Tag: trading

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

Topic: beginner’s guide to trading and investing

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

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

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

Then it’s easy.

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

In the long run… you may lose 100% of your money

Interview with a blood sucking vampire squid

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

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

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

Full disclosure: I never worked at Goldman Sachs

Investing is easy

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

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

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

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

How did

Dr Strange

become such a good surgeon?

-Years of deliberate practice.

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

The most important thing

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

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

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

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

15 years of lost opportunities… or dozens of buying opportunities

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

 

Are short sellers* stupid,

evil

or both?

*of your favorite stock

 

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

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

Hope is not a strategy

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

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

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

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

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

You need to be patient

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

Should you invest in stocks at all?

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

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

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

*TINA=There Is No Alternative (to stocks)

The unbearable lightness of investing:

It is easy.

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

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

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

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

Don’t believe the hype

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

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

Hussman Weekly, Oct 31, 2016

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

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

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

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

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

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

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

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

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

Investing is a piece of cake

-if you’re systematic and humble:

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

Summary – do a little with excellence

-not a lot poorly

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

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

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Trader or Investor? Choose wisely, padawan

Reading time: 10-15 minutes

Main topic: Introspection, self-reflection

Sub topic: 10 Investment/trading types – which one are you (really)

Bonus: Ex ante hindsight analysis, before smashing into the fan

Trader or thoughtful Investor?

Altruist’s dilemma

Have you heard of the reverse prisoner’s dilemma?

Every second day, I walk to and from the gym on a narrow cobblestone path. It only fits one person at a time, or possibly a couple walking very closely together, in effect holding on to each other.

Right next to the path, on both sides, are irregular stones with gaps between, that are both difficult and dangerous to walk on – and hurts the feet even with shoes on.

Whenever two people meet on the path, both parties typically step to the side and walk past each other on the dangerous, stony side surfaces.

Both cooperate and both are worse off

Very rarely, a young kid or an old and decrepit person stays his course on the smooth cobblestone.

I know I could easily hold my ground on the path, but never do.

This is not a story about altruism; it’s about being aware of the world, analyzing it, discerning more or less useful patterns and making conscious decisions as a consequence.

It’s about knowing who you are and what context you act in. So…

 

What kind of an investor are you?

You may be a veteran and knowing both the market and yourself inside out. Or, you might be more or less new to the stock market game, making your strategy up as you go along.

No matter if you have decades of experience or just getting started, I would recommend systematically going over your investment style to see if it fits with your personality traits and natural talents.

Investing and trading is a lot like computer programming, weight lifting or consciousness. There are many levels of complexity not apparent to the untrained eye. Nested coding, self referential pattern repetition in gym periodization, and interest rates entering an investor’s equations from all sides.

These concepts and more (including Bach’s fugues, Escher’s impossible pictures and Gödel’s incompleteness theorems) are explored in depth in the wonderful, Pulitzer prize winning tome “Gödel Escher Bach” by Douglas Hofstadter. Keep that idea of increasing complexity and intertwinedness in mind as you browse the following (non-exhaustive) list of market strategies and the quality requirements of their agents:

10 investor types

  • HFT (High Frequency trading)
    • Financial power (in order to buy the fastest equipment there is)
    • Statistical genius for creating unique or fastest trading rules
    • Political clout (to avoid transaction costs, market abuse allegations etc)
  • Algo (HFT, MFT or LFT)
    • Unique insight into market dynamics; have to outsmart thousands of other algo traders
    • Strategy for changing market characteristics
    • E.g., the Kavastu Algo: “Have 100 different shares in the uptrend on the radar. Select the 40 sharpest for the moment and let them do the job. Then do the other things that are important in life during the day.”
  • Day trader
    • Experience (market “feeling”)
    • Discipline (stop losses are essential)
    • Always on (hard to combine with a day job)
    • Long/short unbiased (to survive bear markets)
  • Swing trader
    • High overnight risk tolerance
    • If you don’t have time to be a day trader
    • If you lack short term market feeling
    • If you lack the patience or analytical skills of an investor
    • If you’re feeling lucky
    • This strategy sounds a lot like a loser strategy for all those that didn’t have what it takes for the other strategies. And yet, this would be my strategy of choice, if I wasn’t a long term, independent/contrarian fundamental investor
      • N.B., I’m not bad mouthing anyone or any strategy. If it works, it works. But does it, really?
  • Situations
    • Connected (to hear about and understand situations like mergers, acquisitions, product launches etc)
    • Up to date (on “everything” – no situation happens in a vacuum)
    • High loss tolerance (when a situation back fires)
    • Smart sizing strategy (to keep dry powder even after a few misses in a row)
  • Earnings
    • Analytical (to outsmart hundreds or thousands of analysts trying to work out the next quarterly earnings and understand what other analysts and investors think and how they are positioned ahead of the next report)
    • Statistical/Mathematical (for finding new leading variables and combinations of variables in order to predict sales, earnings and others’ predictions)
    • Second level thinker (new product launches or rising earnings aren’t enough, the question is what others are expecting)
    • Very high overnight risk tolerance
  • Buy and hold
    • Extreme loss tolerance (draw downs in bear markets are gruesome)
    • Extremely detached (must be able to withstand pressure to sell when all the muppets are screaming at the bottom of a market cycle)
    • Extremely patient (If I’m right and a new bear market is just getting started, in 2016 or 2017 stock markets will be back at levels they first reached 20 years earlier)
    • Can’t stand seeing the neighbors become richer (if the worst thing conceivable is watching your neighbor buy cars, boats and jewellery for a few years during market peaks, you must Buy And Hold to guarantee you ride the market all the way up (and down again)
    • This is not really a strategy, but it kind of works anyway, for extremely dispassionate and pathologically long-term people
    • E.g., the Dividend Aristocrat: “Buy stocks with solid dividends and keep forever”
  • Asset diversification
    • The so called Quattro strategy
    • Curiosity (there are many other asset classes than stocks, many other markets than your home market, and you have to be interested enough to find them, compare them, and put together your own pizza pie of investments)
    • Willingness to do some digging for annual portfolio re-alignment
    • Moderate personality; not impatient or greedy
    • This is the ultimate winner strategy – it doesn’t take super human or inhuman qualities or financial muscles. If you are a moderately curious and patient person with average finances, the quattro will keep making you a little better off every year, and probably keep pulling ahead of the energizer bunnies burning out on exertion and risk in most other strategies.
  •  Fundamental long term investor
    • Patient (Markets swing wildly between extreme overvaluation and extreme undervaluation. If you keep buying once stocks get a little cheap and keep selling once they get overvalued, you’ll always feel over weight in troughs and under weight at peaks, but over time you’ll avoid the BAH-investors maddening highs and lows, while producing at least the same average returns
    • Analytical (You have to do all the work yourself to know when a stock or a market has strongly positive or negative return potential)
    • Mathematical (you do the math!)
    • Independent (contrarian) – sometimes you should run with the herd, sometimes against it. That takes a very unusual personality – rarely possessed by people with many childhood friends.
    • Couldn’t care less about peers or neighbors (“The Joneses bought a convertible, so what?”)
  • Dice thrower
    • Loss tolerant. Period.
    • Happy-go-lucky
    • Devil-may-care
    • Doing it for fun
    • No analysis or research whatsoever
    • Sometimes trades on tips, sometimes on news, trends or whatever
    • Wastes money on commission but do about as well as any ape would – not too bad, but spends unnecessary amounts of time on performing a little worse than an index

Taking stock

Can you honestly say you possess the required qualities? Or could the harsh reality be that you are a fair weather trader that had a bit of luck during the last 6 years’ bull market?

What if you are impatient, loss-averse and not very analytical; a simple Buy The Dip trader with no real strategy or competitive edge? What if the moderate quattro is what really suits you best, but you are stuck in day or swing trading (due to beginner’s luck, and no desire to put in real work), or erroneously assume you’ll be psychologically and financially strong enough to hold on throughout a bear market trough?

 

My five cents on identifying your inherent investor traits

Go through your profits and losses. How did they come about. How did it feel? What if that near miss had been an actual miss?

Does your strategy or stock portfolio entail a single point of failure? Could something happen that would derail your lifestyle? Do you remember when drug lord Escobar had the luck of all the evidence against him burning up, since it was kept in one single, “safe” place? That was a single point of failure (SPOF) on behalf of the District Attorney.

Try this thought experiment: You have lost a lot of money. Assuming that has already happened, analyze how it happened and what to do to prevent it. Be creative.

Do you think low interest rates warrant higher asset prices? Day after day?

Then you are cooperating with central bankers who try to push up prices in order to kick start the market, and they are cooperating with you by keeping rates lower for longer, since all buying power is going into assets instead of consumer prices. Consumers postpone wage increases thanks to the wealth effect from houses and stocks.

The dance continues until it reaches a breaking point with collapsing asset prices and a sudden rush to cash, demand for higher wages to compensate for losses and rush to consumption when cash and wages eventually spark inflation.

Just like on my cobblestone path, all parties more or less unknowingly cooperate with each other, but everybody becomes worse off in the end. Faith in central banks will plunge, asset owners will lose money (albeit fake and inflated), consumers will suffer through a stagflation.

 

No harm no foul

As long as you know who you are, what kind of an investor you are, what your life is about, all the above is inconsequential for you. As long as you have matched your personality, your talents, your strengths and weaknesses to the actual threats and opportunities – and adequate targets – you’ll be okay.

Assuming you only participate in games where you have an edge (analytical, financial, psychological etc.), or games with only winners (quattro) and have set your targets in a self-aware manner, I’m sure you’ll come out on top.

 

Be careful what you wish for

As I advised a friend this summer, point targets are for losers and incremental strategies are for winners.

Aiming for retirement, financial independence or any such thing that depends on the final outcome is moot. Unless you enjoy the incremental progress, the journey in itself you’re highly unlikely to enjoy the end game even if you get there (and truly hate yourself and your life if you don’t).

 

Summary – be you, not a Jones

Are you a trader, an investor, analytical, patient, truly interested and capable, or do you just want to make some easy money?

Think carefully about what actually drives you, and match your traits to your portfolio (and life) strategy.

Avoid creating a single point of failure (in your life, as well as in your portfolio)

The end result of life (became rich, made it to old age) should only matter marginally for your total happiness compared to your appreciation of the process of getting there.

Investing is really complex and difficult. Take that to heart and think about what your competitive advantages are – or if you should choose a semi-passive Quattro strategy instead

Don’t silently “cooperate” by default; be independent and honest – at least to yourself. Remember that no Jones likes being beaten by another Jones. Just as it is street smart to let oneself be convinced by the other party in an argument, complementing on their wits, you’ll be more liked if you don’t keep up (ahead of) your neighbors than if you do.

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Och om du är svensk ska du förstås lyssna på min podcast “25 minuter” (t.ex. på Soundcloud) som idag (9 november 2015) handlar om just att hitta sin talang. Glöm inte att prenumerera på kommande avsnitt i iTunes, Podcast Addict, Podcaster, Downcast mfl plattformar.

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Change or die – learn to appreciate the cheaper things in life

Aiming for a career in finance? Read this first

This (be warned: quite self-centric) post contrasts the life as an analyst or portfolio manager against that of an early retiree. It deals with the alleged dangers of retiring, and postulates a solution (always be investing).

For the budding investment professional, or potential quitter, my two “days in the life of” should be of some worth.

In addition, during your 30 minutes here, you’ll get my two cents on happiness and purpose (experiencing, understanding, creating and sharing), as well as scientifically based advice on how to make tough decisions such as quitting your high status job, or ditching Med School for a trip to Thailand with your boyfriend since just around a year (my little sister just announced that little gem yesterday).

priceless

Warning: if you are still ‘raw’ since 9/11, be prepared for insensitive opinions from my former self.

 

Life topology, please

I quit my position as a hedge fund manager some 18 months ago. That’s a pretty big step for a 41-year old – still in the first half of a normal working span for a Western world citizen. My environment was flabbergasted, but for me it was the only sane thing to do; end homeostasis and establish a huge ‘milestone’ to pivot the experience and memories of living around.

I often talk about the disproportionately benign effects on humans of convexity. With that, I mean making sure life is a roller coaster that includes many and frequent ‘moderate extremes’.

Living life laterally (focusing on new things periodically) ensures accumulating a unique set of experiences and skills, which strengthens the monopoly of you and enhances your value as a partner or employee. Apart from the external worth, it simply makes you better and happier as well.

Exposing the body to moderate extremes, such as cold, heat (sauna), hunger, dehydration, strength training overreaching, varied foods, capsaicin (chili), broccoli (actually slightly poisonous) etc. makes it stronger. And feels kind of good in a Samantha Fox-y way “I couldn’t decide between pleasure and pain“.

Challenging the brain with unusual tasks increases brain plasticity; the very ability to learn: meet new people (much younger and much older), read books and watch documentaries recommended to you, even if you never would have otherwise.

Move on, if too boring though. The last few weeks I’ve read Half Of A Yellow Sun and New Delhi Borås, watched the movie “The Man From Earth“, and the documentary “Of Hearts And Minds” based on spontaneous recommendations. They were all completely off topic for me, but one was excellent and the other not bad. All were useful.

All of the above is often fun too, in the now, and makes life seem longer and fuller in the retrospect, due to more milestones (Brain Science research).

 

Change is good

In short, variation is healthy and fun. Actually, not changing is downright dangerous; homeostasis means slowly decaying and dying. Both the brain and body will “rot” if left in the comfy zone for too long, and before you know it Alzheimer’s or muscle atrophy will get you.

An additional piece of evidence comes from the podcast Freakonomics, that shows that if you have a hard decision to make, always take the active route, for increased happiness. That goes for everything from quitting your job to ending your marriage or selling the car – or cleaning out your not so recently deceased grandmother’s old apartment and sub-letting it.

I didn’t know all this explicitly when I quit, I did feel, however, that I was slowly shrinking as a person, that I was losing my versatility of mind. But, perhaps most important of all, wealth, contacts, power and experience had finally taught me to appreciate the cheaper things in life*. In addition, I had had time for introspection and realizing status just wasn’t interesting. I wanted to live for me, not others.

*growing up in the lower middle class, I just had to show off my new money with sports cars and watches. It took me some ten years to get over that phase and value curiosity, intelligence and experiences much more highly than conspicuous consumption, envy and empty admiration.

 

This is what changed

A day in the life of me (now)

Last Friday (August 14, 2015), I got up at 8 a.m., after 8 solid hours of sleep. That’s typical.

I work out every second day and on those days I have exactly one cup of coffee after walking the dog for an hour, but before gym – and no more caffeine for that day. This was such a day. Consequently I had a cup of coffee and went to the gym.

After my pretty long workout (they have stretched out to 2 hours of weight lifting rather than 1, since I retired), I had one quart of milk (1 liter) in the dressing room. I want to provide muscle fuel as soon as possible, not least since after my gym sessions, I’ve typically gone 16 hours without any nutrition. I do 16:8 fasting every day (since January 2013).

Back home, I had a quick shower and a protein shake (olive oil, milk, raspberries, blueberries, 1 banana, 50g protein powder), and then took a brisk 20 minute walk to lunch (fish buffet) with my first boss, and Ludvig at SGM before sitting down for a lecture on Omega 3 and other fatty acids. I (re-) learned a lot – and this time I wrote it all down (!)

Right after the lecture stopped at 2:40 p.m. I had to walk just as briskly back to my apartment, fetch the dog for her second outdoors this day, and then walk even faster for 30 minutes to another meeting.

During my few minutes at home, I did make time to buy some Brent oil (at what happened to be the low of the day, and the lowest price in many years – but I’m sure it won’t be the low of the cycle, though).

My old friend from secondary school and I met in a park to discuss his world changing business idea, before I walked back home with Ronja (my dog) again. By then it was about a quarter past 6 in the evening, and I hardly had enough energy to make dinner after all the walking, discussing, thinking, taking notes, working out etc. Hence, I just heated something from the sub zero and served with pan fried french fries and a hot Asian sauce.

The rest of the day, between 7 pm and midnight approximately, I just relaxed with an old sci-fi movie that a blogger friend recommended, walked Ronja a third and final time, and then finished the day with the season finale of True Detective season 2.

I certainly do know how to kick back and relax; it’s what I do best – paleolithic campfire time. Actually, my original plan for retirement was to just read books, take walks and in general do nothing. I literally wanted to be a DNB (as per R Rousey).

I knew retirement research shows you shouldn’t be passive when retiring, nor watch a lot of TV, but I am used to proving people wrong and looked forward to doing so again.

However, somehow, a dog, a blog, several book plans, new contacts, new energy, science podcasts and curiosity came between me and the hammock. It probably was inevitable all along. Some people have a certain energy that won’t die; it’s just that most of those stay in institutionalized work if successful there.

Not I; I had done my years, and then some, in whore village, and now it was time for the artist presently known as SpreZZaturian to emerge. And that’s an artist that just can’t help always investing…

By the way, I have always applauded artists switching genre, whereas most people I know enjoy seeing movie stars fail as rock artists or the other way around. Who else has the opportunity to really go for it? Who cares if it sells, that’s second hander thinking (Ayn Rand).

 

A day in the life of me (before)

Scene: September 2001. My hedge fund (Futuris) had had a pretty good year so far, doing guerrilla warfare against tech stocks – in after dead cat bounces and out after wash-outs, sometimes around earnings, sometimes between, depending on market sentiment and indications from tech industry peers. We didn’t know it then, but we were laying the foundation for a Morningstar Gold award (as well as the HFR Decade award much further ahead).

I got up, sleep-deprived, at 6:52, but dressed within a minute (I’ve always had a psychological problem with rising before 7; it’s just not for humans, not this one at least). Despite better hours since quitting sell-side, there still was a sense of face time, and of having to be on top of all new information before the start of the market.

I occasionally tried getting up as late as at 7, or even later, but then my mornings became too hectic, and I always succumbed and gradually moved my alarm clock back to the time that was optimal for me; 6:52 am. By setting the alarm at the optimal time, I know when the alarm rings that I have to get up right away and thus never, ever snooze, not even for a minute.

I arrived at work at 7:30 a.m. (a year earlier I still was on a 7am-7pm office hours regime [and then more work from home], which was much more humane than during my first years on the sell-side, but still didn’t leave much room for living). After finishing reading Financial Times and other news, I was off to a tech conference held by a nearby bank.

I also typically used mornings for quickly browsing up on names, events, suppliers/brokers, abbreviations etc. that just wouldn’t stick in my asocial mind. I knew that if I didn’t, I would look like a fool several times a day.

I’ve always had a mild firm of face blindness as well as difficulty remembering details I think are less important, like who works where and with what. That can unfortunately make me seem arrogant, or just plain stupid. During my last three years in the business I stopped pretending, and predictably got the obvious “Alzheimer’s?” comments.

During the tech meetings that day, September 11, 2001, I as usual tried to ask ‘smart’ questions to pry some forward looking information out of management. In reality it was often the same questions as before, and several times over:

  • Why?
  • But why?
  • Okay, but why?
  • Does it really work that way?
  • How?
  • But in detail?
  • Why?
  • You want fries with those lies?

The above questions work better with some added knowledge:

“You said in the last quarterly report that you aimed for X but got Y; How come (why)?”

Then be ready for the answer with a prepared follow up question that sets a trap, that reveals either A or B:

Okay, I see, but then why did Z happen, doesn’t that mean that either A or B, which proves that Y was in the books to start with, rather than X?! Or does this one go to ‘eleven’? (Hah, got  you!)

The year 2001 was a time when tech valuations were coming down wholesale, in particular around earnings seasons, since the companies had no way to live up to the ridiculous expectations set a couple of years earlier. I didn’t know definitely that 2001-2002 would turn out to be ‘the big one’, the IT crash, but my spidey sense was definitely tingling.

Please note that this was after 18 years of bull market, and before the crashes of 2001-2002 and 2007-2008, so there really were no recent precedents – and we nevertheless worked with the idea that a big crash was in the works.

 

Trust no one

It wasn’t until this time (very late to the game compared to my peers), around 2001 that I eventually understood that you can’t and shouldn’t trust company management.

They are nothing but hired marketers, and they are not there to guide you to the truth.

Founders are even worse. They believe their own hype, and are blind to the negatives.

Michael Hasselquist (former chairman of Nyckeln and CEO of Beijer Capital, among dozens (!) other assignments), who was senior partner at Futuris 2001-2002, used to pose two key questions:

“Which E; whose E? Which S?“, regarding Price to Earnings and Price to Sales ratios as a basis for stock valuations (implying the E or S could change, was forecast by somebody with too little information or with an agenda),

and

“Would we, you and I, buy the entire company if we had enough billions privately?“ (thus making sure the valuation level was sound and sustainable and the risk level appropriate).

These days (August 2015), those questions sound obsolete and irrelevant, and I’ve been made fun of for trying to spread some truths about normalization of growth, margins, valuation and debt, but I suspect the time will come again for Michael’s piercing questions. Soon.

 

Coffee machine

During meetings like those on that day, September 11, 2001, I typically had a small cup of coffee or two, and stuffed my mouth full of candy, during every presentation and Q&A session. I tried to limit myself somewhat, but during 5-10 meetings over a whole day, I could easily eat half a pound of candy and drink 6-8 (small) cups of coffee.

That’s quite a contrast to 15 years later, when I stop at one cup every second day (to keep my caffeine sensitivity high, and to ensure good sleeping habits).

 

Trading with the enemy

I went back and forth between my office and the conference venue, and during one of my breaks at the office, suddenly CNBC started showing smoke billowing from one of the World Trade Center towers in lower Manhattan.

I tried to make sense of the size of the hole and soon realized that it was really, really big – something you only know if you’ve actually been close to the absolutely huge and wide towers in real life. Fifteen minutes later I happened to see the second plane smash into the other tower in real time.

I then had to leave more or less immediately for more meetings, as if nothing had happened. I did not realize what a pivotal event I was witnessing.

Back at the conference during a Q&A session which was suspiciously empty, I happened to casually tell the CEO (he and I were alone together and he wondered why there were so few attendants) of that particular company that two jumbo jets had crashed into the WTC towers. His face turned pale immediately. He understood the world had changed. So did a friend of mine, who that very day was about to launch his new long haul private airline service…

When I got back to the office, I made a few joking remarks, thinking that the gains we made on our short positions should have people in a festive mood – even if it meant financially being on the same side as Al Quaeda and Bin Laden (though they were not yet associated with the event at the time).

Nope. Not so much. At all. No giggles for me.

“One tower has fallen and is completely gone, and the other might fall too. This is way past any kind of jokes” is what I got back and a dead serious look.

I hated it. We made gains. The towers were already gone, that was in the past, not our fault, and not anything that could be changed. We didn’t know anybody in the towers (although I couldn’t know that for sure).

My not so empathetic brain could only see that we made a lot of money and should be happy for that. Everything else was out of our control anyway. Besides, I thought you were always allowed to joke about everything, unless somebody directly affected was within earshot.

I hated being taken down from exhilaration; pride even (for being short at the right time). I felt constrained, controlled, not living up to my full potential. I didn’t feel like that very often in 2000-2005, but after 2010 I did. It felt like being reprimanded and controlled by “the adults” for no logical reason other than political correctness. I did feel that way on September 11, 2001.

As an aside, other things I started hating during my final years were  snappy market sound bytes: when in doubt stay out, long and wrong, trend is your friend, don’t fight the Fed, Trade when you can, not when you have to, etc.

They sound good and they are based on a kernel of truth, but not as much as implied or assumed. I am guilty too though; increasingly so with time. I mean, they do sound good, you sound professional and cool.

It’s the curse of vicariousness again; living for others, through them or for them, instead of doing what’s real and what works.

After the WTC towers fell, the US markets were closed for a week, then opened -7% on the first day, and lost another 7-8% during the rest of the first week.

We covered our shorts a bit too early – and not really based on economics or fundamentals but on political correctness (“we can’t be seen profiting too much from this carnage“). I couldn’t believe that last reason; I hated the notion, but I kind of agreed with the actual decision to buy anyway. Also, I really didn’t have much real say in the matter back in 2001. It was the two senior PMs that called the shots back then, while I was just an in-house analyst.

 

It got old, or was it just me?

That day was so much like many other days at the hedge fund – jam packed with both mundane tasks, such as routine company meetings and information gathering and management, and acute fire fighting. And it was all wrapped up in the not so cozy feeling of “what if that was the wrong decision“, “what if we will look like fools…, or bandits“, not to mention the occasional wet blanket of “I don’t agree“.

All in all, I of course loved working at Futuris 2000-2015 (my last day was on January 1, 2015), and most of my days, weeks, months and years there were Laterality, Topology, Convexity and (not so) Moderate Extremes in a nutshell. Those years more or less made who I am today, through all the ups, downs, hard work, celebrations and frustration.

However, toward the end, the ondulations seemed smaller and confined, the fluctuations one-dimensional and my financial motivation for staying gone.

So, I quit; I just up and left a day in January 2014. Or, so I thought I did, but was convinced to stay as the managing director for a year, to smooth things over during the transition. Surprisingly, the fund was wound up just 9 months later for other reasons. During my 9 more or less idle months at the firm, I had time to rediscover the (my) true joys of life.

 

Keep investing

My reason for quitting was a drive for more change, for investing in myself, for growth, not the opposite. I think that’s why I haven’t experienced the kind of emptiness and lack of purpose many retirees and retirement researchers talk and warn about.

 

Value of life: Experiencing, understanding, creating and sharing

Hanging out with power and money was interesting for a while, not least considering my background (read the book), but soon enough I understood that the basis for happiness lay elsewhere. Finding out exactly what is a work in progress, a task that I guess, and hope, will take the rest of my life.

Right now, however, a few of the ingredients that I think are key are

  • experiencing (very broadly; and paying close, mindful, attention to the experiences); using the body and the brain to their fullest
  • creating something meaningful, something to be proud of, either the effort or the end result – this typically means not working for somebody else

My life mission can be expressed as “Experiencing, understanding, creating and sharing; for getting and lending perspective”

 

“I’m sigma”

N.B. that if you were hoping for fast cars, fast women, impressive yachts, money and “Versace, Versace, Versace!”, you’ll be disappointed.

But, but, but,… what about approval, and women? Well, if they aren’t intelligent and curious enough to appreciate the cheaper things in life, I’m not interested in playing their game. I’m not alpha or beta, I’m sigma. 

 

The little things

Last week I got the ‘innocent’ question of when I am happy.

The word “happiness” doesn’t quite describe the ultimate state of mind, but let’s use it as shorthand for the the state I or you want to reach.

On the one hand there is the overarching oceanic big happiness that carries me over the years and decades. It’s built on freedom, knowing and accepting myself etc. On the other hand there are moments of more intense everyday happiness. For me the latter take many shapes:

  • Smells: tar, sea, gas/petrol, cinnamon buns, wet dog fur, newly washed hair
  • Insights: aha moments, connecting the dots, reading and understanding new concepts, learning something new
  • Coming home to my dog, Ronja (German Shepherd – Doberman)
  • Connecting with new and old friends
  • Mind altering: fall asleep, wake up, drink, sober up, leave, arrive, coming home
  • Food and rest after working out
  • Projects; planning, progress, fulfillment, growth for me and the project
  • Positive surprises, being scared, laughing
  • Completing projects, constructions, articles
  • Touch

The common denominator is progress, phase transition, change or growth (including completion and closure), including varying sensory experiences.

 

Summary: Make the change already!

Take the leap. Change. At least if you are in doubt of whether to stay or go, you should definitely go. I say it, Freakonomics says it, brain research supports it, Ludvig at SGM is at war against homeostasis… What more do you need?

Be prepared for finding something else than you might expect, though.

Learn to appreciate the cheaper things in life ;) Anybody can buy expensive wine, but searching for a good cava or prosecco is much more rewarding. In addition, that’s the kind of smart and interesting people I like hanging out with.

Investor wanna-be? Learn to ask the right questions, then ask them again and again. There are no points awarded for originality. And, do not trust company management. Always read between the lines and expect what can be hidden to be kept in the shadows. Never take words for facts, demand numbers, make the calculation and assessment yourself whether “growth is good” or not.

Trust no one. And, remember: “What E? Whose E?”. But, perhaps most important of all, question whether you really want a job in finance, and why.

Identify your own true joys and pursue them. Learn, accept and embrace your personal traits (but be smart about it, you don’t always have to be you – just know who you are and accept it but don’t flaunt it unnecessarily – definitely not on job interviews, first dates, client meetings etc. I’ve done that enough for both of us)

 

Now, make that change you’ve been pondering, and stop hating: Stop hating people who change. Stop hating your situation, your environment or yourself for not changing. Just do it. Always Be Investing. And by investing, I mean signing up for my newsletter and reading my free eBook (with more planned).