Trading

  • How’d These 2022 Predictions Fair?

    As we brought in 2022, I asked the question:

    What's going to happen as a result of the continuing pandemic, inflation, interest rates, the ongoing supply chain issues, and the growing anxiety and unrest brewing underneath the surface of the new normal? In January, we'll get to see VC's predictions. Before that, what do you expect to happen in 2022? - How'd These 2021 Predictions Fair?

    I proceeded to share visualcapitalist's 2022 predictions: 

    6a00e5502e47b288330282e13fec75200b-600wi

    via visualcapitalist

    Well, there was undoubtedly increased volatility. 

    While the whole board isn't correct, there's a surprising amount of prediction accuracy. On some level, predictions benefit from being generally vague. Also, many of the predictions that may not seem as accurate "today" seemed more accurate at some point this year. For example, we heard a lot about NFTs in the first half of the year, and while Big Tech is currently laying off employees, there was massive growth this year. 

    What are you surprised they got right? In what areas were the predictions most off-base? Why?

    And, of course, what are your mega-trend predictions for 2023?

    Interesting stuff! 

  • Tech Company Layoffs

    For all the drama at Twitter, they're not the only ones experiencing layoffs in the tech industry. Though, Elon is now (supposedly) trying to renege on his severance packages.  

    Tech-layoffs-2022-MAIN-1via visualcapitalist

    Meta and Amazon saw even steeper layoffs than Twitter. Is this a result of overhiring during the tech boom, or a sign of dire times? Time will tell.  

    Stated reasons are economic uncertainty and poor performance, we're also seeing unsuccessful departments downsize – like Alexa. 

    To help allay economic fears, payroll and wage data from the U.S. government are exceeding expectations, and the country’s unemployment rate is close to a half-century low. As well, tech jobs account for 3% of the workforce – and many of those laid off will be picked up by smaller companies. 

    Even if the layoffs represent a short term reaction to what tech companies are seeing, hearing, or otherwise experiencing … they won't necessarily translate to long term bad news for our economy. 

  • The Rise of the Intangible

    In the past, most profitable companies built or sold some sort of tangible product. The Titans of industry were automobile manufacturers, oil producers, land owners, etc.

    Over the past 20 years, the Titans have changed dramatically. Now, the leaders are in tech, IP, and other intangible assets. Here is a chart showing the changing weight of tangible and intangible assets as part of the S&P 500’s total assets between 1975 and 2020.

     

    Ds-tangible-vs-intangible-assets-1

     via visualcapitalist

    By VisualCapitalist’s definition, intangible assets are holdings that don’t carry any physical or financial embodiment. This includes R&D, intellectual property, and computerized information such as data and software. Today, intangibles are worth over $21 trillion.

    With technology becoming more ubiquitous, I think the trend will continue – which makes protecting your intangibles even more important. 

    Patents and trademarks are a great way to build a moat between you and your competitors. Remember, however, that anything you get a patent on becomes public knowledge – so be careful with your trade secrets. 

  • Envisioning A Bigger Future

    Last week, I shared an article about creating your annual plan (and how Capitalogix does it).  This week, I want to talk more high-level about how we create a bigger future for ourselves, and next week I’ll talk about how I translate that bigger future into resolutions and actions. 

    The beginning of a new year is an excellent time for a fresh start.  While it’s always the right time to take the right action, the structure of a year-end is a helpful crutch and force function. 

    We look forward to what we will achieve – even though history says we rarely achieve everything we hope for.  Meanwhile, paradoxically, it is also true that we rarely achieve things we don’t hope for.  So, Hope!  It may not be a reliable strategy … but it beats the alternative.

    I’m excited about 2023.  Despite the abnormal market, the crazy headlines, and the still volatile political climate, we’re moving toward increased stability. 

    Even though I expect some volatility, we have become more accustomed to handling it (and we’ve become better at transforming its strategic byproducts into strategic benefits).

    On a different topic, think about how much progress we’ve made and how different the “new normal” has become.  For example, think about Zoom and remote work or how quickly our economy migrated online.  On many levels, what we are doing now seemed like science fiction, even just a few years ago.

    We are living in an age of exponential technologies and exponential possibilities.

    I commissioned this image from GapingVoid, to remind our team to keep shooting higher.

     

    How Can It Be Impossible If We're Already Doing It_GapingVoid

     

    Resilience, resourcefulness, and a worthy goal are the foundational keys to many entrepreneurial success stories.

    In the spirit of New Year’s Resolutions – I’ll add that a deliberate approach to goals is important too.

    I’m a big fan of picking a Big Hairy Audacious Goal (sometimes called a “BHAG”) and taking actions that move you in that direction. 

    I’m also a big fan of Strategic Coach’s Bigger Future exercise.  It is a 25-year planning exercise where you lay out your commitments and goals to yourself, your family, your career, and your legacy.  One of the keys to this is chunking high enough to name the roles, goals, and strategies you select with timeless language (meaning that the target words hold up even as you pivot and adjust your focus and actions).

    While doing this, I realized that my ideal next chunk of years involves taking Capitalogix to the next level (and beyond) through collaboration, cooperation, and joint ventures. 

    Once you know your long-term goal, it is relatively easy to plan the steps you need to achieve it.  Achieving smaller goals reinforces successes, builds momentum, and makes continued progress feel more likely.

    Extra points if you make them SMARTs (Specific, Measurable, Attainable, Realistic, and Time-Bound). 

    Actions speak louder than words, and your words can distract you. 

    If your goal is to win first place at a competition, focus on the metrics of a first-place finish instead of the medal.  This makes the goal concrete and sets an internal locus of control for your victory.  This also means you don’t need to tell others about your goal too soon.  Studies show that when you announce your intention to achieve a goal in public, you decrease the likelihood of succeeding. 

    It’s okay to misstep, and it’s okay to get stuck – but recognize where you are and what you’ve done … and move forward. 

    Delayed gratification happens when you want something badly, but are not able to get it right away.  The result is often anger or frustration.

    Meanwhile, the mainstream media broadcasts a seemingly non-stop stream of messages screaming for immediate attention and gratification.  The result of that is not good either (for example, it can result in higher rates of obesity, drug abuse, and depression). 

    Don’t be fooled.  Overnight successes are rarely actually overnight successes (for long).

    It’s also important (once you’ve accomplished your goal) to set new goals. 

    Over the next 25 years, there are many people I want to impact – and many goals I want to accomplish.

    It hasn’t always been easy – but building Capitalogix has been an intensely rewarding passion.  It has been easier because I want what I want.  Make sure you know what you really want … it makes getting it much easier.

    I look forward to you all being a part of it as well.  Here’s to a successful 2023 and an even more successful 2048.  

    Onwards!

  • What’s The Dollar Milkshake Theory?

    Right now, the US Dollar is outperforming other currencies – in part, because it's the Reserve Currency.

    image from econofact.org

    via Econofact

    But, that's not necessarily a good thing.

    One possible occurrence of this is called the Dollar Milkshake Theory.

    It purports that the US dollar will suck up liquidity from the other currencies, creating a chain of events that will drive the US dollar even higher. Unfortunately, this increases the risk of debt defaults. Eventually, the dollar ends up drinking the liquidity from the entire world economy.

    Think about it. If you're getting negative yields on your two-year bonds from other countries, after a certain point you would sell those investments and switch to US two-year treasury bonds. It's a slippery slope from there. 

    If this is true, then it also has dangerous implications for crypto – which is already in peril after the FTX controversy. 

    So, the question becomes, does the dollar's strength truly help us? What about the global economy? What do you think?

  • The Social Media Universe

    We recently dove into what's happening at Twitter. Since that article, Elon wrote an ultimatum e-mail to his employees saying that if they wanted to stay, they would have to work harder and longer than before … and that they would get three months severance if they chose to leave. In a result that might have surprised Elon, thousands of Twitter employees quit.  In response, Elon locked the doors, cut badge access, and attempted some damage control.

    On top of that, you also have Meta having its own issues. 

    With that, it's probably a good time to take a look at the social media landscape.  Here is an infographic that shows the relative popularity of various social media properties. 

     

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    via visualcapitalist

    If you rank the top 10 social media by monthly users, Twitter isn't even on the list. Nor is it on the list for driving clicks. 

    Meta and YouTube top the list – by a mile. 

    As well, there's a growing network of smaller social media vying for a spot in the global paradigm, like Parler, Mastodon, or even Onlyfans.

    Meaning there's a lot more chaos in the system. 

    As always, chaos creates opportunity – in this case, both for new media and for brands to capitalize on the change in trends. 

    The question is, will Facebook and Twitter survive the storm, and if not, what will take their place?

  • 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: