Take a real break — not just a pause

The biggest risk is being invested at all times

When I was a hedge fund manager, we took two full breaks of a month each. We sold all our positions and just sat on the cash. During the hiatus we honed our pitches for our old and potantially new positions, as well as our arguments for why some of the other managers’ positions shouldn’t be let back in. Then we re-invested from scratch with fresh minds.

This process cost a few tens of a per cent per break in terms of spreads and commission, and possibly theoretically half a per cent in lost returns. Let’s say we left a full per cent of returns on the table per year due to the roundabout. However, I dare say we gained much more in perspective and fresh analysis.

Okay, I’ll come clean. We actually only discussed implenting hard breaks like outlined above, but never had the guts to do it. I still think we should have, but I think two things stopped us:

  1. convention – what would clients say, in particular if prices moved favorably for the portfolio we just sold
  2. fear – we were afraid we would either become lazy and just use the breaks for leisure, or that we would be afraid to put on our positions again, in particular the best ones if they had become more expensive

No matter, breaks are a part of the human condition. We aren’t designed for going full throttle all the time. There’s a reason we sleep.

However, “take a break” does not mean being passive, it means shaking things up, doing other things rather than nothing. At the gym, supersetting could be a break from old habits. Personally, travel is a way of taking a break from my ususal surroundings — just note that it probably shouldn’t mean lying on the beach or by the pool all week. See something new, talk to a stranger, try new food, read a book instead of computer screens.

Take stock

What’s your current situation? Perhaps you trade the stock market all day, go to the gym three times a week and hit the bar 1-2 times a week. Perhaps a good non-fiction book would be the perfect break for you, i.e.,  a slow, long focus activity as opposed to all the adrenaline you usually get.

I’ll tell you a trick that keeps surprising me: Take a walk.

No matter how you’re feeling or what you’re doing, if you just get outside and start walking round the block, you’ll suddenly feel much much better. I know this, and I practice it a lot (thankfully I have a dog, so I get out at least 3 times a day). Nevertheless, I’m often struck by how clear and relieved I feel after just 20 seconds outside.

Sometimes, I might be procrastinating over buying groceries, posting the mail, running an errand, or just going downtown to buy new underwear. Somehow I think it’s a hassle, until I just do it, and realize (again!) how everyting becomes brighter and easier as soon as my feet hit the sidewalk. It definitely beats watching TV in the sofa (even if that feels more tempting right before). Even vacuuming the apartment is refreshing once I muster the strength to just start the damn thing :D

Alright, walks are good, you get it. But the real message here is to take breaks, to go against your habits, to stop the homeostasis. The message is to take active breaks where you do something different, rather than taking a break to do nothing.

  • Do you read a lot? Then write!
  • Do you write a lot? The talk!
  • Do you run a lot? Then lift heavy things!
  • Do you have a lot of indoor sitting meetings? Then take walking meetings outside!

I’m a bit of a loner, so my breaks often entail meeting people. I can’t say it charges me, quite the opposite in the short term. But I appreciate my normal activities all the more, and I gain perspective from it.

When it comes to investing, these days I definitely take complete breaks from considering public companies’ financials. That way, I can start over completely fresh from psychological anchoring points. What I do during my breaks from stocks? I read books I didn’t think I would, and I try new podcasts or podcast episodes that I’m not sure I’ll like (my habit is to only listen to topics and people I’m pretty sure I’ll enjoy and learn useful things from).

In particular regarding investing on the stock market, the most important rule there is is “never rush“. Investing is a game of several decades. In that perspective a month here or there is completely inconsequential, whereas the gained insight can prove invulauable.

When did you last take a constructive break? And from what to what?

Here is a tip: plan a strategic getaway, where you alone, or you and your life partner, or you and your business partner travel to a quiet location. Leave all electronics behind and spend, e.g., 2-6 full days planning your life from a several months to several years perspective. Try to take everything into account: personal development, financial goals, realtionships, health etc.

If that isn’t a REAL, ACTIVE BREAK, I don’t know what is. As a bonus, you’ll get to practice mindfulness, deep work, and loosen social media’s addictive grip on you.


If you like my writing you really should check out my podcast Future Skills, which discusses habits, tools and role models that keep you relevant in a future of accelerating technological and societal change.

The show has three kinds of episodes: 1) short, one-idea regular episodes, 2) longer format interviews with authors, researchers, investors etc., 3) medium-length expert episodes and a specific theme.

Check it out, and please leave a rating or review on iTunes to help others find the show.

Sveriges sak är inte vår

Rare post in Swedish: Det här är några utkast från min senaste krönika hos Vontobel. Läs resten där om du antingen hatar makro, älskar makro eller struntar i makro.

Följer du med i makrostatistiken? Varför? Är du en av alla de som noterar när siffror på konsumentpriser, BNP och räntor publiceras, och då funderar i några minuter över vad det kan betyda för börsen? Då är du en av alla makroturister som trampar gata upp och gata ner genom halvbekanta miljöer och tar hundratals fotografier som ingen någonsin kommer titta på.

Är BNP-statistiken något du kan använda i din aktiehandel? Inte direkt, men makroturister tar ändå gärna fram kameran ur magväskan och lägger några bortkastade minuter på att få en perfekt bild som ingen bryr sig om.

Skulder och arbetsmarknad leder oss till inflation och räntor. En sak är att hög sysselsättning ger ökad risk för fallande sysselsättning och BNP, men eftersom kopplingen till börsen inte är särskilt tydlig kan kanske de flesta ignorera statistiken. Men, hög sysselsättning medför ofta stigande löner och övriga priser — konsumentprisinflation.

Det är precis sånt här som kan få en makroanalytiker att tänka efter lite extra. Det var ekonomisk kris 1991-1993, 2001-2003, 2008-2009 och det sammanföll med hög inflation. Det gick 8-10 år mellan kriserna och nu är inflationen på gång igen 8-10 år efter den senaste krisen och perioden med inflation över Riksbankens mål. De flesta BNP-prognoserna för 2018 ligger på omkring 2,5% och för 2019 på strax under 2,0%. Riktningen är rätt, men som vanligt tar prognosmakarna nog i för lite (kul ändå att Ekonomistyrningsverket tror på så lite som 1,4% BNP-tillväxt 2019).

Läs resten här (japp, jag får betalt) och kolla in alla makrobilder på sysselsättning, inflation, skulder mm

Do you think you know better than a central banker? Of course you do.

Topic: trust, policy, facts and lies

Conclusion: big lies are as easy to reveal, as they are to believe

Conclusion 2: Do the math, make the effort, a simple checksum will often do – many lies are easy to catch if you at least try. Trust nobody!


Central banks use sophisticated time-tested methods to set a policy rate that reliably leads to a predictable range of inflation

-NOT!

In theory, central banks control things like economic growth and consumer price inflation, by setting their policy rates (a set of interest rates that banks pay or receive when borrowing or making deposits at the central bank. In practice, their theories, models, and actions are at best worthless but most likely incredibly harmful.

Central banks often publish their forecasts for various macroeconomic variables, including their own policy rate (that they themselves can control to a fundred percent certainty). Amazingly, even though central banks are supposed to understand how the economy works, and how their policy rate is supposed to decide among other things the future rate of inflation – and thus also what the appropriate future policy rate would be – the CB prediction errors for their own policy rate are higher than for any other phenomenon tou can think of.

Not only are the errors wrong in direction (which would be completely out of the question if their models had any relevance for the real world), when they get the direction right they are often an order of magnitude (10 times) wrong in amplitude.

The following picture shows the situation for the Swedish central bank “Riksbanken”


The central bank policy rate hedgehog

(aka the map of lies, more lies, the worst modelling in history, blind academics, power hunger, hubris and stupidity)

On September 6, 2018, the Swedish central bank, known for being the oldest and most retarded central bank in history, publishes its latest stupidity (interest rate decision).  Just 15 years ago, careful modelling and the most thoughtful decision process Riksbanken’s members could muster resulted in a policy rate of 500 per cent. Yes, that’s 50 000 basis points. In a few weeks on September 6, they are expected to stick to their current world record breaking moronic idea of a negative interest rate being prudent, effective, and simply the absolute best the central bank committee members can conceive.

Take a look at the chart below. Yes, they really are that oblivious.

Over the last ten years, Riksbanken has managed to do among other things the following:

  • Predict that they will increase their policy rate to 4.5-5 per cent, but in reality they lowered it to 0.5 per cent, i.e. 1/10 of their prediction level, not to mention the error in direction
  • When the rate was 0.25 per cent, they thought they would soon raise it to 4 per cent, but only briefly reached a peak of 2 per cent before backing down to around zero again (while most of the time holding on to delusions of going to around 3 per cent)
  • In over 25 consecutive predictions, consistently predict increasing the rate (that they control, Nota Bene) by 1.5-2 percentage points over the following few years, but in every single instant actually reducing the policy rate, most often ending up some 2.5 percentage points below their own prediction.

Most of these decisions are so wrong, ignorant and stupid that they defy mathematical description. How wrong actually is going from +1.0 per cent to -.5 per cent while predicting going to +3 per cent?

How can they, or anybody else for that matter, have any confidence whatsoever in what they are doing, when they predict increasing the policy rate by 5x from 0.5 per cent to 2.5 per cent, but actually lowering it to a NEGATIVE 0.5 per cent?

Imagine performing in a similar way at your job, or having employees with that kind of track record. It’s even worse than the performance of professional Tesla profit forecasters (picture below)

It is by now of course patently obvious that the Riksbank members have no clue what they are doing, that their models have no relevance at all for the real economy, that they are perfectly incapable of adapting (25 consecutive predictions that were completely off the mark, remember?), and that they have no concept of the complexities of real life and the dangers of unintended consequences of their retarded experiments — ever heard of phase shifts* for example?

* there is a real possibility that very weird and adverse (unknown) effects** can result from negative interest rates. Just take a moment to ponder Credit Suisse that raised their mortgage rates when the SNB’s policy rate was lowered below zero, to compensate for the cost of keeping funds at the central bank

** but who cares? Let’s ban cash to prevent people from avoiding bank accounts with negative interest rates

Conclusion: trust nobody, do the math

Question: Do you think the authorities have this covered? Do you think they know better than you, or even than most? Think again, their models and myopic thinking combined with greed and hunger for power have made them the least fit of all to do what they are doing. And yet, the more damage they do, the more power they are awarded.

Oh yeah, this will end well.

If you own physical gold that is.