Without precise definitions you end up in forecast hell

Topic: Imprecise definitions lead to useless models and conclusions

Discussion: If you’re performing macroeconomic research, which inflation are you talking about, which growth, which interest rate? The answers to those questions can be of crucial importance for your eventual investment outcome.

Length: Short — maybe 5 minutes reading time

Teaser: It’s easy to predict the weather. Not to mention stock market returns

PODCAST TIP: listen to my latest podcast episode (#6) on Future Skills with philosopher Alexander Bard. We talk about definitions of infantile grown-ups and much much more. Check it out on iTunes here, or your favorite Android app here.

Dream Warriors

Are you dreaming about making perfect economic forecasts, and using them for producing amazing equity investment returns? How does this sound to you:

Weather and production bottlenecks in combination with monetary policy induced growth are starting to cause higher commodity prices. Inflation is already showing in their wake. People worry about rising interest rates, just take a look at OIS spreads. Some central banks are turning less dovish. Higher interest rates means less funds for investments, lower growth, lower profits and lower share prices. Higher interest rates mean lower bond prices, higher borrowing costs, lower real estate prices among other things. Higher inflation means money loses its value. And this time it’s at a time you can’t hide in stocks or bonds. You could hide in gold. One bar of gold is always one bar of gold. Maybe that’s why the gold price in dollars is rising (despite obvious manipulations and jaw-boning from various authorities).

Does the above fit your view? Higher commodity prices => higher interest rates => sell stocks, bonds and real estate and use cash to buy gold and soft commodities, until the cycle turns again?

Well, hold your horses for just a little while.

What’s your definition of a boombastic jazz style?

Which commodity prices are you talking about exactly, when you say their prices are rising? Wheat, hogs, orange juice? Iron ore, coffee, cacao? Silver, cobalt? Platinum, palladium?

Similarly, which interest rates are you referring to? The Fed funds rate? Treasury bills, longer term bond market rates? Corporate bond rates, bank lending rates (to consumers, to corporate clients, to house builders?), peer to peer lendning rates? Intrabank market swap rates?

Oh, I almost forgot, “inflation” you said. Would that be the (ever manipulated and ever changing) CPI measure? Or the PPI gauge? Input our output PPI? How about house price inflation numbers? Or energy price inflation? Avocado prices?

My point in this post is that if you don’t clearly define exactly what variable you are talking about it becomes exteremly difficult to make any kind of coherent analysis, not to mention draw any practical conclusions whatsoever from the exercise. Macroeconomic research is difficult enough as it is without averaging everything together, whether it be “the inflation”, “the interest rate”, “the oil price”, “the stock market” or “GDP”.

Take that last one, e.g., GDP. What does Gross Domestic Product really tell you? What conclusions can you draw from it even if you knew its exact trajectory going forward a few quarters? How about nominal GDP vs. real GDP (using which deflator measure?), or GDP per capita? Then there are data series for wages, wage growth, hours worked, hourly wages, lost jobs, added jobs, seasonal adjustments (many orders of size larger than the actual net number), employment (measured in at  least three different ways depending on, e.g., how to define somebody without a job, based on whether he’s searching for a job or doesn’t care).

And what’s so special about GDP growth by the way? There’s zero useful correlation between real GDP growth and stock market returns. How about a house price recession like the one that began in 2006, several years before the ‘actual’ recession. Don’t even let me begin to talk about the NBER’s definition of a recession (no it’s not “two quarters of contracting real GDP”


“a significant decline in economic activity

spread across the economy, lasting more than a few months,

normally visible in real GDP, real income, employment, industrial production,

and wholesale-retail sales.”


No matter the problems of making macroeconomic models work at all, you don’t want to make it even harder by using impractical and vague definitions. My message in this post is that you need to make sure your definitions are practical and at least theoretically can lead to better decisions.

After that we can talk about the ephemeral character of macroeconomic causations and correlations, not to mention their flimsy associations with actual stock market behavior.

For now take this with you: Knowing what you know and knowing what you don’t know, is paramount in uncertain environments. And the financial markets are as uncertain and stochastic as they come.

Thus, make sure you do define all concepts and ideas about their connections precisely. That’s your only chance of keeping track of what you know and what you don’t. In addition, it’s your only fair chance of creating a feedback loop of increasing knowledge and strategy adaption.

Such directed or deliberate practice is in similar fashion your only chance of coming out on top in the arguably most competitive sport known to man (and yet untrained newbies gladly step into the ring and bet their life saving’s on themselves).

Today’s advice holds true for everyday life as well. I don’t know how many arguments with friends I could have saved, had we only defined the concepts and words precisely at the outset…

Stock market forecasts coming up

I’ll soon write a follow up on this article, where I’ll explain how stock market returns can be reliably forecast in much the same way as the weather can be accurately forecast. For now this teaser will suffice:

Just as I know there’ll be snow in the middle of Sweden on quite a few days every year between December and February, and almost completely certainly no snow 99 per cent of the time between June and August; a highly priced market will produce very low rates of return, and a lowly priced will produce high rates of return over the coming decade or so. But more detailed notes about next time and the exact implications for the current situation. Stay tuned.

FUTURE SKILLS: Don’t forget to check out the super energetic conversation with Alexander Bard on Future Skills Ep. #6! You’ll find it on iTunes here, or your favorite Android app here.


How to become the richest man on the planet

Topic: What wealth is actually for, how to avoid wasting wealth to acquire money

TIP: Sleep, exercise and eat well – and the rest will follow. Start working on any one of the three magic pillars of true wealth and the others will rise with it.

Conclusion: Strive for real wealth; don’t be fooled by the money illusion. Nobody actually wants money, fame and status. Those are at best tools, and at worst unintended side effects.

Reading time: 10 minutes (times the 4x obligatory re-reads)

Rich but not happy…, then what does ‘rich’ really mean?

The super wealthy have a problem.

They have no reason not to be happy, content, fulfilled satisfied… (I’ll use “happy” as shorthand for whatever state it is you are ultimately trying to attain). With extreme wealth comes the potential to buy, to give, to experience, to research, to explore, to learn, and not least to feel accomplished, happy… “rich”.

Anecdotally, however, despite all the resources in the world, it seems many of the money-fat fail at being 100 per cent fulfilled.

In contrast, there are a lot of people that struggle to put food on the table, but nevertheless are happy, thankful and, somewhat paradoxically, feel richer than many millionaires.

Yours truly actually seem to be one of very few wealthy people that feel truly happy, not to mention rich. I’ve come across several articles and surveys, where objectively wealthy people still put “being rich” at somewhere between 2-5 times their current net worth. I’m the anomaly here, in considering the “rich” bar being set somewhere below half my current level. So, I don’t have the most money in the world, but I am definitely rich (point being: after having enough to live comfortably, the rest is all in your head).

For all I know, I may well be the richest (read: happiest and most rich-aware*) wealthy person on the planet.

* I think I am, but feel free to challenge me. Nothing would make me happier than to learn about somebody with an even better experience and appreciation for their station in life

The richness formula explained

So, how did I get here? Is it my humble beginnings, genetics, physical and mental health, friends, or what? Most important, is it replicable? Could you feel rich? Yes, “feel”, since being rich apparently isn’t strongly dependent on your financial resources (again, after a point where you can eat, sleep and live safely and comfortably enough).

The following eight or so magic pills, that all fit in nicely with each other in a joyful and synergistic bundle, taken together is all you need to become very, very rich. How rich? As rich as you have the capacity to experience.

My 8 magic happiness pills that could (should) work for you too

I use my body, I work out; I push myself to the limit when lifting weights four times a week. I started out doing it chiefly to stay physically capable, but every year there’s more research showing how essential exercise is for a fully functional brain as well. In addition, my regular “wins”, in terms of personal bests or just pushing through some plateau, fill my life with small spikes of justified joy. TIP: exercise

I’m healthy. I had a sore throat back in 2006 and then again in 2017, but apart from that, at worst I become tired after a late night out a few times a year. Nota bene, health is tightly connected to the other magic pills of exercise, nutrition, environmental factors, and not least mental and psychological health. And vice versa, every pill is synergistically connected to the other pills. I strive to constantly level up on any one of those parameters, knowing that increasing one will lift the others as well. TIP: stay healthy (take care of your sleep, eat real food at least 80% of the time, avoid toxins, stretch those psoases). Side tip: eat fatty fish or drink natural fish oil, but try to avoid most other supplements, in particular in actual pill or capsule form (natural berry powder is a whole different story, though)

I’m outside a lot. I see sunlight a lot. Having a dog helps, since it means there are no excuses not to be outside, seeing nature, feeling nature, meeting people, meeting other dogs. But with a little determination you too could make taking a walk outside a few times every day an absolute rule. TIP: put up reminders to move around, and to do it outside. Side tip: Get a dog. Side tip 2: No matter my advice to stay off the pills, consider eating Vitamin D during the dark half of the year, at least if you live in Sweden or work indoors.

I have friends, challenging friends, intelligent friends, interesting friends. They inspire me, push me, lift me up, and in general ‘bother’ me in a good way. They help me break out of homeostatic behavior if I turn complacent and stuck in my ways. Friends come to you based on who you are and what you do. If you represent what you would like to see in a friend, you will attract company with similar values, and you will all be better of for it. TIP: be a role model and hang out with good people.

I pay attention. I live now, not far into the future or way back in the past. TIP: feel; do at least one mindfulness exercise every day, a few seconds would suffice (breathing, touching, feeling, body-scanning, watching, listening, smelling, thoughtfully experiencing). In addition, you should try a full minute of meditation every now and then, once mindfulness has established itself as a natural habit of yours. Don’t get me wrong, you still need to remember and learn from the past, as well as occasionally adjust your general direction into the future, lest you won’t survive. It’s a question of striking the right balance between appreciating and accepting what is, while still being smart about making sure there is enough to appreciate tomorrow too.
Failure is trying, and trying is growing
I’m appreciative, which comes easily and naturally from paying attention (as well as framing my situation as extremely favorable compared to [your choice: the past, other people, you in a parallel world]). I’m always waking up happy to see a new day in this wonderful world of mine, but if you don’t you might need to work on it. If you don’t feel appreciative, try imagining how things could be worse, much worse. That technique is called “framing”: If you’re standing in line, at least you’re not at the office, right? TIP: notice good things; do what every life coach in the world instruct their clients; keep a journal in which you everyday write down the best thing with that day, or a failure you avoided.

I Take risks. Live! (which sometimes means flirting ever so little with death, or fear of death). I do something almost every day that scares me, surprises me or makes me laugh. I try to do things I don’t actively want to do either – small things, like taking a cold shower or listening to a suggested podcast on a topic I wouldn’t have chosen myself. TIP: Seek out surprise, and strong emotions like joy and fear. Regularly break out of your homeostasis and make sure you experience new things, stretching those neurons and learn as much as you can. Not only will it make you healthier and happier but it will make you a capable and interesting person to hang out with. TIP 2: Fail. Make it a daily or weekly habit to write down what you have failed at recently. If you don’t fail every now and then, youre not trying, and if you’re not trying you’re not growing. Your failure journal can double as your “framing repository” to look back at on days you’re not failing. Seeing past failures can put your present actions in a better light.
I focused on real wealth
-financial wealth followed as a side effect
I have a lot of money. I ascribe my financial success not to any particular monetary ambition, but to all the suggestions above. I focused on real wealth and just got financial wealth as a bonus. TIP: get a lot of money by doing something meaningful, but don’t waste your life trying to impress others with a huge bank account. It’s nice to be rich, and it’s an important part of feeling relaxed, safe, free and independent; the opposite of slaving away as a mindless drone or compromising your moral for sustenance. But it’s not worth it if getting it means sentencing yourself to decades of prison in meaningless toil during your most physically cabable years.

Once you have the money, you’ll still just want to get back to my list above, now decades older than before. By all means, enjoy creating things and changing the world. Bask in the feeling of accomplishment that the scoring system of making money entails. But be wary of the time spent focusing on amassing money when you could be living. It might help considering if there is something else you’d rather do if the income was the same. Why spend 20 years as an accountant to afford a house with a sea view and lobster for lunch once you retire; when you could dive straight into said sea and catch the lobster yourself today?

Yeah, I know, I’m simplifying way too much in order to make you question what money and wealth actually is. What you need to do is think about what makes you happy when nobody’s watching and make more of that while you still appreciate it. You change as you grow older and the material riches you pile up when you’re young just might not buy the things you crave the most when you’re older.

Conclusion: money is for the poor
This is how I think it is: You want do be happy as much and for as long as possible. Hence, invest in health, good company and experiences. Pay attention to what you’re doing and frame occurences in the best way possible. In that way, life is like a dream, a lucid dream where you’re in control of your happiness (as long as you have access to basic necessities like food and shelter), and that control makes you truly wealthy. In addition, financial wealth isn’t unlikely to follow as well, although at that point you hardly couldn’t care less about the money. After a certain point, its only the poor mind that strives for money in itself, and will forever stay poor. As long as you hesitate to call yourself rich, or think that 2x is just what it takes to get there, you’re still poor and probably always will be.

Things you can buy for money isn’t the answer, no matter how much society tells you it is. How much living space, food and transportation can you enjoy in a lifetime? That’s really all money can buy. That which gives life meaning you still have to create yourself every day.

Begin with your sleep
If you sleep well you get less cravings for junk food and candy. Eating and sleeping better give you more energy which makes it easier to exercise. Exercise makes you hungry for nutritious food, as well as makes it easier to sleep. Exercising outside…, well, gets you outside in the sunlight; and nature provides plenty of opportunity for mindfulness, for moderate risk taking and meeting people.

So, start with taking care of your sleep, which incidentally (not really) often means exposing yourself to sunlight in the first half of the day. Thus a good old fashioned daily walk outside both improves your health in a number of ways, as well as sets you up for sleeping better which in turn is the foundation for all other magic pills of happiness.

Read more of my thoughts on the importance of SLEEP here, and my theory of meaning here, and a short thought on perspective here, and finally this one about striking a balance between exertion and rest here, about the cycle of sow and harvest.

Now, how about that walk outside? Take ten minutes and listen to the first episode of my podcast Future Skills here. If you don’t have iOS you should still be able to find the show on most other podcast apps. Read more about it on the show’s homepage.

BONUS: Keep a lookout for my new podcast in English together with Ludvig Sunström. It’s called “Future Skills”. We’ve kicked off with an amazing interview with hedge fund billionaire, Fourth Turning philosopher, crypto critic and gold bug Martin Sandquist. You can find it here. Don’t forget to leave a review to help new listeners find the show.

Se upp med förenklande och fördunklande etiketter

OM du gör bättre investeringar genom att kategorisera bolag som “fina” så fortsätt med det. Allt som fungerar på aktiemarknaden skall uppmuntras, för det finns så mycket som inte fungerar.

Personligen har jag dock inte lyckats sätta en motiverad värderingspremie baserad på om ett bolag är “fint” eller inte.

Ämne: Den intressanta verkligheten bakom uttrycket “fint bolag”

Slutsats: Det dunkelt sagda är det dunkelt tänkta

Relaterat: på tal om farliga etiketter så pratar Ola Ahlvarsson den här veckan om att inte begränsa sig pga för smal beskrivning av vem man är och vad man gör (avsnittet är 34 minuter)

I den här artikeln kommer jag förklara varför jag tycker att uttrycket “fint bolag” är så fascinerande, och förhoppningsvis förmedla hur det kan leda till sämre investeringsresultat för den som använder sig av det.

“Fint? Vad betyder det?!”

Världens bästa investerare och wonderful companies

Charlie Munger och Warren Buffett brukar säga att det är bättre att köpa ett fint bolag till rimligt pris än ett ok bolag jättebilligt. Det har gått oerhört bra för Munger och Buffett.

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price”

Men, glöm inte bort att Howard Marks som är nästan lika framgångsrik har sagt att det är priset som är absolut avgörande för avkastningen. Marks säger att det finns ingen tillgång som är så dålig att investeringen inte kan bli bra om priset är tillräckligt lågt.

Citaten från Marks, Munger och Buffett är emellertid irrelevanta för dagens ämne utom på ett sätt: Det är lika dumt att investera enbart baserat på ett uttryck som “fint bolag” som huruvida priset är “lågt” eller om företaget är “wonderful” eller “fair”. Man gör sig skyldig till precis samma misstag av endimensionalitet och icke-analys.

Dessutom, Munger stannar förstås inte vid att kategorisera bolag som “wonderful” eller “fair”, eller att värderingarna bara delas in i två lika vaga kategorier. Han och Buffett har förstås en gedigen checklista som avgör om ett bolag uppfyller kriterierna för en långsiktigt högavkastande investering jämfört med alternativen.

Att de har som övergripande vägledning att hellre köpa dyrt och bra än billigt och dåligt betyder förstås inte att analysen stannar där. Inte ens ett riktigt bra företag med bra ledning är värt hur mycket som helst. Det förstår Munger också. Gör du?

Det farliga med “fina” bolag

Så här gör man (till exempel) när man tjänar pengar på aktier:

  • Köp en aktie baserat på analys av historiska kursrörelser och sälj den dyrare till någon annan
  • Köp en aktie baserat på analys av bolagets intjänings- och utdelningsförmåga och vänta på utdelningarna
  • Köp en aktie som värderas lägre än motiverat av bolagets intjäningsförmåga och sälj den när marknaden justerat för den tillfälliga felvärderingen

En del lägger till en fjärde punkt: Köp ett bolag som är “fint” och behåll det oavsett vad som händer med kurs eller verksamhet så länge det fortfarande är “fint”. Sälj bolaget när det inte längre är “fint”, förhoppningsvis till någon annan som fortfarande tycker att det är “fint”

Jag förstår att beskrivningen “fint” mycket väl kan användas som förkortning för “rimligt eller lågt värderat i förhållande till bolagets förutsättningar att skapa vinst och kassaflöde“, eller kanske “som har kompetent ledning, kompetent personal, tekniskt försprång skyddat av patent, hög och stabil marknadsandel tack vare bra produkter, låga enhetskostnader och nöjda kunder” och liknande positiva, mer eller mindre precisa, beskrivningar. Men, det finns en uppenbar risk att man lurar sig själv om man inte regelbundet uppdaterar bilden av bolaget och påminner sig själv om sin definition av genvägsbegreppet.

Tanke: Warren Buffett kanske skulle säga att om företaget har en “vallgrav” (moat) av skydd mot konkurrenter så är det ett fint bolag, men vad vet jag om hur han tänker?

Etiketter formar verkligheten och ditt beteende

När du sätter en etikett på något så låser du din uppfattning om saken. Det gäller både när du säger saker om dig själv som “jag är ekonom”, “jag kan inte sjunga” och när du kategoriserar andra eller andra saker. Vad betyder t.ex. “Emerging Markets” och är alla EM likadana? Vad betyder “tight oil”, “unconventional oil” eller “oljelager” (vilket lager, vilken slags olja, vilken årstid, under vilka omständigheter)?

Etiketter och fördomar är ibland användbara genvägar, det är därför evolutionen tagit fram dem. Men, på börsen och i många andra moderna sammanhang utgör de s.k. evolutionära mismatches.

Om någon (någon annan eller en tidigare version av dig själv) gjort en gedigen analys av ett företag och år efter år kommit fram till att bolaget outperformar på en rad punkter (tillväxt, resultat, kassaflöde, renommé, anställda) så förstår jag om man inte orkar redovisa allt detta utan börjar kalla bolaget “fint” eller “kvalitativt” eller “det finns en mängd punkter över lång tid som motiverar 30% högre multiplar än liknande företag eftersom det pålitligt vuxit ifatt värderingen på 2 år gång på gång”. OK, kalla det “fint” för att du tröttnat på at förklara för oinsatta varför du äger en skenbart dyr aktie.

Men, om du bara hört någon annan kalla det “fint”, hur ska du då veta vilken premie som är motiverad?

Eller, om du slutar analysera detaljerna (förståeligt om resultatet varit detsamma år efter år) och nöjer dig med att tänka att “äh, det är ju ett fint bolag, varför skåda hästen i munnen“, då kan bolaget eller dess förutsättningar ha förändrats.

Det är denna lättja jag vill varna för när man använder vaga etiketter. Vilket P/E-tal ska ett “fint” bolag ha? Och ett fult då?

Så länge etiketten fungerar för dig och du vet precis vad den står för ska du förstås använda den. Det är effektivt – slösa inte tid på att övertyga andra om du inte måste för att din strategi ska fungera.

Men tänk på att när det pratande huvudet på TV säger “det är ett fint bolag” så har du ingen aning om vad just det huvudet menar. Dessutom tycker jag att det påfallande ofta gäller fallna änglar, dvs bolag som t.ex. Hennes & Mauritz som överpresterat historiskt men sedan väldokumenterat tappat mark. Man vill så gärna att aktien och ens pengar ska komma tillbaka, så man hänger upp sig på att det ju brukade gå bra och därför struntar i märkliga lageruppbyggnader, fallande marginaler. vilseledande information med mera.

Vad som än får din båt att flyta

“Fina bolag”-etiketten fungerar i alla fall inte för mig. Det är för oprecist. Jag kan inte använda det vare sig för prognoser om bolaget och dess finansiella data eller värdering av bolagets prestationer.

Däremot kan jag också i en snabbpitch säga saker som “de har ett teknologiskt försprång och ett genomtänkt affärsmannaskap som sannolikt gör att tillväxten fortsätter vara högre än branschsnittet samtidigt som lönsamheten är högre. Skalfördelar och en från grunden genomtänkt produktion och distribution gör att företaget sannolikt fortsätter att utöka sitt försprång“, dvs jag säger typ “fint bolag och kan därför värderas högre”.

Alla orkar inte alltid vara precisa utåt. Det viktiga är att vara precis där det gäller – i ditt faktiska beslutsfattande.

Så, om du inte är helt säker på att användning av termen “fint bolag” gör dina aktieaffärer säkrare eller mer högavkastande, så var vaksam och gå igenom fakta en gång extra.