Never take broker recommendations at face value

Topic: learning about learning in a stock market context

Conclusion: Think through your investment strategy seriously; exactly what is it, that is supposed to make you outperform some of the smartest and most driven people in the world?

The magic formula of outperformance

Do you want to know how to outperform the stock market? Not only that, do you want to know how to both avoid negative years, and outperform the market?

For the benefit of new readers, I was a hedge fund manager for 15 years. Our fund won the to date only HFR reward for “The European Hedge Fund Of The Decade” (2000-2009). Between our inception in October 1999 and our peak in April 2011 the fund returned, net of fees, around 600 per cent to investors while the stock market was flat. With no down years. Our best years were 1999, 2001, 2002 and 2008. In about that order, if I remember correctly.

There exists a concept of an ideal investment method in my mind. I, however, have never been able to follow it. You can read about those Platonesque investment best practices in my TAOS series (and upcoming pamphlet) or in my old (still) give-away e-book.

This article deals with how we in practice used third party research, i.e. brokers, to produce those returns, not what we in theory should have done.

Futuris (the fund) received research reports from around 20 different brokers (Citigroup, JP Morgan, Goldman Sachs, Bear Stearns, Deutsche Bank, Nomura, Morgan Stanley, Merrill Lynch, BNP Paribas, Cheuvreux…, you know the names). Every day a few phone books’ worth of research reports landed on my desk (conveniently, I had people that opened the envelopes for me — during vacation times some of the envelopes remained unopened and went straight to the paper recycling bin).

This is important:

I never took a recommendation at face value.

Many private investors these days buy stocks when their bank or broker issues a buy recommendation. Some might buy just to ride the wave of greater fools buying, but many actually buy just because “an analyst said so”. Some even do it only based on public news, that some random research firm or journalist has put the word “Buy” in print.

What I did was collect and compare the underlying data and reasoning supplied in the reports (as well as in IRL meetings with some of the analysts, and client-only conferences). I wanted to triangulate an asymptotic “truth”, the real world signal that – distorted through management hyperbole, analyst preconceptions, biases, misunderstandings and muddled reasoning – gave rise to the wide range of reports available to me.

I used all this information and my bird’s eye view, to form my own view of a company’s position and development, including its 3-12 month finances, and compared that to my assessment of what the important market players were likely thinking. If the discrepancy were large enough, and if the margin of safety in terms of absolute valuation was palatable I put money to work*.

* Putting money to work in a hedge fund with three partners isn’t all that straight forward, even if Futuris wasn’t big on bureaucracy. Actually, the research part was made as a collaboration effort between me and my in-house analyst (portfolio manager to be, really). Once the idea was more or less fully formed, I pitched it to my two partners, and we discussed whether it was good enough on absolute terms, as well as if it warranted replacing one of the existing forty positions in the fund, i.e., the position’s relative merits).

Perhaps the most important lesson to draw from this post is that a professional investor does not follow broker recommendations, so why should you?

About learning, memory and connecting with reality

Initially I set out to write about how to learn, and not least why to learn. When you hear about a “learning machine”, ask yourself “what for?”. I ask that about God (if he can’t ‘kick back’ as David Deutsch says, what is he good for?). I ask that about the limited number of people I can have a serious relation with (which ones and why: comfort, companionship, learning, challenge…).

A while ago I listened to an episode of The Brain Science Podcast about “affordances” – how the brain perceives objects foremost in terms of what you can do with them = their “affordance”. Today, episode #141 of the same podcast series dealt with a similar idea: “concept neurons” and how our memories are mainly based on a few salient key concepts stored in particular single neurons in the hippocampus. These “concept neurons” are connected to a limited amount of facts stored in the cortex and together they form the basis for a made up narrative that the brain decides makes sense for the moment.

Just as we don’t see the world, we don’t remember it either. The brain makes it all up, and that is why we need notes and commonplaces, and to constantly battle our desire to be right by exposing ourselves to opposing views and as wide a range as possible of “facts”, if we want to be able to kick reality harder than it kicks back.

Talking of kicking back, do you really want to compete in the worst conceivable environment, i.e., the stock market? It features the best and most driven competitors, and the market can be characterized as an ever-changing complex beast, where correlations are tentative at best, not to mention highly variable.

Hmm, it seems I need to expand on these last ideas about memory formation, learning and purpose in a separate post later on.

Conclusion: Does it work?

Just take this with you if nothing else: Why do you learn; what do you want to accomplish and why? Why is it supposed to work; what is your theoretical foundation? How do you learn? Is it working? Are you hitting reality, or does it keep hitting you while you punch holes in the air?

Audio books and meditating

Topic: meditation without meditation

Conclusion: using audiobooks for altering your state of consciousness is meditative

Length: very short; 1-2 minutes

Market relevance: Very high, use this method to consider important variables and correlations, problems, errors and remedies to improve your investment method

TIPS (in Swedish): Testa 30 dagars gratis ljudböcker hos Nextory med koden “25minuter”

Meditation means mindful thinking

Meditation isn’t about incense, weird positions, mantras, non-thinking or any such nonsense.

Meditation is about just being. Being you, not a reflection of others and a mindless reaction to stimulus.

Forget gurus, forget transcendence, forget most of what you have heard about meditation, except one thing:


Meditation is a valuable tool


I created this series (Perspective, Meaning, Exertion) of articles on perspective and the meaning of life from a 5 minute meditation session, and this one, about applying the scientific method, from an audio book meditative session of focused listening and thinking.

Meditation is way too valuable and important to be left to professionals

Personally, I like mindful breathing, sometimes just one deep breath, sometimes five, sometimes as many as a hundred, sometimes very slow, sometimes forcefully and fast. But there are so many other ways to harness the power of your brain.

Meditative thinking

I also like meditative thinking — sitting still with my eyes closed, concentrating on a specific word or question or topic for five minutes, doing mind maps in my mind, going over wider and wider connections between words, concepts, logical conclusions, potential actions and consequences. When I’m done I write it all, or just the conclusion, down in a physical mind map.

When I say “I’ll think about it”, that’s what I do. Deep work on tap. I really think about it in a focused way, both structured and unstructured at the same time. During such a thinking session of 3-10 minutes I want complete silence and solitude. That’s where value is created, that’s where the neocortex really goes to work.

So, I like to sit and meditate, or “think” as I like to call it not to scare non-meditaters away. But you can meditate in so many other ways (I’ve written about some of those before, such as touching interesting surfaces, watching everyday objects from new perspectives, doing body scans before going to sleep etc.); why not during massage, or a walk in nature, or listening to an engaging audiobook?

Audiobook state of mind

Yes, that’s right, audiobooks. If you can’t come up with good seeds for your own thinking, books like Sapiens, Principles or The Beginning Of Infinity can be the perfect starting points for what to think about. Walk in an effortless pace, somewhere you won’t get disturbed and lose your train of thought, preferably with sound cancelling headphones (I love my Bose in-ear) and let yourself become immersed in the ideas and narrative, pondering every statement as deep as you have capacity for.

Do not let anything get by you without understanding it, without coming up with your own conclusions and implications.

Do this for at least half an hour with no notifications, no phone calls, no irrelevant sounds. It’s like a SPA weekend for your brain; you’ll feel at peace, blissfull, and refreshed when you change your state of consciousness back to take in the physical world again.

Conclusion – think about it

Think about it.

I.e., meditate on it.

If you don’t have 5 minutes and definitely is too weak for ten minutes, try just one minute of fully aware and directed and mindful, albeit unstructured, thinking. If your mind wanders and your thoughts stray, try another minute some other day until you are able to actually create thoughts and knowledge deliberately, instead of spending all your waking hours reacting to other peoples whims and wishes.

Think about this post and whether you agree, how you can adapt the methods, when you could schedule daily meditative moments and so on. Then follow through.

Remember where you read this:

OCH KOM IHÅG: Du får 30 dagars gratis ljud- och e-böcker hos Nextory med koden “25minuter”. No strings attached.

Me too isn’t ALL bad

Introduction: Are you familiar with the “me too” movement? If you live in Sweden I know you are. Outside the Nordics, you may have been spared. As with many popular phenomena, it’s both silly and annoying at the same time, while also holding a kernel of truth as well as an opportunity to reflect and learn. The most important lessons here I think are to:

1) Notice your own reactions: are you just running with the herd, getting caught up in group psychology and attacking straw men, or are you actually thinking?

2) Take the chance to consider the difference between, on the one hand, groups taking sides, groups yelling at each other, individuals in groups being accused of what other individuals in the same perceived group have said or done; and on the other hand, relevant individuals calmly and logically discussing their personal experiences in the matter at hand and what to do about it instead of pitting groups against groups.

Summary: Individuals on both sides of the “me too” campaign have made mistakes, but worst of all is that actual rape victims are compared with female colleagues overhearing a bad joke that was thought to be told in private

Length: very short, 1-2 minutes

They too

A few short thoughts on the me-too campaign that has its epicenter in Sweden this fall (October-November 2017):

Let me start by saying that the campaign isn’t all bad.

If anything, that’s what I want you to take with you from this article. No matter what you thought before, at least consider the possibility that there are some facets of the phenomenon worth considering.

Second, try to recognize that there are bad seeds in both camps. Yes, some men have it wrong. As do some women. Not all men are despicable swine, and not all women are lying b***… *ehum* persons.

Again, some are truly evil, others are unfathomably narrow minded. But most are just trying to lead lives where they and their loved ones, men and female, can feel good about themselves. They are not actively trying to ruin other people’s lives, they might even actively be trying not too, but are ignorant or misunderstood — often because we are so quick to want to misunderstand and build straw men just to get to set them on fire.

Some make occasional mistakes despite trying their best. Some are just lazy and/or stuck in their ways. Many are frustrated that the other side just doesn’t seem to understand their perspective.

I’ve definitely made mistakes, some more publicly than others (I’m sorry, Emma), some despite thinking things through, sometimes actually thinking that I was a bit clever. I am what many would call a librarian, travelling the world, hunting for lost treasures, messing with magical artifacts of immense value. Wait, no, that doesn’t feel right… No, I’m a libertarian — i.e., above all I treasure individual rights and freedom. As a libertarian I hold all people as equals: men, women, elderly, children, no matter when or where or how you were conceived.

However, despite being acutely aware of all living persons’ equal worth, misdirected humor, ignorance and crowd psychology (locker talk) makes me as guilty as the next person when it comes to “soft” me-too transgressions. In other words, I ‘ve said things that have hurt women. Well I’ve hurt a lot of other people too, but right now it’s about women.

The good thing with the me-too hysteria is that every man, from the comedian, via cat callers to misogynists and rapists get to think through their actions an extra round. Maybe just one employer will be pushed slightly toward gender neutral hiring procedures, maybe one music producer will reconsider the old ways of casting female lead roles, maybe many women dare step up and take what’s theirs if they are more confident men will be a little more conscious about how they react to that.

We don’t have to dwell on everything that’s bad with the me-too movement since that could fill books… Men are being sentenced without evidence. Disproportionate power is given to liars who just regretted their decisions when waking up. There will be less flirting, less social fluidity. Women that want to fit in with the herd try extra hard to find or fabricate me-too situations.

Most important though, is that the me-too movement tends to label every man a rapist, even if he just happened to recite a bad joke that was overheard by a female employee. With every man a “rapist” some may be pushed over the actual line, most however will cower in asexuality and a robot-like attitude toward women.

Worst of all is that actual rape victims will be banalized and marginalized, simply put on par with plastically enhanced women who got cat called or ogled.

OK, these are my three take-aways regarding the me-too movement:

  1. There are good things, with the me-too campaign, albeit few and far between,
  2. Both sides have bad seeds and have done dirty deeds. Not all men are guilty and not all women are innocent
  3. Think about the actual rape-victims; they need healing, not being compared to the butt end of private jokes