The stock market seems to have thousands of anchors. These anchors are variables that pull prices in one direction or the other. A few main anchors are fear and greed at the psychological level. Other anchors are technical analysis, which involves looking at charts, and trying to forecast buy and sell signals. A fourth anchor is fundamental analysis. This is when one looks at what a company did financially, over the last 1-3 years. Regardless of what anchors you follow, they won’t always align with your desired risk tolerance, or time horizon. In other words you’ll still have to pivot if you rely too heavily on any given anchor.
Tag Archives: Analysis
Portfolio Luck.
The real skill in investing, which is not actually a skill is luck. Having the least amount of bad outcomes, plus a few superior good years, over a long enough period is how it works out. You can calculate a discounted cash flow analysis until you’re blue in the face. Doesn’t mean you’ll get what you wanted. But making less mistakes will surely work in your favor, if you exhibit enough patience and discipline.
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Discounted Uncertainty.
I’ve learned that when it comes to discounted cash flows, a discount rate is more like a decision mechanism. It’s not a crystal ball. It’s not a prediction. It’s enough information to make a decision on whether or not you will buy a business at a given price. Yes this is simplified. However simplicity is the point. You still have to make assumptions, and have expectations for what you hope will happen after investing in a business. It’s just easy to get tied up in numbers, assuming they are absolute or certain in terms of outcomes.
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DCF to Death.
You have to make assumptions if you’re unsure about the future prospects of a company. Just because you assert some perpetual growth rate, doesn’t mean it’s going to play out as expected. Even a margin of safety is a “I’m too dumb to know” boundary.
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5 Year Itch.
I’ve officially managed stock investment portfolio’s now for 1,826 days. Roughly 260 weeks or 43,824 hours.
I’ve documented a lot of my best and worst ideas on stock investing in real time.
Writing about markets has made things appear to occur a bit slower for me.
Occasionally benefiting from outperformance.
Drawdowns have forced me to focus on the elements of investing that never change.
Below is a list of investment ideas I find useful. I also threw in some lessons you might like if you’re new to stock market investing.
1). Sentiment is a feeling. Feelings are based on emotions. Emotions typically come with irrational behaviors.
2). Fundamentals are foundational to getting the odds on your side. It doesn’t mean they’re bulletproof.
3). There are no sure investment ideas. Just probable outcomes.
4). Just because you bought a stock doesn’t mean it was a good investment.
5). When you understand that stocks are actually pieces of real businesses, you begin to think about what you own in your portfolio.
6). The biggest risks in investing is assuming you can avoid risks.
7). If you calculate it to the thousandth decimal it’s probably a bad idea.
8). If it requires a margin account, you should probably close your brokerage account immediately.
9). I was wrong about commodities. They function based on real world conditions and cyclicality. (Obvious I know).
10). Before you average down, ask yourself whether the economic characteristics have structurally changed?
11). Headlines anchor the herd. What you see can cause the squeeze.
12). Surviving the aipcapex conundrum is simpler than you think. (I never said it was easier).
13). Copying your heroes works great until it doesn’t. You never knew their reasoning behind the acquisition. Oh and your net worth is far lower than $380 billion dollars. Invest like it.
14). If you found this list on TikTok, close your robinhood account and come to fidelity. It’s quieter over here.
15). If you need to ask someone for investment advice, you’re doing it all wrong. Think for yourself. Why are you buying the business to begin with?
16). If you’re trying to get rich, get a degree, and a high paying job. If you’re trying to build wealth, learn how to buy profitable businesses.
17). If you think about investing in terms of days, weeks, or months, close your brokerage account and put your money in a savings account.
18). If you’re afraid we’re going to go into a recession you probably shouldn’t be investing in the first place.
19). If you plan on selling every top, become a hedge fund manager.
20). When fundamentals are in line with price, load the boat. The price ticking up a dollar or two is not a signal to stop buying. It’s tuition into the school of Alpha.
21). Envy will cause you to lose more money than you can stomach. Mind your own business.
22). The greatest skill an investor can possess is not mathematical knowledge. It’s not access to unlimited data. It’s inactivity.
23). If the market falls and you don’t get excited, you’ve missed the point of investing entirely.
24). Every time you buy a share the price is changing. Be sure to add up the price of each share you’ve bought. Next divide that total amount by the number of times you’ve bought. The answer will show you what price to buy at the next time you have capital to invest in that particular business.
25). Read and think 70% of the time. Invest 20% of the time, sit on your ass the other 10%.
26). It doesn’t get any easier. You simply learn to have more patience over time.
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A-void Theory.
Typing into the void about fundamental analysis, or whether tech is in a bubble is hilarious, awkward, and beneficial. Hilarious because I never get any feedback yet continue to publish. Awkward because I could easily stop publishing and just save this to a hard drive. Instead I keep hitting publish. Beneficial because I can think through what I’m acquiring and why. I can try to find holes in my own reasoning, and continue to push myself to improve my understanding of businesses.
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Repetitive Returns.
When you experience the same market conditions throughout multiple cycles, you think you know what happens next. This is when you start speaking in absolute terms. You create catch phrases, and extrapolate historical data. Since you’re prone to confirmation bias, you find exactly what you’re looking for in terms of historical drawdowns, dynamics, or bullish behavior.
What you fail to account for is the speed, and intensity that open and close windows far faster than any other time in history. This creates antsy antics, and belligerent behavior. Losing sight of fundamental foundations. Only to find that you’re either too early, or too late to the party. While trying to be right works 50% of the time, there may only be a 30% probability of successful capital deployment.
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Beta Downgrade.
Is volatility a measure of risks? No, which Howard Marks already covered in many interviews.
However it is a sign of activity which is enhanced or diminished by way of short term news. This news comes via quarterly reports or headlines, and eventually fundamentals, or exogenous events like geopolitical or regulatory changes.
Unfortunately someone decided to describe volatility as risky. It makes no sense.
An academic investor might think “this company’s beta is 1.5, and that’s too risky an investment to make”. What they may fail to consider if beta is heavily influenced by their thesis is fundamental foundations.
Yes a business (stock) may have a high beta.
What if it also has a debt to equity ratio below one?
What if the high beta company has retained earnings up the last several years?
What if the high beta company continuously pays down debt, has low capital expenditures, and a rise in revenue and net income?
If the beta is high but the return on equity, return on assets and liquidity ratios are also high does that mean you have to pass because the beta is rising?
What if this company also possesses technological immunity from things like ai infrastructure, and automation?
What If the business beat estimates the last 5 years? Yet you forego the deployment of capital because of a Greek word that means “house” currently functioning above the number 1?
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The price you pay…
An investment is only interpreted as wise after the fact. If a company makes headlines for declining profits, the stock gets sold in droves. Many average investors see this as a sign to stay away. They only want investments that go up in price. Disregarding the actual value of the business tied to the stock.
However a scenario like this often leads to undervalued equities. It takes a lot of courage, patience, and in some cases contrarian thinking to see the opportunity for increased returns via an unloved company by way of a falling price. This of course assumes the fundamentals of the company are steadily improving over time after short term disappointments fade into the background. The tricky part is the time frame we see as retail investors in the short term (less then 4 years via 10-k reports). This is where you have to illustrate independent research and conviction in the company you are interested in buying.
A falling price and steady growth via economic characteristics makes for the possibility of sound investing, and positive returns over the long run.
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Closed Minds Don’t Get Fed.
It gets more challenging to write when you actually consider what you know about a given subject. I don’t know too much about anything. In the past I’ve written about a lot of things I thought I understood. Realizing as of late, I was not in that field of work, and only had an outsiders perspective. Which is trivial at best. I suppose some might argue that you don’t need to be a professional in the field to speak on a specific topic. This may be true in terms of the freedom to speak your mind.
However, this same freedom ignites ignorance among many of us. Often times we are far too quick to give opinions on things that are beyond our understanding. Just because you can infer what the topic is about, does not imply true understanding of what is being discussed in a particular conversation. What I’m really saying is, many of us, need to conduct more research before opening our mouths and potentially making fools of ourselves.
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Opinionated Ignorance.
Often times we speak on fields we’re not directly involved in. This can make us seem arrogant, ignorant, and out of touch with reality. Why does this occur? I’m really not sure. I can think of two problems that seem to exacerbate this issue, if I’m using a little common sense.
1). Open Access to more information than ever before in human history.
People may feel as if their ability to simply “look it up”, is a sign of prestige, and or critical thinking skills. They may feel like an extensive google search session is conducive to thorough research and understanding of a given topic.
2). The crowd will often back you.
It’s much easier to find people casually agreeing with whatever you say. They sometimes agree without an ounce of skepticism. In other instances, people are so stubborn and contrarian that they fail to recognize when a piece of information is factual or when an argument has validity. Because of this they may dismiss an idea steepening their cognitive dissonance along the way.
Is it necessary to bring ideas to the table in order to move humanity forward? Yes. However, we sometimes fail to distinguish the difference between facts and opinions. We also fail to understand that most things we speak on personally are beyond our intellect.
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Critical Thinking Hypothesis.
Critical thinking is now becoming a buzz term and it sucks. I’ve had it as a tagline on my blog for years. The rise of large language models, via artificial intelligence is where the buzz comes into play. Since many are now becoming overly reliant on chats bots, and artificial intelligence as a means to being “productive” critical thinking seems to be at risk of becoming nonexistent. Why? Because large language models spit out instant responses. They also appear to give you data that sounds factual, even if it’s not. They also stroke your ego with compliments regardless of illogical inconsistencies or irrational reasoning on your part. As if having access to google wasn’t bad enough. We now have a customized version of it that is privy to errors, and can make up things that don’t even exist. Now there are a few reasons why critical thinking might be declining at a rapid rate due to heavy usage of LLM’s. I shall try to explain this without the use of google or an LLM. In others words I’m making epistemological and or empirical inferences. These inferences being justified by my own flawed reasoning and assumptions about the decline of critical thinking within our modern society. My anecdotal observation as to why critical thinking is declining will be outlined by the following two key factors.
1). Critical thinking was expected in the classroom but never truly understood or taught.
If you’re a child, having to write a paper you may misinterpret the purpose of this task. If asked the purpose of the paper, you may say to get a good grade. However the instructor may not inform you that yes part of it is for a grade, but the process of outlining and writing the paper is to build up and improve your critical thinking skills. As students we might look at citing sources as a means to end. However the citations are only meant to prevent plagiarism, and or to help you illustrate your ideas based on historical facts that predate your perspective on your subject matter.
In other words understanding why it’s important to consider those who have written about an idea before you, will force you to consider a particular topic with your own perspective. This preventing you from spending page after page, restating what everyone else has already said. Teachers can read papers and easily decipher what history says, versus whether you actually thought about the subject you picked. This gets to why citations and research are crucial to laying out your research paper. The writing process is nothing more than detailed, and organized thinking. If you can’t think critically, you might not be able to write clearly. If you can’t write clearly based on the skill set of critical thinking, you might not be able to speak coherently. If you can’t speak coherently people won’t understand you. This being the case, you’ll never be able to get or maintain a job. You’ll lack interpersonal communication skills, and won’t make friends. This may lead to an inability to pursue, acquire and maintain a romantic relationship. This being the case, you may ultimately find yourself in poverty, alone, and unable to solve your problems. Simply put, the ability to think critically allows one to solve his or her smallest and biggest problems in life.
2). How do we define critical thinking? A simple definition might be, one’s ability to solve major and minor problems in one’s life.
Another definition might be to inquire, infer and, interpret information in order to arrive at a conclusion.
Perhaps the biggest challenge to keeping critical thinking alive, is defining it properly. Because a proper definition allows one to understand how and why critical thinking is important. The reality is, you can’t live a fully functional life without critical thinking as a foundation for your life.
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Existential Economics.
From the end of 2020 to 2024, I immersed myself in the world of stock investing. I read 5 to 8 hours a day. I probably listened to each Berkshire Hathaway annual meeting hundreds of times across the 31 year period. I wrote about it. I eventually acted on some of what resonated with me the most. I dug deep enough to realize there is no holy grail to investing. The whole process is circular. Just like our lives, you derive meaning from your specific purpose of investing. Some use investing as a means to accumulate wealth to buy more stuff. Others adopt the practice of investing as a career path. There are those who try decoding the process to find out how investing is done successfully, and whether there is a secret or catch that isn’t talked about. Some investors just like the process of keeping score or playing games of chance.
The whole process is pretty simple. Warren Buffett who is perhaps the most well known investor in stocks and wholly owned/partially owned businesses summed investing up to a few things.
Staying within your circle of competence. Which means only investing in companies you genuinely understand. Investing money now (buying stocks). In order to make more money later (capital gains). Discounted back to the present day (calculating intrinsic value). Never losing this invested money. And never forgetting that never losing the money is the most important thing in investing.
I thought there was more to it than this. I suppose my expectations were far too high for someone just getting started. I feel like I’ve learned 100 years worth of lessons within a 4 year period. Unfortunately the next best step is to restart the entire investment process all over again. The benefit this time, is being a little more informed on how this whole process works. If I had to give educational advice on how to approach stock investing, I’d say savor the information as much as you can.
In other words slow down the process of learning how to invest successfully. Because once you learn the fundamentals, it’s rinse and repeat. You can easily get caught up in equating understanding to increased competence. This is probably where I’ve made my biggest mistakes as an investor. Just because you understand the basics, doesn’t necessarily mean you can approach every industry with the same attitude. Said another way, some businesses grow fast, some grow slow. One business might require very little incremental capital in order to growth over time. Other businesses need tons of capital and still might remain in the same spot as their peers. An effective strategy might be treating every business like it’s both your first and last investment you’ll ever make. Even with this approach you’re still not guaranteed a successful rate of return.
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Stop Your Fear.
When you don’t know what’s going to happen next, you operate in fear. How can that fear be overcome? Familiarity. In other words, getting comfortable with the fear. Familiarity breads predictability. Predictability leads to comfort. Comfort alleviates constraints. The catch? Not allowing comfort to become a form of laziness.
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Right Mind. Left Lost.
The desire to be right can stifle your ability to learn from mistakes. Because of this you could end up impeding your progress.
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Rational Dependence.
Is it possible that one cannot be rational independent of environmental or external factors? If you are stranded alone on a planet indefinitely, and begin talking to yourself, is this rational? In a group setting talking to yourself may seem strange from a cultural perspective, when you have the ability and opportunity to talk to those around you. If everyone is ignoring you, is this same behavior grounds for rationality to speak to yourself? Why is it that one scenario seems odd, yet another is culturally acceptable? Perhaps it stems from psychological coping mechanisms. Self-soothing, or means of comfort in an uncomfortable situation compared to the same actions in a group setting. There are contextual and interpretational nuances that may arise when you consider what is appropriate when engaging in a given behavior across multiple scenarios.
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Skeptical Tendencies.
Skepticism is not a flaw as long as it prevents existential paralysis. In other words it can lead you to a deeper understanding of your own experience. It’s not something to remove from your character. It can actually improve your life. Opposing skepticism outright is believing in any and everything that appears evident physically or psychologically.
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Recursive Transcendence.
Even if we could transcend our physical bodies, we’d still be merely a spiritual derivative of ourselves. So we’d need to transcend that being which transcended the original embodiment. Even at that, we’d have to become something or someone entirely different, which again, is merely a derivative of the original body.
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Binary Distribution of Existence?
Some people try things, with the intent of improving their lives. If it doesn’t work the first time or at all, it may be considered strategic failure. Some would attribute this scenario to calculated risks. There are others who succumb to life’s pressures, and do nothing to adjusts their circumstances. Another example might be mediocrity or doing the bare minimum.
This might look like outright failure, which of course is a bit subjective to ones perception of reality. These two scenarios create a binary system of existence. Is there room for a third outcome? Perhaps inadvertent failure? What does an example of this look like?
Getting injured in collegiate sports? Investing in a cyclical business? I suppose it gets messier as you look at more examples. This may be the case because of things like probability theory. Simply put-the likelihood of something occurring or not occurring.
Some things in life are random. If this randomness gets classified as outright failure we’re more likely to get a flatter version of the bell curve distribution if looking at the whole idea via statistical analysis. All of this being said, there aren’t many options for most of us in terms of success or failure in life.
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Selling signals senior superiority.
Retail investors have increased their presence in the stock market over the last 4 years. I have’t found exact figures, but a rough approximation could be close to 20% of market activity. The recent influx of retail capital is a good indication of potential wealth gap narrowing. However, the scales will more than likely remain significantly unbalanced over time. This being the case, it would seem likely that retail investors are encouraged by the prospect of one reaching wealth status or some sort of financial independence.
What most retail investors keep overlooking from a psychological and sustainability perspective is the time horizon. You’re looking at 30 plus years of consistent and uninterrupted compounding. This of course is predicated upon the idea scenario where you previously purchased businesses via the stock market below their current or future intrinsic value. The phrase “patience pays” is an understatement in relation to coming remotely close to any sort of financial stability via passive or active stock market investing. Another caveat is ensuring that you configured your investment settings to DRIP mode.
DRIP is an acronym for “Dividend Reinvestment Program”. Put simply, when you buy stock in a business, you earn when they earn. If these earnings surpass the original price you paid and you don’t sell, this is called unrealized capital gains. Some companies are very efficient at allocating capital. A.k.a they are good at budgeting once revenue from sales come in. Because of this some companies might have extra cash laying around.
As a result they will often distribute small payments quarterly in the form of these aforementioned dividends. It’s basically an incentive to buy more of the stock. This allows excess cash to be invested back into the business for funding daily operations. All of this being the case, retail investors are capped by a few things. Their ability to save and invest any disposable income, based on their earning power.
Positive gross domestic product sustainability as a percentage of corporate profits. A favorable interest rate environment and a low to moderate rate of inflation. Unfortunately these three factors are unpredictably dynamic, and perpetual. Because of this you get market dislocations, or downside risks. This causes business risks as well as psychological risk by way of negative or bearish investor sentiment.
This creates a tendency to lose faith in the fundamentals of a business. Because of this retail investors succumb to selling pressure. Prices fall faster, and opportunities increase significantly. When this trend occurs institutional, and accredited investors enjoy the benefits of lower prices per share. Because they are sitting on a substantially larger investment portfolio, they have the advantage of buying more shares than retail investors over time.
This is where senior superiority signals selling.
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The Probabilistic Paradox.
Is adversity or suffering a predisposition to prosperity? Does achievement increase the likelihood of inadvertent obstacles? There are patterns across time that suggest truth in proof of progress over time. However defining the sequential nature of either question is difficult to pinpoint.
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Taking Stock of Investment Analysis.
When do you sell a business (stock investment)? This question depends on several key factors and considerations. Let’s explore a few of those factors first, afterwards laying out a few general reasons why one would sell a position. Key factors to consider before selling a business:
1). Purpose for initially buying.
4). Your current asset base or budget in terms of disposable/deplorable income.
2). Your risk profile/tolerance.
3). Your time horizon.
5). Your current investment thesis or philosophy.
6). Your psychological tendencies.
7). Previous market conditions.
8). Current market conditions.
9). Risk management strategies you’ll employ throughout the business cycle.
10). The dynamic nature of markets and sentiment as a whole.
Now here are a few reasons one might sell a business (stock investment):
1). Changes in fundamental business characteristics.
2). Freeing up cash for better opportunities.
3). Inaccurate investment analysis prior to acquiring the business.
4). Loss of conviction based on unforeseen circumstances.
5). Permanent loss of capital.
6). Capturing some or all of the profits above your cost basis.
The paradoxical nature of investing is the idea that your initial thesis will only manifest itself, briefly during, or after the fact. In other words, you can’t accurately predict the outcome, but you can take part in any upside returns. The downside risks are always prevalent regardless of how well you understand the business. This implies a perplexing perpetual state of highs, lows, and flat business fundamentals. This is why #6 in the former list is so crucial to our success as investors.
What’s interesting is that both lists work interchangeably on both the buy and sell side of investment analysis.
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Meta-Reflection via Self-Psychoanalysis.
When reflecting on who you are, and what you are, imperfections and weaknesses must remain at the forefront of your analysis. Not to continually point out why you are flawed. The shortcomings actually allow you to properly assess where circular reasoning causes repeated errors within your own existence. The point is assessment of psychological malfunctions, and irrational tendencies as a compass to refined methodological solutions. In other words identify your patterns of failed behaviors.
Adapt opposing behavioral habits. Record the successful responses and outcomes. Repeat and adjust to continually remove confounding patterns while maintaining progressive behaviors. If it’s possible you may also need to find an accountability partner or actual therapist to ensure you’re not conflating or contradicting your own ideas, behaviors or actions. The caveat to all of this, is the fact that cognitive bias or inability to accurately evaluate one’s self is actually paradoxical in the grand scheme of things. Simply put self-assess with meticulous caution.
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The Cognitive Dissonance within The Consistency Paradox.
I suspect that the consistency paradox is an alternate name for cognitive dissonance. Why? If you reduce or resolve dissonance it’s no longer dissonance. The dissonance in Festinger’s definition is adjusting your behavior to make new evidence consistent with your beliefs. (as cited in Benson, N. (2024); originally described by Festinger, L. 1957).
This exacerbates cognitive dissonance if those beliefs are not supported by positive or productive behavior. The goal eventually becoming positive and productive behavior reducing this first sign of dissonance. However at face value It doesn’t seem to resolve it. The same rings true in the consistency paradox. You know it’s bad, but do it anyway, strengthening a flawed belief system, ergo engaging in more cognitive dissonance.
The implication being that the only solution to maintaining two or more opposing actions or beliefs is counter behavior which eliminates any negative consequences. This happening by way of the previously destructive or counterproductive behavior. Which I suppose is the ultimate way of defining cognitive dissonance once it becomes recognizable. It’s just hard for me to see how it’s not an end to the initial dissonance in this case. Perhaps my confirmation bias overrides my objectivity to fully flesh out the detailed nuances. Why is this not discussed more often or studied? Perhaps I’m already late to the discussion. Do we not understand what cognitive dissonance is as it relates to consistency paradox?
Below is a brief example of how this whole thing may play out, if my understanding is even remotely accurate.
Cognitive dissonance as festinger described it, is similar to possessing a strong set of ideas countered by contradictory information. The outcome is unpleasant resulting in cognitive dissonance. (as cited in Benson, N. (2024); originally described by Festinger, L. 1957). Offsetting this dissonance with new evidence that’s consistent with our beliefs.
Consistency paradox says “cigarettes are bad, but still alleviate or distract from my stress. I’ll smoke them anyway.”
My point is the mere act of recognizing contradictory evidence, is actually the end of cognitive dissonance. However if you change behavior to counter the contrary actions, is that a new episode of cognitive dissonance? Might it just be a lapse in dissonance if one ever goes back to that negative behavior or matches beliefs with a different set of consistent behavior?
Maybe there’s a more appropriate way to redefine this sort of scenario. Something I’ll term recursive dissonance could make more sense. Let’s describe a scenario in which it could occur.
Recursive Dissonance may explain why me asking about episodic dissonance contradicts my original hypothesis, while exhibiting the dissonance I critique. I’ll explain the definition in a more concrete manner below.
Recursive Dissonance: The interplay of episodic behaviors, both productive and counterproductive. Leading to dynamic patterns of sustained dissonance and harmony.
Being that recursive dissonance is such an elusive concept, you can see how it creates an unfathomable sense of cognition via psychological phenomena.
Some other ways of looking at this dizzying dissonance delusion are additional novel terms I’ve coined if not already in existence.
Conscious Dissonance: Self-awareness of counterproductive behaviors. Refusal to adjust and change those counterproductive behaviors.
Subconscious Dissonance: Environmentally embedded counterproductive behaviors which are not present to the perpetrator or bystander. Reinforcing the dissonance further.
By now you may have realized how comprehending the nuances of psychological phenomena, can be both insightful and a bit difficult to master over time. These concepts influence how we perceive, interpret, and understand everything about ourselves, and the world around us.
References:
Benson, N. (2024)
Festinger, L. (1957)
Smith et al. (2017)
Johnson (2015)
Thompson & Brown (2013)
Miller (2012)
Anderson & Williams (2019)
Lee (2016)
Links:
Consistency Paradox – Psychology Definition, History, Examples
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Less Rigor. Inaccurate Implementation.
There’s a lack of rigorous reasoning and intellectual structure in making personal decisions due to sparse concrete evidence. This could lead to unfortunate consequences for those unaware of such recurring processes. Whoever defined professionalism in this context forgot to mention the role epistemology plays in the evolution or regression of civilization. Let’s briefly consider an organizational example of how this may play out. Consider employees that experience declining productivity via a seasonality shift in their work environment. This initially might look like lack of enthusiasm or motivation to remain consistent.
The reality is, deeper analysis may reveal structural or technical weaknesses within the sales department via increased invoices and diminishing inventory. In other words employees are not getting lazier. They’re just getting more work than they can handle due to the inability of identifying structural inefficiencies. This recurring issue unveils why arbitrary decisions can lead to inappropriate or unnecessary changes that are counterproductive to a company’s overall mission.
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The Incentive to Act Oblivious.
If your livelihood depends on your following of practices and procedures that protect you via compensatory care, you’re going to follow suit. If you don’t you’ll be in economic distress. Ergo, you get to a point where the lie becomes truth, and the truth becomes reality across time. The domino effect perfectly captures this systemic contradiction of calling a spade a spade, when in reality it’s actually just a joker.
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Question of the decade?
If a variable is effected by one’s environment, and isn’t inherently genetic but must be testable, observable, and repeatable, how can you determine its conclusiveness or falsification if you can’t remove said environment and all environments entirely in order to isolate the causal relationship between the other existing variables?
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The discipline of discipline.
Discipline can be defined as, self control and the ability to follow standards. So can we create an alternate definition? One that perhaps suggests a consistent ability to exhibit self control, while also continually following a given set of standards indefinitely. One can be disciplined for a day, week, month or year. But how can we define it, beyond that timeline?
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Forgotten elements of Attachment Theory?
Reference:
Bowlby, J. (1969). Attachment and Loss, Vol. 1: Attachment. Basic Books.
John Bowbly posits that secure attachments can lead to difficulties in relationships and mental health issues later in life. My question would be-is he leaving room for psychological barriers that not only describe the intensity, velocity and magnitude of human development, but postulate an entire psychological framework & paradigm explaining an expanded yet untapped dynamic to the entire family structure? (Leon M. Benson III. December 8th. 2024).
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Intellectual Maturation
Multiple definitions come to mind, when considering intellectual maturation.
1). The ability to distill complexity into accessible and digestible forms of information, that can easily direct people to a more beneficial pathway of physical and cognitive sustainability.
2). Knowing you don’t know all there is to know. In other words, intellectual humility, or a suggestive sense of self awareness in regard to one’s curious ignorance.
3). Desire for truth.
4). Being okay with being wrong, while not being okay with staying wrong.
5). Diminished interest in comparative competition outside of sport.
Disclaimer:
In developing this blog post, I noticed an inconsistency within my line of reasoning. In point 2, I claim one can exhibit “curious ignorance”. This essentially is a paradox. However, when you thoroughly acknowledge the fact that there is a naïveté that necessitates further investigation, ergo knowledge, wisdom and understanding in regard to the advancement of civilization, you may begin to appreciate how productive it is to be “curiously ignorant”. Before I turn this into a third manuscript, I want to put a pin in this.
I’ll admit these aren’t definitions. They’re merely observational interpretations of what may constitute reasonable assertions of intellectual maturation from a layman’s perspective.
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Hindsight Hinderance.
Saying things like “hindsight is 20/20” feels like a facade. Of course you can see where things could have been different, after the fact. Instead of making sure no stone was left unturned and accepting our fate, we’ll cling to this idea of “looking back on it”. If we were well prepared, failure was also a possibility. If we knew what we signed up for, there should be no “hindsight is 20/20” clause within our line of reasoning.
Perhaps my interpretation of hindsight is misguided.
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Constructive Analysis.
You play how you practice. If you’re inefficient at practicing, all the practice in the world won’t help. It’s beneficial to become self aware enough to analyze where you could be wrong or right. Does this mean do it in an unrestricted fashion? No.
It means, if you practice often, and you practice with incremental progress and improvement in mind, over time, you’ll start noticing areas where you can practice more efficiently. You’ll make minute adjustments, and have enough sense to look at what you’re working on, as if it’s something you’ve been asked to criticize. Except the criticism will come off as constructive. Simply put, get better at building internal analysis.
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Fatal Flaws.
Although we are all flawed, perhaps beyond our own comprehension, there is still a chance. A chance to rectify our problems. We can learn what needs to be done, and begin doing it right this moment. Maybe the reason we encounter obstacles in life, steams from some of these conscious and subconscious flaws. Because of this there is room made for correction, and or improvement of who you’ve always been, versus who you’d like to grow into.
On the other hand, is there really a possibility of becoming flawless? Or would you likely just fix the more obvious flaws, and magnifying the subtle ones?
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Pop goes the asset.
Pardon my anecdotal ignorance on the subject of finance, but there doesn’t seem to be any risk-free opportunities in any asset class. In other words, there are always risks embedded in the system, whether you realize it or not. Often times you’ll hear about risk free rates of return, which are hypothetical. These risk free rates tell you how much you’ll earn on a given asset that meets all of its obligations without a permanent loss of capital. It might be worth a try to envision a perfect rate of return world where you always make exactly what you set out to make in the market, but this is almost never going to occur in a straight line.
If a large majority of investors are involved in making these risk free rate projections, and investing accordingly, the process of risk creation begins via an over supply or lack of liquidity in a given asset class. Markets are auction based. You need buyers just as much as you need sellers. While some investors (buyers) decide to go all in on the “hot” asset class the investors (sellers) who were unaware or perhaps under weight the neglected asset classes are left holding the bag. Better yet the “hot” asset class becomes overpriced, and saturated. This in turn leads to lower prospective returns, which turns into the pin that will eventually pop the bubble.
I could be very wrong but a few current examples of this potential scenario are happening in the bond market via money market funds and on the short end of the yield curve, as well as in the private credit market.
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Valuation Frustrations.
Regardless of what most investors say, all valuation is subject to speculation. A company’s earnings are merely a snapshot of what has already occurred from a fiscal standpoint, and what has been priced into the security via those previous economic developments. We have no evidence of what the future holds. Holding on to a position long after it reaches what you may classify as it’s apex or peak, is the part where all could go wrong. Some may trim their positions for profit, rebalancing, or worse, unfavorable economic or geopolitical conditions may arise, causing investors to sell off en masse.
The only hedge against any of this is having a set of principles to abide by, that cause for selling at a given price once meeting the initial margin of safety test. Other than that, you may also miss upside potential assuming your principles cause for replacement of those advanced positions far before they actually reach their peak, which is something else that is unknown. It continues to seem as though value investing is as they say, more of an art than a science.
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Do your homework.
It doesn’t make a difference what opportunities are presented to you, if you’re uneducated about what you’re getting into. Often times too many of us go into situations blindly. We think we’re doing the most by simply saying yes to as many opportunities as possible. Meanwhile we may skip over due diligence. Let’s not do that.
Let’s make it a habit of fact checking, and running background checks on all parties involved. Let’s do our part and read the fine print, even if it requires reading glasses (ensuring the risks are well understood and accounted for).
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Feedback is ego driven.
It can be difficult to make what you think is the right decision when you haven’t had the opportunity to run it by someone of interest. Someone that will be willing to give you unbiased feedback. It’s especially difficult because more than likely you being the decision maker, are already operating from a place of cognitive bias being that it’s all on you to make sure you didn’t miss anything. There’s also the time in between thinking about or analyzing the situation, and following through with the decision. What if the opportunity vanishes or quickly becomes unavailable?
In the same breath if you have to wait on someone else to approve your decision making, you probably shouldn’t be making very many decisions to begin with. In other words do a thorough evaluation so you can skip the approval process.
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Concentration begets Penetration.
I’ll try to make this brief and simplistic. When it comes to buying businesses via the stock market or investing in publicly traded companies, you must have conviction. You can’t really afford to half step into any one company. What’s known is the fact that markets will rise and fall. Sometimes markets will even flatten.
What’s unknown, is how long these directional patterns will last. If you’re considering an acquisition, you better be sure you’ve done a proper analysis. If not, the market could move against you for the next 3 years, maybe even longer than that. This is why some value investors make huge investments with more than 10% in a single company. They know that their next purchase could be their last, at least for a while.
Another reason to make concentrated purchases in companies is because that often leads to outperformance or one’s ability to generate alpha. Actually known as “beating the market”. On the other side of the coin is your ability as investor to remain stoic during downturns. When managing a concentrated portfolio, you’ll often have dull stretches of underperformance, against everyone else. This is something you should already know before you make your first investment, assuming the value approach is in alignment with your temperament.
In short, lack of concentration, overly diversifying, low conviction, inaccurate judgment of fundamental analysis, and lack of patience will costs you large sums.
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All Fundamentals Matter.
Does it make more sense to buy the number one company with decent fundamentals, or number seven which has superior fundamentals with room to grow? It’s interesting how there are so many businesses that overlap one another, yet achieve completely different results. I’m sure most people would go for the top company, disregarding their bias to all things categorized as number one simply based on the fact that their number one. What happens when a majority of individuals have an interest in that number one company?
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Open the door.
It’s amazing how you can learn much more bringing an open mind to any subject matter. Most of us are biased towards what we think and observe or how we were raised. However in order to understand more than one way of being, creating, and existing, one must be open to others ideas, and possibilities in terms of what may have been, what is, why it was or is, and how it could possibly be.
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Financially Fickle.
Finance is so fickle in regards to what is touted in the media. One minute, there’s a bull case for various/biased reasons. The reasons are often backed by some sort of historical data that previously lead to a similar outcome as what’s being reported during the present. On the contrary, the bear case gets similar air time. Articles from analysts will have very simplistic yet seemingly obvious headlines in regards to companies being overvalued as they inch towards 52 week highs, and undervalued when hanging around their 52 week lows. Why is it like this?
If it’s that easy, we all could just subscribe to a finance newsletter, and just base all of our buys and sells on what paid analysts and finance reporters are saying. Unfortunately I don’t feel this is an adequate way to spend your time as an investor. Yes there is some good in outside opinion, as far as challenging your own limited beliefs. However, sitting with the data, and thinking things through, while remaining rational, seems to me the best use of your time.
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Make plans for your plan.
Always planning ahead is much better than playing it by ear. I promise you something will always come up and try to ruin your glory. Don’t let that happen. If you’re always planning for a “just incase” moment, you won’t be so thrown off by any wrenches that are flung at your forehead inexplicably. This is an overly complicated way of saying, don’t be so lax. Stay on your toes.
As the saying goes, proper preparation, prevents piss poor, performance.
Side note: the market gets choppier by the week. Sucks if you overpaid for a subpar business. Absolutely fabulous if you bought a great business at an attractive price, and have a longterm time horizon. Honestly, what the hell do I know? I’m just as fascinated by the roller coaster actions of financial markets as any other novice.
Over the short term it makes for great content. Over the long term, it’s anybody’s guess as to what the hell is going to happen next. Hindsight will forever be 20/20.
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Market Details.
Throughout my financial studies I’ve noticed something peculiar about retail investors. Before I continue, I don’t know for sure, so forgive me for the anecdotal evidence. It seems as though retail investors, or at least the ones I communicate with from time to time, don’t fully understand the liquidity cycle. They also misinterpret the macro economic cycle. I’m a disciple of Warren Buffett, Charlie Munger, and by default, Benjamin Graham, and Phil Fisher.
These individuals, especially Warren and Charlie are believers in the fundamentals of a great business. They don’t care about the macro factors surrounding the businesses they acquire. They just focus on the income statements, balance sheets, sustainable competitive advantages, and compare their candidates, to the competitors within the same businesses. This is also something I have found useful in my own philosophy. However, It’s a bit strange to say you don’t care about the macroeconomics.
When I think about retail investors, they buy based on what they hear. They buy based on what others are buying. They buy what they think sounds good or is working for someone else. The problem I see is retail investors, not understanding where we are in the liquidity cycle, as well as where we are from a macroeconomic perspective. It’s hard to ignore the macro factors, when a majority of the investment industry is acting based on the larger picture (macroeconomics).
It’s very easy for retail investors to not know where they are, and panicking when things don’t look as good. The real killer is, times like now, when we continue to have bear market rallies or relief rallies. I’d bet there is a percentage of retail investors that don’t understand how to gage the stock market when it comes to the main indexes. Example: today you’re account could be up 1.50%. This gives you a psychological boost.
This makes you feel as though you’re doing something right. This also makes you feel like you have skills. Something that a few of us may forget is where we are in relation to the overall indexes. The S&P500 or Standard & Poors 500 could be rallying, but that doesn’t mean you’re making money per say on the overall value of your portfolio. If the s&p500 reached a January 52 week high of 4,818.62, that means you have to consider that the best case scenario.
On the flip side, there are a lot of moving parts and just because things were a amazing last year, does not mean they will continue indefinitely. The s&p500 has peaks and valleys. The valley (52 week low) in this years case is 3,636.87. This is a 24.52% drop from 4,818.62. Considering all that has happened with covid-19, and the crash of 2020, fiscal, and monetary stimulus, supply chain, and geopolitical pressures, we’re just now experiencing the downside of it all.
When the market drops 10%, it’s a correction. When the market drops 20% it’s considered a bear market. Some retail investors, might think that because businesses (stocks) were increasing in price today via a rally, that things are good and wealth is being accumulated. However, when you consider where the s&p500 currently is today, 3,959.90, we’re still 17.82% off the highs. Meaning, we’ll be in the clear again when that index surpasses 4,818.62.
Again, looking at the macro environment, inflation was at 9.1% for the latest CPI reading. The federal reserve will most likely raise interest rates again by at least 75bps. This quantitative tightening will increase the costs of borrowing for all businesses and consumers. This at some point will cause investors to try and price-in (anticipate) this next rate hike. Because of this action the overall value of the s&p500 might decline further from where it currently is.
This could result in retail investors seeing their accounts drop lower, and panic selling, not understanding the dynamics of market fluctuations and liquidity cycles. There is so much that I’ve skipped over and left out that has caused a lot of this, and things that are unknown that may play a part in more destruction of markets. It’s just something that made me realize that, the macroeconomics might not be the most important part of the equation in the short term, but it damn sure gives you a taste of what might happen. This being the case it can allow retail investor’s to be better prepared from a portfolio construction perspective. Don’t take it from me. This is just an unqualified observation of events.
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Just do you.
At this point, I think we make market, and economic predictions, or projections because it give us something to do. The constant commentary is overly done by us all. If you’re going to invest, INVEST! If you’re going to day trade, DAY TRADE! Ultimately we’re all trying to use the market as a wealth preserving/wealth accumulation tool.
There is no one strategy that is best. There are only individuals that find strategies that work for themselves. Find your strategy and stay the course, because it’s long. The beauty in it all, is that you get to learn a shit ton of useful information that it not taught in elementary, middle or high-school.
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Capitulation….
Capitulation is a term I’ve been hearing more often during my analysis of businesses as well as current market conditions. In short, it describes how a large portion of investors will become very fearful and sell their shares in mass quantities, causing sharp declines in equity prices, amid very high trading volume. Capitulation is in line with the concept of bear market rallies. From time to time, macroeconomic and microeconomic news from a fundamental perspective, and indicators from a technical perspective will cause investors to adjust their risks assuming markets will move in a certain direction, based on what they hear and see. This causes investors to “price in” (anticipate) upcoming events.
The issue being that if things keep getting worse, that’s where the capitulation takes precedence. There are many psychological implications, to capitulation. We don’t know how much lower markets will go. As soon as we get bear market rallies or relief rallies, a portion of investors might ignore 52wk highs and lows. If things are going south, you can look at the 52wk high and low spread between a broad based index like the s&p 500.
Doing this will allow you see whether we’re moving lower or higher over time as far as corporate profits, and earnings growth, GDP growth, interest rates, nominal vs real inflation etc. Unfortunately there is so much noise, and cognitive biases that go into fundamental, and technical analysis, as well as the macro/micro landscape, that you don’t really have a keen sense of what’s best for your portfolio. Even looking at whether you are bearish or bullish, you still might fall prey to capitulation in one way or another. Unless of course you use more quantitative analysis to make your investment decisions. It’s very hard to predict the overall outcome, and or direction, without considering every possibility, including all of the historical data.
Once you begin understanding the idea of capitulation and human psychology, you’ll soon see how easily investors can mistake current all time or 52wk lower lows or higher lows with a subsequent bull market. Better to constantly be ready to pivot or stick to whatever process you think works best. Just know, shit is never exactly the same. A wise man once said, “History doesn’t repeat itself, but it rhymes”.
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You made your bed…
The chatter is just that, nothing but chatter. When you can silence the noise, and continue to be precise, you don’t have to posture. You don’t have to engage in what’s popular. However, you do have to have conviction for whatever decisions you’re making. The results you yield are based on your analysis, and observations. You can’t keep blaming the world for what did or didn’t work for you.
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The act of action.
It’s fascinating how we can get sucked into not believing in ourselves when it’s time to act. The act of doing, can stiffen us. Even when our decisions are backed by faith, and analysis, we still question the outcome in the moment. We often will look for confirmation bias, as a form of justification. Even going as far as feeling unsure about the entire situation.
All of this because we knew it was time to act. The other side of that is the thrill and confidence. The honesty that executing brings to your soul can also be confirmative. The conviction of knowing you’ve done the work and still have more work to do is a light at the end of your tunnel. We don’t know exactly what the act will ultimately result in, but it’s what drives us to be human.
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I predict….(Shut up).
When we get fairly good at something we think we understand what the future will be in a particular arena. There are so many variables involved in what can cause things in the future to be different. I’d say there are probabilities that exist on both a small and large scale. Aside from that, being prepared in advance for a variety of scenarios is the only way to hedge against disaster or major changes within a given timeframe. Some people will give extremely broad predictions of 3 to 5 major things that have a high probability of happening, or things that will cover them being wrong in one area.
If you’re going to make predictions, stick to one idea. Today everyone is making predictions and it’s extremely irritating, because most don’t have a clue what’s about to occur. We can’t interrupt the world with our nonsense. Just stay prepared for whatever comes and let it run it’s course. I myself fall victim to trying to print out the future in advance, whether through business analysis, or major domestic issues or changes to daily activities via tech.
It’s better to mind our business and stay ready for whatever.
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Fellow retail investors.
Buying businesses (via the stock market) is pretty simple on the surface. When a business with good or great fundamentals (financial statements) is selling below it’s calculated intrinsic value, you buy as much of the business as you can afford, assuming it’s the most attractive opportunity at the time. When the market is extremely overvalued, you sit around and study the fundamentals of what you already own, to check for any negative changes via accounting principles, management, or fundamentals. Where we go wrong, is getting too tied up into the macroeconomics. We become distracted by analyst’s predictions assuming they found information that we have no access too ourselves.
We also get into debates with fellow retail investors, who are just as dumb and unqualified as we are, to be making business decisions about what companies truly have a sustainable competitive advantage. We also fail to do the work, in terms of our own research and analysis of individual businesses. We assume that when a business performs well, it’s because we picked correctly. When the business has a difficult season or accounting period, we think it’s purely the company making bad decisions. The reality is, we as humans more often than not, lack the investment temperament.
We also lack self control and a longterm approach. The lackadaisical nature of the average investor seems like it will do more harm than good. I’m an idiot and have no idea if this is accurate, but it was worth making an uneducated observation.
