Market Commentary

  • What’s Up With Twitter?

    Everyone knows that Elon Musk was sued by Twitter and 'forced' to buy Twitter for $44B.  Since then, the now-private company has made a lot of confusing decisions. 

    To start, Musk publicly announced that the company was hemorrhaging money.  To try and remedy this, he began by firing approximately half the employees.  Key executives were fired.  Later, many more executives left on their own.  After the massive exodus, Elon supposedly reached out to some former employees asking them to come back.  He also ended remote work for employees. 

    In an attempt to increase the company's profitability, he announced Twitter Blue, a paid subscription service that would give you a checkmark, and push your content to the top of users' feeds. 

    Screen Shot 2022-11-11 at 5.54.04 PMvia twitter

    Unfortunately, users were quick to abuse the new verification system by pretending to be public figures and even public companies.  As a result, there was real tangible damage to stock prices. 

    That-fake-verified-tweet-cost-eli-lilly-billions-v0-txbw9br3edz91
     via Twitter

    Eli Lilly's drop also brought down its competitors.  Other companies got hit, including Lockheed Martin. 

    Do you think those are the most influential 8 dollars ever spent in history?

    As a result of the turmoil, advertisers are leaving Twitter in droves, and Twitter has paused Twitter Blue in America – though it remains up in some different geographies. 

    On the surface, it looks like Twitter is being run into the ground.  It seems like Musk is throwing a lot of darts at the board and seeing what sticks.  He said as much when he promised that Twitter would do many dumb things as part of his strategy to innovate and find smart things to do.

    Are the foibles simply the cost of the innovation needed to revitalize the company … or signs of trouble for Twitter's future?

    Even though I'm prone to bet on Musk, I think it's too early to believe you can predict the outcome.

    What do you think?

  • How To Handle Scary Times

    The last few weeks have been pretty volatile in the markets.  OPEC reduced oil production by 2 million barrels a day, the Dow saw its worst day since 2020, the British PM, Liz Truss, resigned after only six weeks, and currencies around the world (including the Pound) are dropping precipitously in value. 

    With markets making new lows and volatility shaking out investors in both directions, I thought this would be an excellent time to talk about coping with losses and managing your anxieties during "scary times." I last shared this at the apex of COVID fear … and it's just as relevant today. 

    The Anxiety Antidote

    "When the trough gets smaller … the pigs get meaner." - Dan Sullivan

    Many people are suffering from "I should have …", or "if I would have …", or "if I could have …" thoughts.

    The problem is that thoughts like those create more stress and distraction.  They are a lens focused on loss, difficulties, past events, things that are missing, and what you don't want.

    Think of them as an unhealthy reflex that wastes energy, confidence, and time.

    All We Have To Fear Is Fear Itself  

    I often talk about market psychology and human nature.  The reason is that markets reflect the collective fear and greed of its participants… people tend to get paralyzed during scary times like these.

    But it's not the economy that makes people feel paralyzed.  People feel paralyzed because of their reactions and their beliefs about the economy.  Your perceptions become your reality. 

    A little examination reveals that most fear is based on a "general" trigger rather than a "specific" trigger.  In other words, people are afraid of all the things that could happen and are paralyzed by the sheer scope of possibilities.  These things don't even have to be probabilities in order to scare them.

    You gain a competitive advantage as soon as you recognize that it's not logical.  Why?  Because as soon as you distinguish that fear as not necessarily "true", you can refocus your insights and energy on moving forward.  You can act instead of react.  You make better decisions when you come from a place of calm instead of fear… so create that calm. 

    Even a challenging environment, like this, presents you with opportunities if you watch for them … or even better, if you create them. 

    The Scary Times Success Manual

    The goal is to move forward and feel better.  Strategic Coach offers ten strategies for transforming negativity and unpredictability into opportunities for growth, progress, and achievement.  They call it the "Scary Times Success Manual," and what follows are some excerpts:

    Forget about your difficulties; focus on your progress.

    Because of some changes, things may not be as easy as they once were.  New difficulties can either defeat you or reveal new strengths.  Your body's muscles always get stronger from working against resistance.  The same is true for the "muscles" in your mind, your spirit, and your character.  Treat this whole period of challenge as a time when you can make your greatest progress as a human being.

    Forget about events; focus on your responses.

    When things are going well, many people think they are in control of events.  That's why they feel so defeated and depressed when things turn bad.  They think they've lost some fundamental ability.  The most consistently successful people in the world know they can't control events – but continually work toward greater control over their creative responses to events.  Any period when things are uncertain is an excellent time to focus all of your attention and energy on being creatively responsive to all of the unpredictable events that lie ahead.

    Forget about what's missing; focus on what's available.

    When things change for the worse, many desirable resources are inevitably missing – including information, knowledge, tools, systems, personnel, and capabilities.  These deficiencies can paralyze many people, who believe they can't make decisions and take action.  A strategic response is to take advantage of every resource that is immediately available in order to achieve as many small results and make as much daily progress as possible.  Work with every resource and opportunity at hand, and your confidence will continually grow.

    Forget about your complaints, focus on your gratitude.

    When times get tough, everyone has to make a fundamental decision: to complain or to be grateful.  In an environment where negative sentiment is rampant, the consequences of this decision are much greater.  Complaining only attracts negative thoughts and people.  Gratitude, on the other hand, creates the opportunity for the best thinking, actions, and results to emerge.  Focus on everything that you are grateful for, communicate this, and open yourself each day to the best possible consequences.

     Click here to download the full PDF version.

    Final Thoughts

    The VIX (Cboe's Volatility Index) is regarded as the "Fear Index".  While we saw spikes in early October, numbers are significantly lower than the spikes in 2020. 

    image from i.imgur.com

    But, numbers have remained higher than pre-pandemic.  To me, this shows how uncertain and anxious the average "trader" is with various global trends.  We can discuss all the long or short-term causes of the rises and falls of markets, but I don't think it does much good.  I let the algorithms worry about those.

    I sound like a broken record, but volatility is the new normal.

    • Markets exist to trade, and if there's no "excitement" on either side, trades don't happen
    • Trades are getting faster, which means more information has to confuse both the buyer and the seller
    • You're no longer competing solely against companies and traders like you.  It's like the cantina from Star Wars, you've got a bunch of different creatures (and bots) interacting and fighting with each other, trying to figure out how to make their way through the universe

    Pair that with all the fear and uncertainty, and you've got a recipe for increased volatility and noise.  That means that the dynamic range of a move will be wider and happen in shorter periods of time than ever before.  You'll hear me echo this thought over the next few years as the ranges continue to expand and compress.  Cycles that used to play out over weeks now take days or hours.  The game is still the same, it just takes a slightly different set of skills to recognize where the risks and opportunities are. 

    There's a difference between investing and trading. On some level, I believe some humans can still invest well (assuming that they do the research, find an edge, and minimize the fear, greed, and discretionary mistakes that negatively impact results.  However, for most people, believing that they can trade (personally) is dangerous. There are simply too many things to pay attention to – and the ratio of signal to noise is difficult to overcome as well.

    The crucial distinction is between adding data and adding information.  Adding more data does not equal adding more information.  In fact, blindly adding data increases your chances of misinformation and spurious correlations.

    Today's paradigm – both in life and in trading – is about noise reduction.  It's about figuring out what moves the needle and focusing only on that.

    Said a different way, if you don't know what your edge is, you don't have one. 

    Meanwhile, if you do know what your edge is (regardless of how scary the times are), keep calm and carry on.

  • Warren Buffet’s Current Holdings

    Warren Buffett is a legend for many reasons. Foremost among them might be that he’s one of the few investors who clearly has an edge … and has for a long time. From 1976 to 2017 his Sharpe ratio (excess return relative to risk) was approximately double the overall market. Berkshire Hathaway now has over $700 billion in assets – and is still performing well. 

    While many people consider Buffett to be an investor,  I also consider him to be an entrepreneur.

    At the age of six, he started selling gum door to door. Obviously, selling gum wasn’t the key to his path to riches.  So, how did he make his first million?  Here’s a video that explains it.

     

    via Coolnimation

    For context, he made his first million at age 30, which was in 1960. For context, a million dollars in 1960 would be worth about $8.5 million today.

    Buffet has always been honest about his bread-and-butter “trick” …  he buys quality companies at a discount and holds on to them.

    Genuine Impact recently put together a chart of Buffet's current holdings. 

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    Twitter via GenuineImpact

    There's a lot fascinating about his holdings. It is fascinating to recognize how much the world has changed – and yet how much it stayed the same. It's also interesting to see the amount of individual stocks he owns, like Apple for example (122 Billion). Despite the relative density of stocks, if you think about the capital at play, it's pretty centralized.

    Diversification is important, but for a human, too much becomes a distraction … so Buffet famously buys what he knows.

    Another Buffet hallmark, most of his stocks pay a dividend.

    I was also surprised to see that he has a bit of money in ETFs like SPY despite investing in many of the individual stocks from the S&P 500. 

    While this is an interesting graph to look at, it's important to know that this is one way to invest and might be a great way to get from a lot of money to more money – but this might not be the portfolio that works for the average investor (or you). 

    There is blood in the streets … asking “What would Warren do?” might be a great place to start.

  • Here Are Some Links For Your Weekly Reading – October 16th, 2022

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    Here are some of the posts that caught my eye. Hope you find something interesting.

    Lighter Links:

    Trading Links:

  • The World’s Population in 2022

    The world will reach 8 billion people at some point this year.  That is a new (and potentially scary) milestone. 

    Part of the concern stems from how fast population is growing.  Consider that the world’s population has doubled during the last 50 years … and the geographic distribution of the population has changed as well. Here is an infographic that highlights some interesting trends.

    image from www.visualcapitalist.com via visualcapitalist

    If you want to look at where the economy is going over time, you don't have to guess to wildly.  Population growth is a primary clue.  Consequently, focus on where the most children are being born – or where relatively more children are being born recently.  For example, economists don’t have to work too hard to figure out how many 18-year-olds will exist somewhere in the next 15 years – they start by counting the 3-year-olds.

    While China, India, and the U.S. top the world's population lists (with the U.S. dramatically behind China and India), many countries are creeping up the list. In fact, Lagos, Nigeria's largest city, is expected to the world's biggest megacity by the end of the century. Many of the world's highest growth rates are found in Africa. 

    As another "surprise," India is set to pass China as the world's most populous country. Meanwhile, much of Europe's populations are contracting. 

    The U.S. is still growing – but is not matching the rates of emerging countries in Asia and Africa. 

    The world is expected to reach a population of around 10 Billion before 2100.  With that said, many expect the number to decrease from there. 

    Interesting?

    How do you think this will affect the next 20 years? 

  • Bruce Willis Deepfake: The Smart Decision?

    Bruce Willis is a legend of cinema, and he made many of my favorite movies of the 80s and 90s. He stayed relevant and exciting up until very recently. 

    Then, last year, he started releasing a slew of disappointing "straight-to-DVD" style movies that had him receiving his own award show category in the Razzies (an award show for the worst performances of the year). In 2021, they created the category "worst performance by Bruce Willis in a 2021 movie." 

    Vulture did an interesting interview with the founders of the Razzies where Bruce Willis comes up. 

    Then, it came out that Bruce Willis was diagnosed with Aphasia and was losing his ability to speak. 

    Suddenly, these pieces take on new meaning. They're Bruce getting as much work in as he can before he loses his voice permanently. He's trying to do what he knows how to do to make sure his wife and children are taken care of after he can no longer act. 

    It doesn't make the movies suddenly "great" but it was enough to get the Razzies to rescind their award. 

    I don't believe these last films of his dampen his well-earned legacy. 

    Last year, his digital twin showed up in a Russian telecom ad. 

     

     
    Recently, he's been in the news again for having sold his likeness to a deepfake company. It was reported on the company's website and by The Telegraph, but there are now claims to the contrary as well. 

    While the jury is still out on if his rights have been sold, I think it's likely you'll see more Bruce Willis deepfake content. 

    The question becomes, is it the right decision?

    If his estate still has final approval – and there is quality control – then what's the harm?

    Does the potential ubiquity, or the idea that we can always have another Bruce Willis movie, reduce the value of his movies?

    Does allowing deepfakes in cinema (on TV or in film) take away roles from actors who might become stars?

    We've already seen actors use deepfakes to reprise a role they did when they were younger – like Luke Skywalker or Leia from Star Wars. It's a different idea to build a new series around an actor who isn't actually acting in it. 

    These questions pair well with the discussion around AI-generated art and whether it should be considered art. 

    What do you think? 

  • The Most Common Cyber Attacks Against Businesses

    I recently shared a post on data breaches – and steps you can take to prevent them. It focused on the most famous cyberattacks in history. 

    Visualcapitalist and Global X ETFs just put out a visualization that shows the most common attacks your business may face. 

     

    Global-X-BUG-ETF_Cyberattacks_Main

    Global X via visualcapitalist

    Cyberattacks are at an all-time high – and the more people you have in your business, the more likely you are to have exploitable weaknesses. For example, the World Economic Forum's Global Risk Report for 2022 stated that ransomware attacks have increased by 435% since 2020. 

    It's also worth noting that these numbers are likely understated, as companies are likely to downplay and hide security incidents.  

    Likewise, there is exponential growth in computer use, data production, apps and services (connected through your handphone, devices, or computers), and connected nodes in the internet-of-things (including garage doors, security systems, and a host of connected devices).

    As some things become easier, other things get harder.  Said another way, sometimes peril comes with progress.

    Stay safe. 

  • The Average NFL Player (By Position)

    Football season is officially underway!  In honor of that, here's a look at each position's composite "player" (as of 2019).

    As you might expect, different sports have different ratios of ethnicities.  For example, you might expect more Pacific Islanders in Rugby or Asians in Badminton.

    The same is true for various positions on a football team.  Offensive linemen are more likely to be white – while running backs are more likely to be black. 

    Here is a visualization that shows what happens when you average the top players' faces in various positions.

    6a00e5502e47b288330240a4cda5bf200b-250wi

    osmutiar via Reddit

    Composites are interesting.

    While you may be thinking "this player must be unstoppable" … statistically, he's average.

    The "composite" NFL player would be the 848th best player in the league.  He's not a starter, and he plays on an average team.  You probably don't know his name if you don't root for his team. 

    We found the same thing with our trading bots.  The ones that made it through most filters weren't star performers.  They were the average bots that did enough not to fail (but failed to make the list as top performers in any of the categories).  Meaning, the survivors were generalists – not specialists.

    In an ideal world, with no roster limits, you'd want the perfect lineup for each granular situation.  You'd want to evaluate players on how they perform under pressure, on different downs, against other players, and with different schemes. 

    That's what technology lets you do with algorithms.  You can have a library of systems that communicate with each other … and you don't even have to pay their salary (but you will need data scientists, researchers, machines, data, alternative data, electricity, disaster recovery, and a testing platform).

    You won't find exceptional specialists if your focus is on generalized safety.  Generalists are great, but you also have to be able to respond to specific conditions.

    Onwards.

  • The New Era of Energy

    A couple of weeks ago, I talked about oil production.  This week, I want to look at the current energy landscape. 

     

    Screen Shot 2022-08-18 at 12.41.13 PMView the full infographic at visualcapitalist

    Over the past several decades, there has been a massive shift in how we produce and consume energy.  This has been driven by the tech boom – as well as by climate awareness.

    The practical realities of widespread tech adoption directly impact energy consumption.  For example, there are now over 7 billion people with smartphones.  As the population (and the number of gadgets and tech we use) grows, logically, so does our energy consumption.

    Luckily, we're also getting better at powering them. 

    On a different front, oil is still a meaningful and vital part of the energy ecosystem … but, now, it's being supplemented by multiple renewables. 

    Screen Shot 2022-08-18 at 12.41.59 PMView the full infographic at visualcapitalist 

    Over the last decade, investment in green technologies has helped the cost of renewable energies drop precipitously. 

    That spurred a different set of products and use cases.  For example, we've seen the number of electric cars grow exponentially.  In 2011, there were approximately 70,000 EV units in the world.  Now there are around 16.5 million. 

    This isn't a commentary on the environmental benefit of renewables; it is an observation about the direction energy is heading. 

    And, just like with AI, despite being a space that's existed for a long time, it is still in the "early adoption" phase. 

    Based on estimations, the IEA projects an 8x growth in EV by 2050.  This also means that we will use an increasing amount of batteries and rare metals.  Currently, China controls the supply chains and critical resource constraints. 

    If our goal is to be energy independent, we have a long way to go … Nonetheless, recognize that this creates massive business and investment opportunities. 

    Onwards!

  • Some Cool “Futuristic” Tech You Might Not Have Seen

    I joke that I have a "tense" problem. I spend a lot of my time thinking about what will be possible in the future. And once I know something is possible, in my head, it has already happened.

    It isn’t a reality distortion engine … it is a reality creation engine.

    For me, this is centered around the way technology is transforming the world and how it affects my business. 

    Sometimes it's nice to take a step back and look at all the "quality of life" improvements. The gadgets that make you say "Wow!" … even though they may not benefit you directly. 

    So, here are a few that caught my eye over the last few weeks. 

    Augmented Reality Running 

    In 2020, Ghost Pacer put together a pair of AR glasses that would give you a virtual running partner. The app would analyze the running route and the wearer's desired goals and set them up against a virtual runner who would push them to their limits. 

    Last year, SNAP and Nike teamed up to create a new AR running experience as well. 

     

    Spectacles via YouTube

    This is a great way to get moving for those (like my wife) who benefit from a structure around their exercise. 

    Magnetic Slime Robot for Healthcare

     

    New Scientist via YouTube

    Watching the video of this slime is somewhat uncanny. Its movements feel almost lifelike. That being said, the potential for this custard-like slime worm is massive. It can navigate narrow passageways, grasp objects, and more. There are already plans to use this to remove foreign objects from people.  

    Functioning Hoverboards 

     

    RIDE via YouTube

    Multiple generations of kids have dreamed of hoverboards after watching Back To The Future. While it's not in homes yet, it is now a reality as seen in this video with Tony Hawk riding one. Unfortunately, since breaking into the scene in 2015 with a successful Kickstarter, I have not seen much from Hendo Hoverboard. 

    Thankfully, they're not the only company in the space anymore. If you're willing to drop almost 15K, you can own a working hoverboard from Arcaboard. 

    I remember when we used to go outside to play or exercise.

    We live in interesting times!