Tag: TAOS

Gauge your T-score trading status for better performance, or risk wrong-sizing

Summary: Cornerstone habits tend to make the other pieces of life  click into place

Gauging your status before trading

Before making any trade on the financial markets each day, I’m sure you calculate your T-score*, i.e., subjectively measuring your cognitive and physical status to get a feeling for how balanced and reliable you are. The T-score can be put together in a multitude of ways and works best if it’s individually tailored. However, the following factors are probably relevant for most investors:

(* actually, I’m quite sure you don’t, but perhaps you should start)

  • How much have you slept, how tired are you?
  • What’s your current relationship status, are you arguing with each other? Are you feeling lonely?
  • How’s your economy, how’s your trading been lately? Are you worried about paying your bills? Do you have a losing trade on that’s eating at you?
  • Are you hungover?
  • Are you rushed, did you have to cut your routines short this morning?

Making a quick check on your T-score every morning could do wonders for your investment performance, using it to make sure you don’t trade at all (or size your trades responsibly) if you’re emotional, tired, stressed or unbalanced in some way.

Remember that the most important thing for great long term investment performance is minimizing your number and size of mistakes. Going over your T-score every morning could in addition have positive knock-on effects on your investments and life in general.

The very act could wake you up, make you more alert and aware, perhaps cause you to do other positive things such as going for a morning walk.

Read on for more on such cornerstone habits.

Cornerstones

I build my days around dog walks and workouts. I take my dog out 3-4 times a day, either taking a walk or throwing balls for about an hour.

My sleep, food, meditation and mobility work follow from that. I get tired around 11 pm and typically fall asleep around midnight. I get up when I’m done sleeping, never using an alarm. I tend to wake up at 7 in the summer and 8 during winter. I rise, go out for a walk, then have breakfast including the day’s single cup of coffee.

Further, exercise (and mobility work) makes me sleep better, which quickens my recovery and increases the quality of my workouts. Both make me naturally crave better food and so on and on in a synergistic cycle. During my walks and workouts I listen to podcasts on science, exercise and finance.

Investing

The same principle of cornerstone habits holds true in investing (not mentioning how important a sound body and mind are for an investor).

Keystones for an investor

If you device a plan, a well thought out strategy, it becomes easier to temper yourself, not trading on emotion, which in turn provides time for doing the warranted research and math, which makes for a solid base to actually both improve on your strategy and actually following it. Whether you start with the plan, with controlling your emotions, with doing the math or with practicing patience isn’t that important. Adhering to just one of the habits tends to strengthen the other. That’s the magic of keystones.

The 12 components of TAOS, or the 4 major themes that the twelve build upon are those cornerstones when it comes to my style of investing:

Strategy, Patience, Resilience, Endurance, Zeal, Zen, Agility, Temperateness, Unbiasedness, Resoluteness, Adequateness, and Self-analysis.

Have a plan

Do the math

Wait

Be unemotional

Through this link you’ll find the special artwork that Imcite has crafted based on my ideas, if you are interested in a physical reminder of what I consider the most important cornerstones of investing.

What daily/weekly routines and habits can you think of that would A) fit your life and B) have synergistic effects on the rest of your life, i.e. catalyzing other positive activities that in turn strengthens the original key habits? Check out this post about my keystone habits if you need some inspiration.

  • How about setting aside an hour every Sunday for preparing and scheduling your work for the week?
  • Or, why not walk outside for half an hour every day right after work (perhaps start with 5 minutes and build from there. Aim low to get high)
  • A wild card might be gauging your cognitive and physical status before trading (T-score), and adjusting your sizing and preparations accordingly

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The Art Of Sprezzatura investing

Have a plan

Do the math

Wait

Be unemotional

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

Strategy, Patience, Resilience, Endurance, Zeal, Zen, Agility, Temperateness, Unbiasedness, Resoluteness, Adequateness, and Self-analysis.

And through this link you’ll find the special inspirational artwork based on my ideas.

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

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

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

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

The Art Of Sprezzatura

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

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

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

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

The screwest thing you can do

is think you’re a master of the universe

We’re all just little cogs,

and the universe will go on without us

We have to fit into it and adapt to it.

-Howard Marks

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

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

Money is nothing but a gauge of your progress

toward self-actualization and freedom

Investing is a lot more than just money

—-

Investing for me means building, growing, learning

and acquiring tools for

continuous learning and improvement

Summary

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

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

Analytical: Do the math. Track. Improve.

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

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

P.S. Check out the inspirational TAOS Artwork here.

More than anything else,

what differentiates people who live up to their potential

from those who don’t

is a willingness to look at themselves and others objectively.

-Ray Dalio

 

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

Supercharging the engine

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

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

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

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

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

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

The naked ape

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

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

Scrutinize your own Modus Operandi

Remember that both successes and failures need to be analyzed

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

Inspect

your successes

and failures

thoroughly

Preemptive strikes

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

Identify your irrational tendencies, biases, inclinations and flaws

without preconception

Preempt your own reflexes and emotions,

and control them with bespoke tactics and strategies

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

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

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

Strengthen your strengths

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

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

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

Your investments are made in the interface

between you and the world

You need to know both to get it right 

Self-analysis is the twelfth and final article in my 12-part series of TAOS – The Art Of Sprezzatura (You can buy the artwork here). If you missed the previous eleven articles you can find them here: Strategy, Patience, Resilience, Endurance, Zeal, Zen, Agility, Temperateness, Unbiasedness, Resoluteness and Adequateness.

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

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