Market Commentary

  • The Six Biggest Mistakes Ordinary Investors Make

    It's your livelihood, it's your retirement, it's your future. 

    Tony Robbins released an infographic on the six biggest mistakes ordinary investors make. 

    1. Seeking confirmation to your own beliefs
    2. Conflating recent events with ongoing trends
    3. Overconfidence
    4. Swinging for the fences
    5. Staying Home (tendency to invest in things that are familiar)
    6. Negativity Bias (tendency to overemphasize negative experiences)

    In other words, the biggest threat to your trading profits is your own brain.  Humans are wired to avoid pain and seek pleasure … and those tendencies just aren't conducive to smart trading. 

    It's getting harder to find an edge, let alone maintain one. 

    If you don't know what your edge is, you don't have one.

    The reality is, over 90% of trades are electronic, and over 70% are algorithmic.

    Do you think those numbers are going to increase or decrease?

    Firms are using faster computers and smarter algorithms.  On top of that, high-frequency traders are skimming alpha on the executi0n. 

    Here's one thing you can predict … It is getting harder for humans to trade against the machines.

    Momentum is building … but, it already happened.  The new world of trading is quantitative. 

     

    The Old Style of Trading Is Dead Luckily Not All The Old Traders Are_GapingVoid

     The best way to avoid fear, greed, and discretionary mistakes is to avoid them.

  • Eight Major Forces Shaping Our Global Economy

    In trading, the holding period (or "time in trade") is shrinking.  Consequently, there is less focus on predicting markets … and more focus on determining which techniques are making money most predictably.

    Markets are not the same as the economy … and on a macro scale, it is possible to understand and predict the major forces shaping our global economy.

    Jeff Desjardins, of the Visual Capitalist, recently highlighted some of the major forces that are changing our global economy.  Here is a summary.

     

    The Tech Invasion … and its Accelerating Progress

     

    If you were to look at the biggest companies globally – almost all of them are in tech. Fifty years ago, the largest companies were in commodities (like oil, steel, etc.). Even 5 years ago, the biggest companies were widely "goods" centric. 

     

    Tech-market-capsvia Visual Capitalist

    But it's more than just the biggest companies. We're experiencing a technological revolution in many subspaces – AI, 3D printing, gene editing, quantum computing, etc.   

    Yet, for all the change and disruption we've experienced until today – understand that it is going to get faster, and more pronounced, in the future. 

    And, it isn't just the tech that is new.  The pace of its adoption across industries is a game-changer as well.

     

    Tech-adoption

    via Visual Capitalist

    We are at a point where new technology often gets released before the previous iteration can fully take hold and mature.

    It is not just trading that is getting faster, product cycles are compressing, and foundational technologies are disrupted and replaced (or made obsolete) faster than ever as well.

    Even global adoption cycles have become viral and near instantaneous.  Think about how fast Pokemon Go (AR) got adopted, or new Smartphones became mainstream.

     

    The Evolution of Money, a Changing Wealth Landscape, … and China

     

    Money's definition is changing.  Cash is becoming less common (with the increasing use of credit cards, electronic payments, and payment services like Paypal, Venmo, and ApplePay).  In addition, the public has maintained its interest in cryptocurrencies.

    Ultimately, our perception of money may radically change how global economies work. 

    On top of that, money is changing hands, the ultra-wealthy are from different industries than before, and the wealthiest countries & companies widely influence politics. 

     

    Global-growthvia Visual Capitalist

    Consider the economic rise of China. Even though we've been watching China grow for decades, the scope of its population and economic impact can still be difficult to understand. China has over 100 cities with more than 1,000,000 inhabitants.  Even scarier, perhaps, is that China now has more honor students than we have students. 

     

    Conclusion

     

    Obviously, the global economy is changing.  To see more about the eight forces shaping it, read this.

    We live in interesting times.

    Onwards.

  • Visualizing the Global Economy

    I've recently been spending more time with economists, while we're not always on the same page when it comes to the interplay with trading, I still find economics interesting. 

    Trump's impact on global trade and politics will also be interesting to quantify. 

    Take a look at the world economy divided by region (Mexico is part of Latin America for the sake of this graphic). 

     

    Numvpjvzwzt11via howmuch

    Some thoughts: 

    • Russia probably has the biggest disparity between GDP and land mass.
    • This doesn't tell us anything about economic growth, would be interesting to compare this five years ago, and five years from now.  
    • Global GDP isn't zero-sum, so this circle can theoretically grow.
    • Top 3 economies were the U.S., China, and then Japan (with a large drop between each economy).
    • The top 4 countries account for over 50% of GDP.

    It will be interesting to see the way Trump's tariffs will affect the world. There are potentially hundreds of billions in annual revenue that would be affected. 

     

     

  • Here Are Some Links For Your Weekly Reading – November 4th, 2018

    Reminder: election day is this Tuesday. 

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

    Lighter Links  

     

  • Is the Market Sell-off Going to Continue?

    October has been tough on equity markets this year. 

    For example, the S&P 500 opened to a sea of red this past early last week.

     

    VBFhCSO8NrhTulRwKAKduo3LRSJ-HLDD87ulUxy51Rg

     

    McDonald's was one of the few green spots on that heat map.  Which reminds me, Mickey D's is becoming a little more modern by adding online and touchscreen ordering.

    For some context, the S&P is on pace for it's worst sell-off since 2010 … while the NASDAQ hasn't been hit like this since post-Lehman in 2008. 

    Is it a correction or a blip?

    Historically, midterm elections inspire uncertainty among investors that dissipates quickly as soon as they're over. Once that uncertainty is resolved, the S&P gains an average of 31% the following year.

    Markets exist to trade … and confusion is a primary catalyst.  As such, many people believe the market will rally … while others believe that the traditional midterm effect could be blunted. 

    For all the confusion in today's society, it's good to see that some things don't change.

    Onwards.

  • Farm Tank Podcast – AI Trading, The Cowboys & Pablo Escobar

    I was recently on Jordan Van Trump's Farm Tank podcast. 

    On the podcast, we talked about artificial intelligence & trading, the Cowboys, my trip to Columbia, and a bunch of other things. 

    Worth a listen. Check it out. 

    Screen Shot 2018-10-19 at 2.47.23 PM

    Here are some highlights:

    • "You have to really enjoy the people you do business with. It's important to know who's fun to be around, who's going to be a net add, who's going to create energy, and who's going to have ideas." (5:55)
    • "I had a computer. Back then, only secretaries typed. I had a lot of people telling me it looked bad for a lawyer to have a computer, but I loved it and pretty quickly it became a competitive advantage." (15:20)
    • "One of the most important business lessons I learned is you have to understand what you want. So much of what I see in business is people telling me what they don't want." (19:00)
    • "I found that 10 times better is often easier to achieve than 10% better. If you're going for a 10% change, then you're bringing the past forward and you're trying to figure out what you can adjust." (20:00)
    • "Learning and growing are huge. For me, it's about raising the standard, getting comfortable with being uncomfortable, seeing the bigger picture, and creating breakthroughs. In order to do that I surround myself with people who think differently." (22:45)
    • "There's a difference between good and great and that difference is infinitesimal. You have to find not only what you're excellent at, but also what gives you energy because every day you fight the good fight and compete with everybody else."(58:00)

     

    I'll be at The Van Trump conference, in Kansas City, on November 28th. Hope to see you there.

  • Does Entry Level Still Mean Entry Level?

    We often hear millennials complaining about today's job climate.

    How can I get job experience if I can't even get a job to get experience?

     Is there any validity to that belief system?

    Apparently, yes. 

    According to TalentWorks, after analyzing a random sample of over 95,000 job listings they discovered that 61% of full-time "entry-level" jobs require 3+ years of experience. 

     

    4132018 entry-level-jobs-years-experience-1via TalentWorks

    Turns out "Experience Inflation" is a real thing.  Brings context towards the shift away from traditional education I mentioned a couple months ago. 

    TalentWorks also found that three, five, and eight years are the magic numbers for upgrading your job title.

    Mid-level jobs open up to you after five years, and senior level jobs open up after eight.

    I guess Millennials get a pass on this one … just this once. 

    With that said, we've had great success with the few high school interns we hired.  Perhaps the passion and interest that caused them to look for serious work, so early,  was a great way for them to get experience (and an early indicator of true talent)?

  • The World’s 20 Largest Tech Giants

    Today, the technology universe is more uniform than you'd think.  All of the top 20 technology companies are based in America and China.

    Since 2013, China has added 5 to their side and America has lost 1. 

    Here is the list.

     

    Visualizing The World's 20 Largest Tech Giants

    via Visual Capitalist

    It's also interesting to note that there's a steep dropoff between the "giants" and the companies lower down the ladder. There isn't a single company with a valuation between $200 billion and $450 billion. 

    To put it in a different perspective, here's a pie chart showing the market capitalization of the top 5 tech companies in comparison to the bottom 282 S&P 500 companies. 

     

    via Michael Batnick

    It can be hard for a tech company to break into the upper echelons.  However, with tech, change is the only constant. 

    What are some of the companies you think have a chance to enter the realm of these giants?

  • Understanding the Scope and Scale of Humanity (and Our Impact)

    "Progress is the attraction that moves humanity." ~ Marcus Garvey

    Human expansion and development is without precedent. We're in an entirely new territory. People could "only imagine" many of the things we take for granted today. 

    To put it in perspective. 

    Updated-world-population-growth-1750-2100-768x538via OurWorldInData

    While growth is slowing down, and we're reaching carrying capacity, the population is still on the rise.

     

    Technology is Growing Exponentially 

     

    “Technology goes beyond mere tool making; it is a process of creating ever more powerful technology using the tools from the previous round of innovation.” ~Ray Kurzweil

     

    The only thing that's perhaps more impressive than our population growth is our technological growth. For the first ~ 64,000 years of humanity, we relied upon the verbal transfer of information. The creation of writing and the formal recording of knowledge was the tinder for a blaze of progress.

     

    1_wtFvhdzSsWrGDPq-g4fhKw

     

    The above graph stops in 1990, and it's almost hard to quantify the growth since then.  Nonetheless, Moore's Law does a good job of adding some context (even if it is coming to an end). 

    Moore's law is the observation that the number of transistors in a dense integrated circuit doubles about every two years. Extrapolated outwards, we can expect more technologies to evolve every two years, if not faster. 

    Information is the fuel for so much of human progress and it most embodies the future to me. We create more data today than in all of history and digest more data today than ever before.

     

    As our ability to parse information increases … so do our capabilities. 

     

    History is defined by asymmetric information, but our future may not be.  The growth in information creation and digestion – I believe -  will have massive effects on how we congregate, what we create, and how we interact with each other and the corporate world around us. 

    I can't begin to imagine what my children's children will have at their disposal. 

    What's the coolest future-tech you expect to see in your lifetime?

  • A Rennaissance in Mathematics: The Mathematician Who Cracked Wall Street

    Jim Simons is a mathematician and cryptographer who realized that the complex math he used to break codes could help explain financial patterns – and he made billions because of it in his notoriously secretive hedge fund firm called Renaissance Technologies. 

    He is famous not only for the duration of his success and the size of his results … but also for the way he made his money (with much lower volatility and risk than his peers and competitors). 

    His background is impressive.  Simons taught at Harvard and MIT and worked with the NSA.  Here is a video where he shares some thoughts in a 2015 TED talk interview.  It's worth a watch. 

     

    TED via Youtube

    Interesting stuff … I hope you got something from it. 

    Despite advanced math still being a mystery to many,  most rely on it more than ever … for example, look at what we're seeing with the growth of machine learning and AI.

     

    The Heart of AI is Still in Humans

     

    Simons built a team of mathematicians whose motivation was doing exciting mathematics and science (rather than hired guns who could be lured away by money).

    That doesn't mean money wasn't a motivator, but it hits on something important. 

    The heart of good math and good AI will always benefit from the quality of the humans around it. You still have to champion integrity, culture, and purpose.

     

    Better Math as a Competitive Advantage

     

    We stayed ahead of the pack by finding other approaches and shorter-term approaches to some extent … but the real thing was to gather a tremendous amount of data – Jim Simons

     

    If you've been to our office, or heard me speak, you know how important I believe those ideas are to continuing prosperity. 

    Constant innovation on a massive scope and scale create more ways to win.

    Onwards!