wishful thinking.

Unbiasedness also means shunning group think, decision by committee and dangerous exposure to biased people with agendas. Unbiasedness means being independent, even of yourself through the use of best practices including checks and balances of yourself.


Be truly independent

Neither a crowd follower

Nor a die-hard contrarian 


Unbiasedness is the ninth article in my 12-part series of TAOS - The Art Of Sprezzatura. If you missed the previous eight articles you can find them here: StrategyPatienceResilienceEnduranceZealZenAgility and Temperateness. Three more are coming over the course of the next three weekdays.


Subscribe

Occasionally I will offer subscriber-only material in my newsletter. Please sign up (it's free, and it includes my book about hedge fund investing), if you want to make sure you don't miss out on freebies, offers and subscriber-only discounts on special products.

Taggar (blogg): 
21 mars 2017

Temperateness - avoiding hubris and believing your own hype

There's a difference between celebration and hubris

Quite a difference.

I cringed when I heard the opening line this morning in one of Sweden's largest podcasts, Framgångspodden [Best of 2016, part 2, episode '105']: "Mikael Syding, one of the greatest investors of all time".

It's a good thing I don't believe my own hype. If I did, I would be reckless, thinking whatever the hedge fund manager of the decade does must be the right course of action.

The reason people like Buffett, Dalio and Soros keep outperforming decade after decade is that they take the task seriously, they exert themselves, they make sure they do all they can rather than relying on past success.

To be perfectly honest, I don't understand how they do it. I myself have more or less regularly been struck by hubris several times over my career.

The first and possibly worst was recommending a 3D VR/AR company back in 1997-1998. It went bust not long after in the worst bankruptcy for a publicly listed company in Sweden in a long time.

I fooled myself with (half-assed it turned out) channel checks, calling or e-mailing reference clients (guess if the company supplied me with those references and if they were part-owned by the company and most likely complicit in the shady accounting practices that inflated reported sales and profits) in order to verify the company's exponential growth and profits.

And when the warning signs appeared I ignored them, constantly looking for facts and arguments supporting my view of the company, defending my position instead of questioning it. It wasn't consciously but I thought that since I was the one recommending the company, I was the one analyzing it, I was also the only one truly understanding its potential.

I was delusional: "I'm top ranked, I was the IPO moderator, I've made several successful recommendations over the last few years...". At that point, I was a bull market 'genius' - especially regarding that specific company.

As I detail in "50 lessons I keep forgetting", there was a regularity to my periods of hubris and recklessness:

Hard work sooner or later produced good results. The habit of working hard combined with stronger confidence and some luck often led to great results.

Great results made me slack off a little while earlier investment decisions, luck and trends kept producing gains, consequently giving me a God complex - that I couldn't do anything wrong, that I was somehow suddenly superior.

Hubris led to not only less thoroughness it also made me increase the risk level, perhaps not at first, but if an investment went against me. Sooner or later, laziness, complacency and high risk caused losses, denial, anger, bargaining, depression and eventually acceptance so the cycle could start over with hard work and tight stop losses. 


Temperateness

Just like bull markets, booms, manias and bubbles have sound beginnings, so does hubris. Hard, diligent work isn't only on occasion rewarded with success. Exceptional results also tend to gradually boost your confidence, sometimes to the point of delusion of grandeur.

You are right to be confident, right to be happy and enjoy your winnings, but you are terribly wrong in thinking you can stop fighting for it.

 

Avoid hubris at all cost

Don't allow yourself to become complacent after a lucky streak

Big wins are always part luck

and big losses often stem from overconfidence and gambling/speculation

You aren't as good as you think

You still have to work hard for continued success

 


In my book about 15 years at the best performing hedge fund in Europe over a decade, I list 50 rules of investing.

This post is one in a line of articles detailing and explaining some of my most important insights from that time. Taken together I believe they will make for a useful and inspirational reminder for evolving and consistently improving your investment habits.

Whenever having a bad experience in the markets, or exhibiting signs of hubris after a lucky streak, refer back to these twelve ideas, thus combining your own experience with mine to maximize your investment wisdom.


Temperateness means never being cocky; understanding a lucky streak is a lucky streak and not a permanent stroke of genius. It's exactly because good decisions and good outcomes aren't perfectly correlated on the stock market the adage "Everyone's a genius in a bull market" exists.

For many, one aim of investing is to become financially independent, living off of the capital or at least passive income. One interpretation of that scenario is allowing oneself to relax, to slack off and "enjoy life", often meaning "not working hard on the stock market"

Since that's the endgame, relaxing 'a little' on the way there, in particular after a few wins, can seem warranted and well-deserved. And why not? You 'obviously' have a strong game, right?

Wrong.

The world's fastest man needs to run at a 100% of capacity to win his races, and he still won't be certain to win all of them. Just one per cent slower, i.e., at 99% of capacity he'll be 10 hundreds of a second slower over the race, and could easily miss the silver and the bronze as well.

Even a good investor has as many losing trades as winning ones. Hence the margin of safety is typically quite thin. Consequently there is no significant room for complacency based on self-aggrandizement. By all means, take a pause to celebrate and reflect, but make it a real pause with zero investments - not a period of half-assedness and mediocrity.


Hubris and complacency

are any investor's ultimate weaknesses 


Temperateness is the eighth article in my 12-part series of TAOS - The Art Of Sprezzatura. If you missed the previous seven articles you can find them here: StrategyPatienceResilienceEnduranceZealZen and Agility. Four more are coming over the course of the next four weekdays.


Subscribe

Occasionally I will offer subscriber-only material in my newsletter. Please sign up (it's free, and it includes my book about hedge fund investing), if you want to make sure you don't miss out on freebies, offers and subscriber-only discounts on special products.

Taggar (blogg): 
9 mars 2017

Resilience - the ability to rise from the ashes

Investing inevitably brings losses. As long as you are ready, and have a plan for dealing with them, losses are but an opportunity to learn and grow as an investor.

 

Don't panic

 

The famous investor Mark Spitznagel has in his book "The Dao Of Capital" described how tactic one-point losses in the bond pit were but steps along the way of a strategy leading predictably to recurring 5-point, 10-point or higher order profits.

In value investing, the underlying strategy of paying less for assets than they can expect to produce means time works in your favor. Any loss on paper would only be temporary, and actually an opportunity to increase your holding, given your initial analysis were correct.

If you're adhering to a trend following, or similar Technical Analysis based strategy, knowing when to take a stop loss (and de facto doing it) is critical.

No matter the source of your losses, be it bad luck, poor execution or sub-par analysis, the losses per se are not that important (unless they are total); it's the post-mortem action you take and what you can learn from them that count.


In my book about 15 years at the best performing hedge fund in Europe over a decade, I list 50 rules of investing.

I am currently in the process of going through and explaining some of my most important insights from that time. Taken together I believe they will make for a useful inspirational reminder for enhancing your investment habits.


Resilience means gaining from adversity, being antifragile, learning from losses and coming back even stronger and more knowledgeable.

It means understanding losses will occur for every investor. It means preparing for those losses. It means knowing beforehand how to deal with losses when they occur. It means understanding your thinking can change radically when going from an ordinary situation to one of losses and a sense of urgency, and how to prepare for that cognitive shift. 


Kübler-Ross's model for the psychological reactions to adversity lists Denial, Anger, Bargaining, Depression and Acceptance. As an investor you should strive to get through to Acceptance as soon as possible, preferably skipping all the other stages altogether.

My advice is to deal with just one issue at a time. Identify exactly what is wrong, which positions. Then start with just one of them. Often, divesting the entire position is the best you can do. Sure, it will cost you the spread and commission. It may also prove to be a poorly timed decision. However, in any case, not having the position anymore means a guarantee of no more losses, and room to think rationally about what the next step should be.

 

Remember to inspect the ashes

thoroughly

before rising again

 

After dealing with a loss, update your investment commonplace with a detailed note about why the position was initiated, what made you keep it, why you incurred losses, why you didn't get out sooner, what you plausibly could have done differently, what the actual lesson learned was.

Ultimately, you want every loss to make you a better investor; always calm, composed and rational in the face of calamity.


 

Prepare for losses

Deal with losses as directly and quickly as possible

Learn and grow from your losses through scrutiny and commonplacing


Resilience

Investing is so much more than a numbers game.

It's typically not about being the best mathematician or statistician, not about making the best macro or micro forecasts, not about being the best earnings announcements trader or profiting from special situations.

No, investing is often mostly a game of psychology.

If and when you are struck by losses, you need to avoid panicking, need to accept the losses as quickly as possible in order to stop the hemorrhaging and start looking for remedies, perhaps even turning the current bloodshed into an opportunity.

Most of all you want to learn from the process and build on the foundation for more profits and less losses in the future.


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Taggar (blogg): 
8 mars 2017

Patience is paramount for reliable investment performance

Investing is easy

At least some say it is.

You just buy and hold, and then you retire rich.

Well, it's not quite that easy - at least not for mere humans, since we tend to lack the required patience.


A history, and future, of waiting for Godot

In just the 8 years between 2009 and 2017, the S&P 500 index surged from 666 to almost 2400. Including a few per cent a year as dividends on top, the annual total return of some 17% (including dividends of ca. 2% p.a.) turned one dollar into around four.

On the other hand, if you bought at the peak in March, 2000, you would still have been down by about half even nine years later, and just about break-even after a full 13 years. Over the full 17-year period, 2000-2017, your annual return before dividends would have been 2.5% (compounding into a 50% return), and approximately 4.5% including dividends.

I'm tempted to include that the NFMC/GVA multiple for the median company in the S&P 500 index is now the highest it has ever been. Were it to revert to its mean within a year or two, you would still be down on your investment in S&P 500 from almost 20 year earlier.

Were it to undershoot as it has done many times before when financial bubbles have unraveled, an even quarter century is probably the eventual tally of years for getting exactly nowhere. The positive news is that after that you can look forward to some 5-10% annual returns on average.


Fortunately, there is another way.

Several actually.

They all require patience though, just slightly different strains.

Instead of investing blindly and waiting for decades upon decades for a half-decent return, you could start with the waiting.


Bide your time and wait until the target manifests your desired margin of safety

Never rush your decisions

Chasing an investment means you're already too late

You don't have to write monthly reports to investors, just a life report to yourself

Use that advantage


Whether investigating an index position for an industry, an entire market, or for an individual stock, don't rush after the impatient fools. The inexperienced investor is more easily led astray by the herding instinct and social proof bias. In addition he tends to think, or feel rather, this is the last opportunity to get on the train.

Since everybody is rushing to invest every last dollar, and then some (borrowed), it's easy to get the impression this really is the last chance. That, however would imply future generations will be left out altogether, a wholly implausible postulate in an industry that is known for its volatility and fluctuations if for nothing else.

Instead, wait for a good opportunity, nay a great opportunity. Keep your powder dry while accumulating useful knowledge, and turning data into information and reliable investment decision support. When the time is right, for the single stock or an entire index, you pounce. When others are selling in panic at bargain basement prices, when margin calls make bubbles revert to the mean, or invert to even lower levels, you make good use of your patient cash.

Wait

Study

Wait

Pounce

 


In my book about 15 years at the best performing hedge fund in Europe over a decade, I list 50 rules of investing.

Over a period of two weeks, I'm going through and explaining some of my most important insights from that time. Taken together I believe they will make for a useful inspirational reminder for enhancing your investment habits, not to mention a tool for post-mortem analysis, should an investment turn sour.


 

Patience means being able to withstand the herding instinct when the fundamentals are wrong. It means the ability to wait for a good entry point as well as a good exit opportunity. It means trusting your own system enough to actually invest according to the applicable time horizon, not just paying lip service to it.

 


There is no one optimal investing strategy, but you need patience to reap the rewards from the one you've chosen.

If time runs out on one investment,

simply turn the hourglass

and

investigate another


Patience

As a value investor I'm used to waiting; sometimes when buying a cheap company in the middle of a bursting bubble, sometimes when other investors are chasing story stocks instead of deep value, sometimes when everything is expensive, sometimes when cheap stocks get cheaper by the day or stay cheaper for longer.

Patience:

Right now the stock market is insanely expensive and technicals point to a trend change downward. Hence, I'm underweight listed stocks (actually net short including my XACT BEAR position). Nevertheless I'm long a few gaming companies with strong momentum, a hype/hope biotech stock, a nuclear energy consultancy stock and the Uranium ETF: URA. In my portfolio of private companies I have high hopes for my gold mining options, my jet engine driven surfboard company and my HR software company, not to mention the mortgage broker start-up and the investment company (small family-owned manufacturing and services companies) I'm about to invest in later this month)

 


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Taggar (blogg): 
7 mars 2017

Sticking to your strategy is much harder than forming it

Strategy

Investing isn't easy.

Investing involves a multitude of various investors, consumers, companies, managers, employees, fiscal and monetary policies, weather, disasters, your own psychological biases, and not least chance. Investing is thus like playing a multi-dimensional board game, with considerably more moving parts than in a game of Go.


In my book about 15 years at the best performing hedge fund in Europe over a decade, I list 50 rules of investing.

Over the coming weeks, I intend to go through and explain twelve of my most important insights from that time. Taken together I believe they will make for a useful inspirational reminder for enhancing your investment habits.


Strategy means having, and systematically and consistently complying with a system for investment decisions, rather than relying on intuition and gut feeling.

Some prefer a fundamental, value-based stock-picking strategy. That insures against permanent losses if market momentum suddenly turns negative.

Others prefer value-agnostic methods, based on, e.g., momentum or specific share price patterns. In theory, you could make money that way in any market environment. Yet others rely on asset class diversification with fixed rules for adjusting the relative weights.

Some investors focus on macroeconomic information, while some prefer pair trading, focus on special situations or risk arbitrage. A select few have chosen more or less complicated derivatives strategies.


There is no one optimal investing strategy. You can get rich or poor fast with any of the mentioned strategies.

Many strategies can carry the required load on the financial markets; and different strategies work better for different individuals or institutions. It's consistent execution of the chosen strategy that leads to exceptional results.

Hence, you should choose a strategy - logical, rational and back-tested - and modus operandi that you are comfortable with trusting in good times and bad, neither amending your sizing, risk tolerance, asset allocation or positioning during streaks of good luck, nor in streaks of bad luck.

Practice

Form a strategy

Stick to it

However, do adjust the strategy deliberately if needed; but don't deviate from it in ad hoc fashion based on emotional reactions to particular circumstances or stress.


Strategy.

My own strategy is based on thorough fundamental research on individual companies. I want to buy fair companies at a fantastic (low) price, including unproven start-ups with great ideas at very low market capitalizations. I tend to find it difficult buying great companies at great prices, mostly since I find it difficult to identify truly great companies without their prices being insane - a price point I've never been able to stomach.

I typically trade (buy or sell) in increments over a fairly long period (sometimes weeks, sometimes years), mostly to avoid the psychological blow of buying or selling the entire position at the wrong price right before an important (unknown) event, partly to enable trading on share price overshooting, and finally in order to learn more about the company before becoming psychologically stuck.

In addition, I trade around long-term positions whenever the share price overshoots or undershoots due to news or movements in the general market.

I'm always prepared to lose money, albeit not bond-pit trader style like Mark Spitznagel, but rather as part of reality's natural tendency toward an unpredictable range of outcomes. To insure against too large losses, I diversify across a range of assets, such as my apartment, physical gold and platinum options, private companies in a range of industries and stages, private bonds/loans, and listed stocks in various sectors.

I combine my bottom-up investment style with a top-down view of the general economy, as well as an overall view of the stock market (in particular the median valuation level, and trend convergence of technical gauges), in order to decide on my overall risk level and how to weight the various slices of my investment pizza.

In short, my strategy can be summarized thus:

  • Fundamental bottom-up value-based stock picking
    • Averaging in and out
    • Position trading
  • Overall market valuation
  • Overall market trend
  • Top-down macroeconomic overlay
  • Quattro Stagione asset class diversification pizza portfolio

My Strategy:

Right now the stock market is insanely expensive and technicals point to a trend change downward. Hence, I'm underweight listed stocks (actually net short including my XACT BEAR position). Nevertheless I'm long a few gaming companies with strong momentum, a hype/hope biotech stock, a nuclear energy consultancy stock and the Uranium ETF: URA.

Real interest rates are negative, and fiat currencies seems overdue some kind of re-set, explaining why I'm overweight precious metals (options on physical) as insurance against long term mayhem.

I have lent out money, with a large margin vs. policy and market rates. If the economy improves and interest rates rise, my rates rise too. If the economy weakens, I'll just have to hope my friends can keep their jobs. I'm overweight this kind of junk/friend private bond market due to extremely good rate margins, despite a half-decent macro outlook for Sweden.

I'm neutrally weighted private companies, even if it sometimes feel like I'm overweight - probably due to my low current weight for listed stocks. Listed stocks are expensive, while certain sectors and classes of small private companies are quite cheap - not to mention restricted to few well-connected investors. Hence, I have focused my investments during retirement more and more toward private companies within, e.g., HR software, consumer motor/water sports, medtech, retail and a few others.

My guess is I'll keep increasing my weights in private companies in tandem with the economy getting weaker at some point in the future, and me thus getting more and more calls for investments. After that I hope to reap handsome rewards starting in 2020 and going forward. Hopefully several of my private investments will become public around then. In 2022 I'll turn 50 and some time around then, my strategy is to do more travelling and spend less time on risky investments again... for a while.


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Taggar (blogg): 
15 februari 2016

Expelliamus - life lessons from an unlikely career path

Warning: this is a long one, 5300 words (35 minutes)

On the other hand, it's an easy read, with a grade 8 readability (US school grade system) and an F-K score of 70 (easily readable for 12-15 year olds)

Still, 5300 words could take more than half an hour to get through.


 

Executive summary: The article deals with blows dealt, burdens carried, triumphs achieved and some of the most important lessons my unlikely educational and career path taught me.

For example:

  • Save your alcohol for when you want to drink
  • You decide where you fit in, but there is a time for charades and another for being yourself
  • Turn on your metacognition as soon as possible (I almost missed the chance)
  • Make sure you have a Plan B, then you can be spontaneous
  • Don't let prejudice come in your way (like I almost did with economics)
  • Sleep and take care of your body
  • Deep Work - maintain and enhance your ability to focus and learn deeply and rapidly
  • Close calls are just that, "close". Don't let them shape you

If you aren't really interested in the personal details behind the lessons, you can stop reading now. Unlike most of my articles, there aren't any profound insights hidden deep in this article, just more or less inspiring anecdotes about my shortcomings and naivete. Mistakes you can and should avoid.

Tip: Sign up for my newsletter to get future articles about personal development, career, education, finance and technology for free (and my free eBook with my most important investment lessons)

Not interested? Try this article on how you can prosper from the coming era of robotics instead. Or, alternatively, this really cool article with 16 useful quotes. Guaranteed.


 

But first...

A few facts that make the picture more nuanced. I actually don't want to come across as fully retarded or one-dimensional.

I'm complex. We all are, but it's easy to forget.

I didn't drink any alcohol or try tobacco until I turned 18, i.e. in 1990. A wager with my father. I definitely don't have a drinking problem.

Gute visby biceps lördag 27 juni 2015 Sprezzaturian
Summer of 2015

 

I thought exercise was for pre-computer era cavemen only, until I turned 13 and saw Rocky IV...

Now, at 44, I benchpress 140kg (309 lbs) and aim to increase that PB this year. And I run 2 miles (3.2 km) in 12 minutes as a warm-up before lifting weights.

I was bullied as a child, but actually didn't really understand it until my 20s. I somehow thought the fighting and name-calling was normal. Mean, but normal.

I'm certain I have a (high functional) autism spectrum disorder, "Aspberger's". I only realized this a few years ago, first as a joke, but gradually more and more as fact.

I'm naturally contrarian... independent to a fault, but also inherently gullible (well, I was the latter. Not anymore)

I can be unbelievably oblivious to obvious phenomena, and stubbornly certain of "facts" most people miss. In that respect, I do bear a certain resemblance with Michael Burry in The Big Short.

I'm extremely risk avert, and extremely risk-tolerant at the same time. This one is just weird, as I take immense financial and physical risks at times, while acting as chicken little incarnate at others.

Patient - you have no idea how patient, and I'm only getting worse/better. Already as a teenager I was known to just wait idly for hours at whatever meeting point was decided or bus was supposed to come.

A shy exhibitionist...

Alright, enough, let's get this story started. There are valuable lessons in here.


No (business) sense at all

I had no business going into business (finance) to begin with - and yet, it was the perfect match; obvious for everyone to see from middle school and onward.

Since I was 10, I made money programming, later lending money to class mates (hungry for sweets) at a steep interest rate. I was always good at math, and I loved counting money, loved stories about money... So, born to be an investment banker it seems.

And, yet, in middle school, I praised Sweden for making sure I could live off of welfare once school was out. That was my plan.

Who would have thought that weird kid with a northern accent, failing in school, wearing but a t-shirt in winter, always hurting himself (8 concussions) and a communist agenda would become a full blown libertarian and managing the European hedge fund of the decade? Still enjoying the occasional barefoot walk though.

 

Train wreck

Actually, I really had no business going into anything but natural sciences. I loved physics and chemistry, I was proficient at math, philosophy and logic, and held nothing but contempt for economics and similar social "sciencies". I hadn't even heard about the Stockholm School Of Economics until a few days before the application deadline.

Despite no business doing business, a few years later I graduated with flying colors, with a Masters in Business Administration and Financial Economics.

Actually not only should I never have applied (contempt, ignorance and lack of ambition, just 'happened' to get the perfect grades required for getting in), I should have been expelled...several times over.

All this 'no business doing business' business is of course meant ironically; apparently it was exactly what I was meant for

I was 18 when I commenced my first semester at SSE. I was 18 when I had my first taste of alcohol. It was a beautiful disaster, a train wreck in slow motion. Luckily I was both poor and cheap and thus only drank at home before going out, and had no habit of partying every weekend, just a few times per semester. Luckily, since...

At the prize ceremony after the hazings during the first week, I had to be restrained and carried out by six older students.

hazing
seems more like "hosing"

Another time I apparently decided to lock myself in one of the toilets overnight after a party to save time. I was quite unruly during class that day.

After a school pub, I woke up in a small outside air and water cabinet at a gas station some 20 miles from home, wearing a t-shirt in early winter and with surprisingly bloody jeans.

But the partying was only half the story, or a third. E.g., during the first year, I usually brought a sharp knife to school every day... for my loaf of bread and jar of honey, that I kept in my big jacket, for lunch and snacking during the day.

In Harry Potter, the spell "expelliarmus" disarms the opponent.

There is a new HP book coming out this spring. HP was close to not getting in, as well as expelled, himself.

expelliamus

 

Expelliamus

The final third was when I and my closest friends at SSE turned in an assignment to our female and feminist teacher in Management, with a seminude picture of Madonna, marked below, in a 'romantic' font in italics, with the word for "female teacher".

Today, we would have been expelled no questions asked. And that would have been the end of it.

In 1990, however, questions were asked, all the way up to the head of the faculty of Management, as well as the dean of SSE. We got away with just a warning though, after I made the case that a male teacher would just have laughed at a Schwarzenegger picture from "Conan the barbarian" on his assignment.

So, what should have happened is this:

I should have been expelled from Sweden's most prestigious school and had to start over somewhere else, probably studying to become a chemistry teacher in the small city of Uppsala (which I had given serious thought before going for SSE).

Cook

Given I had tried making cocaine from coca leaves when I was 17 (I liked chemistry and I had a stock of the right chemicals at home, as well as a bag of leaves), it's not unreasonable to assume I could have become a real life Walter White ("Breaking Bad") and probably done hard time sooner or later.

Instead, I soon realized I actually had decent grades already, despite doing my best to ruin my studies of the lowly subjects of economics and accounting. I've had to re-take one test... accounting 101. I just couldn't get those debits and credits right in the t-accounts... They kept switching sides all the time.

 

t-accounts

 

Whatever wasn't top notch would later disappear in the aggregation process to the final grades. And with a conscious effort in the key subject during the last semester, I aced it so hard I could hardly believe it myself, and thus got perfect grades from the school I had dissed so uncompromisingly during the first year.

Did I mention I used to sit at the very back of the auditorium, one level up where there were a few seats typically reserved for latecomers? Up there, I made childish signs that I showed to the lecturer... and threw airplanes at my fellow students from 15 feet up.

Talk about being "retarded" and wanting to ruin any prospects of "making it".

I think I subconsciously protested against my decision to go to SSE, when the "right" choice obviously was physics at the Royal Institute Of Technology (which I actually also had applied to and been accepted to).

 

A thousand flaws, and only one right

One thing only saved me from day one:

I learned to read and write, to count and do math by myself, watching TV (clip below from the 1973 pedagogical children's show) when I was 4 years old.

Math always came easy and I always "over studied", thus making the next step almost too easy and so on and on. That meant that no matter how disinterested and slow to learn I was in "text subjects", I had all the time in the world to master those too.

I did it mostly because I thought it looked more symmetrical with equal numbers on all subjects on my grades in secondary school (not to mention the few bucks my father gave me for every perfect score on a test [1 USD] or grade [5 USD each per year for subjects 1-10, and 50 USD each for subjects 11-17).

 

Street fighter

So, I was admitted to SSE. And once in, I wasn't expelled, even if it was a close call. Consequently I never turned to meth cooking or did any hard time.

But I fought.

I fought in the streets, I fought at school. I fought in my neighborhood. I fought abroad. I tried not to, but there were always people attacking or challenging me.

I tried to back down, handing the victory to them verbally, but they almost always pursued.

Once, I got accused of wanting to be the "king of Vallby (my neighborhood). I said I was happy letting him keep his crown. He, however, was very eager to fight me over it, and started with a right kick to my left shoulder. That ended very badly. For him. My immediate response was a long, straight punch to (through) his larynx.

Fortunately, I almost always ended on top (except in middle school where there were always too many fighting me at the same time), sometimes plucking their teeth from my elbow afterward, or finishing them off with a series of knees to the, face peeling the flesh off their cheekbone, or with a straight punch to the back, or front (that does it quite nicely!), of the neck.

Blood, teeth, hair, flesh, naked bone, but never gouged eyes, broken bones or death. I had a code.

I don't regret a single punch, kick, knee or elbow. They started it. One of my most hard-core principles is ahimsa=non violence. However, if you have other principles you'd like to use... Sure, we can do it your way.

split TKD

Yup, no business doing business.

So, you see, I should have become a hacker (programming and selling games at the age of 10-12, remember? I also loved the movie "War Games" when it came out in 1983) or a drug cook, being my own crazy ass bodyguard.

And I graduated. Kind of.

I actually started working in spring 1994 as a broker's assistant, before finishing my thesis. I finally got around to it two years later when an inner voice said "you may have your career cut out for you, but you don't want to be a quitter".

Mainly, I wanted that diploma, in order to go back to Argentina and marry the young girl I met after my stint as a mountain climber there ("andinista"; reaching the summit of Aconcagua, mountain of death, 6961m/22838ft), and still have a way back (Plan B) in case it didn't work out.

Always have a plan B

She was the daughter of a shoe mogul, one of Argentina's richest men, at least one of the top legitimate tax paying men, so as a bonus I could look forward to a life of relative leisure - which was tempting in my state of constant sleep deprivation.

Summit of Aconcagua in my underwear
Summit of Aconcagua - I wonder why so many amateurs die on that mountain

 

Now on to the real struggles

I studied at SSE 1990-1994, during which time Sweden experienced a deep financial crisis, with among other things all major banks at the verge of defaulting, and the national debt inflating out of control. Not unlike Greece these days.

In 1993 and 1994 I applied for jobs at the largest management consulting firms and investment banks, as well as a few other top notch jobs. Eventually, due to wanting to secure just about anything in the crisis, I went for a broker's assistant employment at a third tier broker. After several interviews there I (barely) got it.

Phew.

Six months later, my test employment was up for review and possibly made into a real hire. The following words sealed my fate: "The others think you are a little weird and don't really want you, but I think you could grow into this".

And there it was, toward the end of 1994 I had secured a real full time employment with a salary of 14 000 SEK per month (20k USD per year), before Swedish taxes, no paid overtime or bonuses...

In parallel, I worked extra at my father's business, making and translating technical manuals for pulp manufacturers and programming real time databases for the same.

Since the head broker stayed late, I did too, usually until 10-11 pm, and then I stayed some more - not seldom until midnight or later. Sometimes, after that, I had to head over to my father's office to do some programming before going home to catch 3-4 hours of sleep.

I was in charge of the morning report and had to get in by 6-6:30 am to write it (based on Financial Times, the Lex column and some other sources nobody in Sweden seemed to read) and put it in the fax (1994-1995, remember? Very few had e-mail back then). Once I got the comment my report was the best in the market, it became sacred to me, which basically ensured I never got to sleep in.

 

Doing 110 on the financial freeway

A few weeks I hit 110 hours of logged work. My average was over 80. And we still squeezed in quite a few nights out on top of that. Many times I felt weak, shaky, right on the brink, but was more or less ordered out and about on weekdays - and still had to take care of my sacred morning report. A few times I slept just one hour or so in the staircase outside the office and went in together with security at 6 am. Later I got my own key and could sleep in the reception couch instead.

For a while I seriously considered moving to the office, and save my rent (approximately 10% of my wages before tax)

I didn't know any better; I thought I would risk my job if I didn't drink.

Don't do what I did. Put quality before quantity.

Think about what's actually reasonable, and ask outright what your priorities should be if you aren't sure. Typically, drinking on weekdays is not requested or desired. I would have gained more respect and authority sooner, if I had been sober, slept more, performed better. So, decide explicitly who you are and what you prioritize to make it easier to stick to.

I didn't

 

Among other stupid things...:

I didn't take a single day of vacation during my first 18-20 months and I typically worked weekends.

I gave up martial arts and working out. Between 1990-1994 I used to work out 10-15 times a week.

I even broke up with my girlfriend the day before my first day at the job "I won't have time for you anyway".

I ate at McDonald's three times a day (lunch was paid with food coupons that were included in my wages, after office hours dinner and late dinner were paid by the company). Soon I was pale and fat enough that my ten year older colleagues noted "You have given up, no question about it".

During my first vacation, the Aconcagua expedition of Christmas 1995 I got even fatter. So, by the start of 1996, I was fat, pale, sleep deprived and bottom feeding in Swedish finance and with no graduation diploma. You could say I had exactly lived up to expectations set in middle school a dozen years earlier.

 

The turning point

Then, in early springtime 1996, I made a decision: I was going back to Vicky in Argentina.

What?!

Not what you expected, was it?

I got out of my chair several times, heading for the Managing Director to resign. In the end, however, I realized I had to have a plan B, before burning any bridges, and decided to finish my thesis and get that Masters diploma before buying a no-return ticket to Mendoza. In the meantime I got asked to consider a job as head of IT research at Sweden's largest bank. Around the same time I got in shape for a TV show, learning a lot about dieting in the process.

The summer of 1996, much like that of 1994, was one of the best in several decades, with warm, dry weather - the perfect Swedish summer -both of them. But I never saw them apart from through the office (1994) and school (1996) windows, as I worked long hours or wrote my thesis.

I love summer. I love the sun. I love being outside. And the two best summers of my lifetime were completely wasted, spending myself futilely at a line of work I still didn't understand and a worthless thesis.

Anyway, by the end of 1996 I had my diploma, I was back to lifting weights (albeit at half my previous weights), and I was the head of IT research at a big bank right at the start of the internet era.

 

A little less work, much less partying, and no 100+ hour work weeks

At Swedbank I reduced my workload to some 70-75 hours a week on average. Sure, during earnings season, I often worked past midnight, but I partied less and probably averaged 6 hours of sleep a night. Still too little of course, and I often longed for a normal job, normal hours, a full night's sleep. Sometimes not even my evil and very loud alarm clock could wake me...

In addition to sleep deprivation I didn't eat any fish whatsoever. Hardly any greens either. I lived off of cheap minced beef and pork chops. I had colds at least twice a year, often 4-5 times. My guess is my average daily intake of Omega-3 was less than one gram.

At least I started lifting weights again, first alone in the bank's employee gym in the cellar. Later with a colleague and friend at a gym club. After 3-4 years at Swedbank I was pretty fit again and had a 110kg bench PB (243 lbs).

"Pretty good" compared to my broken down, sleep deprived drunken self a few years earlier that is. Pretty weak compared to now, 16 years later, when sleep and Omega-3 rich fish oil have helped me manage a 140kg bench press.

Anyway, by the year 2000 I had become a top ranked analyst, increased my income more than 10-fold, almost slept enough and "only" had 1-2 serious colds a year.

My tip to you is to make up your mind and prioritize. Decide what's important to you and go after it. I just did a lot of things I were told or thought I was expected to do, without ever asking them, or me, what the end game was.

More tangibly I would advice you to practice deep work, to shut out the rest of the world, turn off all notifications for an hour or two once a day, and produce high quality intellectual work at the top of your ability. It will make you relaxed, fulfilled and amazingly productive at the same time. Everybody will respect you for it, and never think twice about why your e-mail turnaround time sometimes extends to several hours or days.

There are bad days, an there are bad days

Oh, before I forget, there was still room for the occasional crazy bender. Like that time by the end of 1999, when I woke up on a workday morning, in a small room with nothing but a thin plastic mattress.

Yes, the police station. With no keys and no watch it turned out when they released me. Eventually I found my way back to the crime scene of the night before, where both items were retrieved from a glass full of water. Thank you Omega for making the James Bond Seamaster so sturdy and waterproof.

Once I got to my apartment, I learned that one of my friendly neighbors had filed charges against me, and in addition would do his utmost to get me evicted. And, then, I dragged myself to the office, hoping I wouldn't get fired. One thing kept me up that day, I knew that most of my anxiety was purely chemical with no real bearing on reality.

 

Not like other children

Well that thought was just about as f*** up as when I less than a year later crashed on a motor bike alone in the woods, bending my right knee sideways, thinking, while screaming my lungs out, that in due time nanotechnology would fix that knee perfectly. I actually had torn my right knee ACL 8 years earlier without knowing or checking. My days as a ninja had raised my pain threshold a bit... I didn't check my knee this time either, despite limping severely for months.

 

Still not right in the head

I still suffered from chronic sleep deficit though. During my summer holidays I partied a lot and often slept far into the afternoon. I often took a break from working out as well and typically returned 20-25% weaker just a few weeks later.

Early in the year 2000, I was 27 years old, a top ranked analyst, and attended Swedbank's key employee management program "Top 25", or something like that. The final week was held at Wharton, Philadelphia. Despite all the hype, I just wanted to sleep, to stop burning my candle from both ends with 70-80 hour work weeks and client liquid dinners. I was thinking about downsizing, going back to my home town, perhaps get a 9-5 job as a bank teller. And sleep.

Then it happened. Something weird and unlikely. This burned out wreck of a 27-year old, who just wanted out, was suddenly hired by a hedge fund startup.

handing out free stock recommendations

I decided to keep office hours in check, to sleep well, drink less and be fully focused on work while working. I thus finally planned to really work at the top of my ability.

Just one thing... I was interviewed twice that spring and made quite big headlines, making the bosses of my bosses to be consider not letting me start at all. Yup, that close of no retarded HF manager, just a retard. Again.

vision 1vision 2

The first few months, I was like a machine. I worked exactly 12 hours a day on weekdays, from 7 am to 7 pm, completely focused on building the perfect excel models and learning as much as I could about the companies I covered. Every little detail I might have overlooked at the sell-side, I was now hell-bent on finding, understanding and putting into context.

After a while, I finally realized there are no perfect Excel models. And finding everything out isn't optimal either (due to time constraints). I also gradually reduced my typical workweek toward 55 hours rather than 60. On the other hand more and more work sneaked home with me through cell phones and faster and faster internet connections. Almost every day I was on the phone, or reading earnings reports or monitoring the US stock market for several hours after leaving the office.

By and large, when I was made partner and portfolio manager in 2004, I was back to 70 hours a week on average. At least I managed to squeeze in 3-4 workout sessions a week but I hardly had time for anything else.

During the most intense years, let's say 2004-2006, due to increased responsibilities as analyst, managing director and client responsible in addition to my main gig as portfolio manager my aging body took issue with the stress, long hours and amount of alcohol that went through the system. I decreased the number of weight lifting sessions from 4 a week to 3 a week, and started planning for backing down to 2/week. I thought I had peaked at 32 and the game was basically over.

And right there and then, my golden era started. I established a pattern of working 7:30 am to 5:30 pm, i.e. 50 hours a week at the office, and limited amounts of time from home (mainly during earnings seasons). Thanks to eating better (more fish and fish oil), I stopped getting several colds a year after 2006 (I haven't had one since). I also increased the number of weight lifting sessions to 4/week and added a couple of hours of cardio each week.

The period 2006-2012 was truly amazing. We grew, I worked less but better, we hired several really good analysts, we won awards, I made a lot of money, and not least, remarkably my yearly colds just vanished. In addition I became a lot stronger, increasing my benchpress 1RM by 30%.

We were walking on water, but gradually I was losing my Deep Work routines. First I noticed I didn't really learn as much as I used to. I also had trouble focusing in the hectic environment at the trading desk. I tried hiding behind my headphones, blasting very familiar gothic power ballads to drown out all else. It worked, but I still thought I had to respond quickly to e-mails, DMs and other calls. That made me distracted, as if all the meetings with clients, brokers, analysts, CEOs, presentations, board meetings, IT and admin meetings, accountant meetings didn't already crave too much of my time.

I gradually lost my ability to focus, which morphed into an unwillingness to focus. I found it harder and harder to remember names, even inside my Dunbar number. Often the days just passed in a blur of non-productive reactive behavior. Only when I really had to get things done n time and with a certain quality, I made sure nothing could disturb me and I went deep for a few hours, increasing my productivity 10-fold. If I had only known about the framework of Deep Work back then. Now, I had an intuitive feeling for the concept, but not enough confidence to consistently benefit from it.

As an added burden the summer of 2012 was when Futuris lucky streak ended with the head of ECB, Draghi's retarded "Whatever it takes" speech. Just about a year later we were back on track, but for various reasons were wrong-footed again.

Lacking the ability to focus, feeling I didn't learn as much anymore, having central bankers and others push the fund around out of my control, I eventually lost my last appetite for the business toward the end of 2013.

What really did it in the end was the realization that there was almost no correlation whatsoever between my efforts and the outcome for the fund. Thus I longed for a situation where a certain input would more or less reliably render a desired output - at least on average and over time.

It's almost ironic; I finally slept well, almost enough, even if I still had psychological scars from my earlier severe sleep deprivation and was looking forward to retirement with plenty of sleep and some calm and quiet. I made a lot of money (OK, not in 2013, but there was no reason not to expect more going forward). I had found a nice rhythm for my workout routine. And yet, I had all but decided to quit.

 

I quit

At our first Portfolio Managers' strategy meeting for 2014, I said I'd better go first: "I quit"

When I said the words in January 2014, I felt a wave of relief. No regrets, no negative feelings at all, only relief and happiness. Maybe, just maybe the thought "I should have done this sooner" surfaced momentarily, but was quickly replaced by "No, this was just perfect".

I agreed to stay on as just the managing director for about a year, to make the transition smooth, I started sleeping 7 hours a night, maybe even a little more. The biggest change, however, was not having to engage in the market chatter anymore. That freed up almost 50 hours a week for reading blogs and articles about self improvement and science. I studied Portuguese, French, Javascript, Python, math and even signed up for a Stanford course on AI (but quit after a few lessons).

That's when Alexander and Mike (Cernovich) inspired me to start blogging for real in June/July 2014 at my previous site AlwaysBeBruceWayne.blogspot

And outside the office I built up a list of science podcasts that I listened to during my long walks in nature - sometimes barefoot, even below freezing. As of today I listen to over 20 podcasts regularly, every single show.

The articles are still there; and I often draw from them when writing new posts. Slowly I found my own center again and gradually realized all the profound insights I had accumulated during my 20 years in high finance. I'm still often surprised by the underlying quality there and the important thoughts I put down in writing in 2014.

All my struggles, all the hard work, all my mistakes, gullibility, all the flaws I exhibited between 1994 and 2014 now power me instead. During, it felt like my entire life, but after, it's actually just 20 years, which really is nothing.

 

Summary

Phew!

That was a long way to say: "think through who you are, what you want to accomplish and the most effective path there".

In short: don't be me.  But do keep reading me, in order to avoid my mistakes. Sign up for my free newsletter by providing your e-mail and you won't miss a thing. You'll get my most important investor lessons for free as well in my eBook "The Retarded Hedge Fund Manager"

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