Capitalogix

What Can My Dogs Teach Us About Trading?

I wrote this back in 2008. With minor updates, it seems relevant again.

Some dogs run fast; other dogs do tricks … my 100-pound lab, Duke's best talent was his ability to remain immobile in almost any situation (some call it "laziness" … I prefer "calm" or being "even-tempered").

At the other end of the spectrum are our two small dogs, Boo and Jasper. Boo, our 20-pound mix between a Beagle and a Boston terrier. Let's just say that he has a higher metabolism than Duke. 

When Boo hears a noise, he lets out an involuntary, barely audible, sound.  His body becomes rigid and his head cocks.  He becomes alert and carefully tunes his ears to their most sensitive setting, seeking any information that will help identify the "danger." He's now primed for the next intrusion.

Usually, there are no other disturbances to follow, and the noise is cataloged and soon forgotten. His alertness level slowly subsides over the next 10-15 minutes or so.  He'll go back to napping, a little more fitfully this time … and just a little bit on edge.

Things get a little more interesting when another noise surfaces shortly after the first one.  What could once be dismissed now must be treated as a threat – and just to be safe, a threat of the highest order.  Now the appropriate response is a series of barks, nervous glances, pacing, rushing off in the direction of the noise to investigate, and a barrage of barks meant to sound more menacing than the source of the noise.  Who or what is it? How much harm can they cause? How grave is the threat?

Jasper, our high-anxiety mutt, is never off alert. He doesn't know what's a threat, and what's not, so he's always creating threats out of nothing and riling up our other dogs. 

Duke is a different story.  Nothing upsets Duke more than Boo or Jasper getting on high alert.  The same noise that prompted Jasper and Boo to become alert does nothing to Duke.  However, the first time that they make noise,  Duke becomes alert. The second time they make noise, Duke starts vocalizing; and the third time, all 4 of our dogs start yapping. Once they start yapping, then the neighbor's dogs start yapping, and suddenly our neighborhood is a cacophony of dog barks.

The same thing happens in the market with people.

In the market, it is the second noise - and subsequent noises - that creates the equivalent of the Homeland Security "Red Alert." Once an elevated level of alertness has been established, it takes a long period of relative calm for it to subside.  And when on "Red Alert" … any additional noises (for example, the responses of the other market participants) - big or small - will highlight, magnify, and further validate the issue.

But, like in the story "The Boy Who Cried Wolf," even legitimate threats are ignored after too many false alarms (or prolonged periods of constant alert).  So, bad news about the economy isn't as likely to get people excited after the past few weeks.

As people (or bots) become "used" to today's new normal, It'll be interesting to see what sprouts up. The longer away from the initial episode, the more real the effect can be attributed. 

The unfortunate reality is that the Boo and Jasper style "overreaction" to a crisis can exacerbate the long-term effects of the crisis. To balance that, on the macro level, a stronger pandemic response has been shown to increase economic recovery.

This has been the theme from the beginning. Don't personally panic, but respond aggressively on the city, state, and national level. 

Food for thought. 

Building Your New Normal

Last week, I introduced the idea of a new normal. 

As a small business owner, in the midst of this pandemic, I'm not thinking about what's necessary to continue doing what I was doing yesterday. I'm focused on what I can do to prepare for tomorrow. Things won't go back to the way they were, but they will go back to normal. Only, it will be a new normal. It's a good lesson in being attached to a result, not a medium for a result. 

The "new normal" is a topic that has been coming up in a lot of different places, because of the situation in which we all find ourselves. 

These Are Not Unprecedented Times

I've heard a lot of people use the phrase "these are unprecedented times" but they're not. Ignoring how many different industry-disrupting era's we've had (think the Dot Com Bubble), we've also had numerous pandemics, and we're better prepared to handle them today than at any other time in history.  

Here is a short video from Simon Sinek that I thought was relevant, well-done, and inspiring. I encourage you to watch it.

 

via Simon Sinek

What Comes Next?

"I'm not worried about what I do, I'm worried about why I do it." - Simon Sinek

After some time, things will go back to "normal." Your goal for today should be to sow the seeds to today that prepare you for that day. I'll backtrack a step and acknowledge, if you're struggling to survive, survival comes first. Regardless, you need to make sure you're asking yourself the right questions.

When you ask better questions, you get better answers. 

What will you need when it's back to business as usual? How can you help others better themselves through this period? Who can you help?

If the theme for right now is building a new normal, one of my life's themes is the belief in moonshots and exponential thinking. 

Your response to this pandemic should be the same as your response to disruptive innovation. 

You should be attracted to a result, not a medium, and paying attention to how you can capitalize on the wave. 

Blockbuster, RadioShack, Kodak, all went out of business due to shortsighted myopia in the face of change. 

Opportunity or Chaos ... You get to decide!

Onward!

Unpacking The Coronavirus Relief Package (CARES Act)

How much Coronavirus information can everyone take?

Everywhere I look, the current crisis seems to be affecting everything.

It has certainly impacted what we post – here are two recent examples:  

• 7 Best Practice For Uncertain Times
• The Anxiety Antidote: Scary Times Success Manual

 

via Twitter

Meanwhile, I am beginning to think about how we are going back to business as usual. 

Just last week, 3.3 million applied for unemployment and companies have been freaking out. If my own social network is any indication, most people are finally taking it seriously and isolating. If you take my son's social network as any indication, some are still partying on beaches and boats without a care in the world.  As a reminder, flattening the infection curve greatly impacts our ability to treat COVID-19. 

I am by no means an expert, but I know many of you are curious about the Coronavirus relief package that passed the Senate on Wednesday, and the House on Friday. It's the third package from Congress so far. Based on your background and your personal beliefs, you'll likely have varying opinions on the package, but overall, I believe this is at least a "passable" effort for most audiences. And (watching the struggle to reignite the stock market) it is likely very much needed. 

As a final note, the goal is not to "fix" the Stock Market, or stimulate the economy (exactly), it's to rescue the economy. It's a relief package. The goal is to prevent the collapse of the economy due to stagnation and unemployment. 

So what does the CARES ACT package entail for you:

• Self-employed people (that includes artists, musicians, and solopreneurs)  are now able to apply for unemployment benefits up to their full salary. Unemployment is receiving a $260 billion stimulus. 
• Small businesses will have enhanced access to federal loan dollars to help keep people on the payroll. If no one is laid off, the loans will be forgiven. If you're looking for capital to cover retaining employees, that's called the Paycheck Protection Program. There is also the Emergency Economic Injury Grant and Small Business Debt Relief Program.
• There are many industry-specific bailouts, including for airlines and more to prevent them from failing
• President Trump and Congress members are forbidden from using funds from this package to save their businesses. 
• Most adults can expect a one-time payment of $1200 and each child can expect $500. Single-filers above $75K will receive a reduced amount, and single-filers above $99K can't expect anything. If you don't have a social security number, you can't receive a payment. 
• Joint-filers above $150K can expect reduced payments, and joint-filers above $198K can expect nothing
• You have until July 15th to fill out your tax returns

SevenandForty via r/DataIsBeautiful 

There's a lot involved with the package that I didn't cover, but I covered most of what influences the average person. Big corporations, hospitals, and public health, and many government programs also receive various levels of benefits. 

For a comprehensive look at the bill, NPR did a very good write-up. You can read it here. Verne Harnish and Scaling Up did a good write-up as well. You can read it here. 

As a small business owner, in the midst of this pandemic, I'm not thinking about what's necessary to continue doing what I was doing yesterday. I'm focused on what I can do to prepare for tomorrow. Things won't go back to the way they were, but they will go back to normal. Only, it will be a new normal. It's a good lesson in being attached to a result, not a medium for a result. 

Hope this helped.  

Here Are Some Links For Your Weekly Reading - March 29th, 2020

 

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

Lighter Links:

• How the Pandemic Will End. (The Atlantic)
• A New Way to Explain Explanation. (TED)
• 20 New Technology Trends We Will See in the 2020s. (ScienceFocus)
• Smile? Results from the 2020 World Happiness Report are In. (New York Times)
• Warren Buffett's Brilliant 25/5 Rule Was Fake. Here's What He Really Said about Achieving Success. (Inc)

 

Trading Links:

• Disneyland and Disney World Will Remain Closed Indefinitely. (CNet)
• The Dow Just Had Its Best Week since 1938. It's Time to Go Shopping for Beaten-Up Stocks.(Barrons)
• Dollar Falls during Coronavirus Pandemic, Biggest Weekly Drop since 2009. (FoxBusiness)
• Understanding the Economic Shock of Coronavirus. (HBR)
• Paul Tudor Jones Says Stocks Could Retest Lows as Virus Peaks but Will Be Higher in 3 to 5 Months.(HedgeCo)

Turning Trials Into Triumphs

Many of our best decisions, timeliest course corrections, or most significant innovations take place after a seemingly disastrous occurrence. That's why many psychologists and self-help gurus encourage people to focus on the hidden gift that many of these experiences provide.

It's there if you look for it. That painful event becomes the catalyst for either something new, a better way, or a level up. 

Of course, that's not the case for everyone or every event ... It takes the right mindset and the right actions to turn a trial into a triumph. 

As we experience massive real-world and market turmoil, I think back to 2008 and how a prior incarnation of algorithms fared against it (spoiler alert: not nearly as well as this time).  They say the things that don't kill you make you stronger. Here's my trial into triumph story about that. 

 

 

Too many people become a victim of their circumstances instead of choosing to be the master of their destiny. 

Life's harder for people that live a life of least resistance. Doing the hard things, and making the most of bad times, makes your life not only better ... but, ultimately, easier. 

Tony Robbins calls this Threshold of Control. If you push through the fear and the struggle ... as you persevere, eventually, what was scary becomes easy. You've increased your threshold, and that's often a permanent improvement.  

Examining several instances from my past, Here is a list of the seven steps I use to transform almost any situation.

Seven Best Practices for Uncertain Times.

1. Accept Reality: We are where we are. Focus on being complete with what happened before this, and think about this as a new beginning with an even bigger future.
2. Do Something Positive: Take action and build momentum and confidence. Big wins are great. Yet, in scary times, even small items are worth noting, building upon, and stacking. Let progress build positive momentum for you.
3. Take Care of Yourself: Increase your physical activity, meditation, and massage. Take time to eat and sleep well. Many studies show decision-making suffers when you're stressed. Taking care of yourself goes a long way to making a lot of other things better.
4. Communicate More: The natural tendency is to hide or to recuperate in private. Instead, be open and receptive to help and ideas from friends, partners, or wherever it may come.
5. Creative Destruction: The old game and the old ways of thinking are over.  Shift your energy to what is working. Commit to the result you want, rather than the process.
6. Increase Your Options: It often takes a different level of thinking to solve a problem than the level of thinking that got you there in the first place. So, be open to new opportunities, new possibilities, and more ways to win.
7. Choose a Bigger Future: Instead of resigning yourself to playing small and doing with less, recognize that a clearing creates space for something even better. Choose what you want and call it into existence through your thoughts and actions.

They say everything happens for a reason. The secret is that you get to choose the reason, what it means to you, and what you're going to do about it. Choose well, and someday you could look back on this time as one of the best things that ever happened to you.

"Chart of The Century": A Look At Inflation, Free Market Forces and Trade Wars.

This post considers the “Chart of the Century” created and named by Mark Perry, an economics professor and AEI scholar. This chart has gotten a lot of attention because it’s loaded with information regarding the types of challenges faced by the Fed and other Washington policymakers.

Perry’s most recent version reports price increases from 1998 through the end of 2019 for 14 categories of goods and services along with the average wage and overall Consumer Price Index.

It shows that prices of goods subject to foreign competition — think toys and television sets — have tumbled over the past two decades as trade barriers have come down around the world. Prices of so-called non-tradeables — hospital stays and college tuition, to name two — have surged.

From January 1998 to June 2019, the CPI for All Items increased by exactly 59.6% and the chart displays the relative price increases for 14 selected consumer goods and services and average hourly earnings.

Lines above the overall inflation line have become functionally more expensive over time, and lines below the overall inflation line have become functionally less expensive. So, for example, housing has approximately kept pace with inflation. 

Mark Perry Via Carpe Diem

There are a lot of ways to take this chart. You can point to items in red - whose prices have exceeded inflation as government-regulated or quasi-monopolies. You can point to items in blue as daily commodities that have suffered from ubiquity, are subject to free-market forces, or as goods that are subject to foreign competition and trade wars. Looking at the prices that decrease the most, they’re all technologies. New technologies almost always become cheaper as we optimize manufacturing, components become cheaper, and competition increases.  

Compare “tradable” goods like cell phones or TVs (with lots of competing products) to less tradable “goods” like hospital stays or college tuition, and unsurprisingly they’ve gone in opposite directions. 

There are a lot of complex economic relationships displayed in this chart, and we’ve only covered the basics. 

What did you take from the chart?

How do you think the Coronavirus will impact the future of policy - and the shape of this chart?

Dominance of the US

In light of recent fears, VisualCapitalist put together an infographic on the dominance of US companies in global sectors and industries. 

via VisualCapitalist

The calculations reflect the market cap of the S&P Global Broad Market Index which tracks more than 11,000 stocks across 50 markets. Not all-encompassing, but a good start.

To add some numbers to the chart, the US represents

• 73% of IT
• 65% of Health care
• 51% of Real Estate and
• 44% of Financials 

China is closing in fast on some of these sectors, but the U.S. is still the world leader.  

Here Are Some Links For Your Weekly Reading - March 1st, 2020

 

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

Lighter Links:

 

• When that AI Company' Isn't Really an AI Company. (TechCrunch)
• The Catholic Church Proposes AI Regulations that Protect People'. (TheVerge)
• Musicians Algorithmically Generate Every Possible Melody, Release Them to Public Domain. (Vice)
• Saudi Arabia: Riyadh Suspends Pilgrimage Visas Amid Coronavirus Concerns. (Worldview)
• Warren Buffett Says He Prefers Mike Bloomberg in the Democratic Presidential Race. (CNW)

 

 

Trading Links:

• Dow Loses 12% for Week on Coronavirus Panic; Fed Says It Will Act 'Appropriately'. (TheStreet)
• These are the Only 7 Stocks in the S&P 500 that Rose While the Market Plunged. (MarketWatch)
• Gold Prices Tumble Amid Reports of Margin Calls. (Investing)
• Nearly 40% of Europeans in Their Late 20S Still Live at Home. (Quartz)
• MIT Published a List of the 9 MegaTrends that Will Shape the World in 2030. Here's What They All Have in Common. (Inc)

Mountains Out of Molehills: Media Inflammation

The U.S. stock market had a rough week (like most markets around the world). The Dow Jones Industrial Average (the "Dow") had one of its worst weeks since the financial crisis in 2008, losing about 12%.

Still, the Dow is near its historical highs, and the fundamentals of our economy aren't in freefall (as one might guess with all the fearmongering). 

As I mentioned last week, many attribute the drop to the Coronavirus and its potential effect on trade, travel, industry, etc.  For example, several prominent news sources released (hopefully erroneous) articles stating that 38% of beer drinkers wouldn't drink Corona due to the Coronavirus.  Yup!

There are two key points I want to make. The first is that the media tends to make mountains out of molehills (because their job is to get you to pay attention to their news) and the second is that markets are random to you or me. 

Mountains Out of Molehills

It shouldn't come as a surprise to you that the media exacerbates situations. Whether it's a terrorist attack, a virus scare, or a bad trading day - the media posts headlines and teasers designed more to attract attention than to educate. 

The interactive graphic below shows the news cycle for things ranging from asteroids and vaccines to ebola and zika.  An interesting reminder.

(Click To View Interactive Infographic) via InformationIsBeautiful

The result is hysteria, fear and greed, or discretionary mistakes ... all things better avoided. 

Regardless, when it comes to trading, if you don't know what your edge is ... you don't have one.  And it's tough to find a "signal" in a sea of noise. 

via Gaping Void

Markets Are Random

Experienced traders have a saying: it isn't the news that matters ... what matters is the reaction to the news.  Consequently, part of the reason that markets seem random is that you or I can't predict the market's changes (accurately and reliably) based on the information we have.  In other words, if market profits were easily captured by being smart and well informed, professors wouldn't teach because they'd be on their yachts. 

This past week,  you could attribute the losses to fear of the Coronavirus ... but there are also fears around the 2020 election, the fact that stocks were already considered overvalued, fears of recession, and more.

You don't know how much was caused by program trading or bots reacting to bots – or by a host of less obvious potential causes or contributing factors, like businesses either liquidating or taking positions in the regular course of their business (meaning as bona fide purchasers rather than speculators).

The truth is no one knows for sure what caused the drop.

Nonetheless, one thing that you should know is that volatility and noise will increase.  It is almost inevitable.

Humans have a need for certainty and understanding. So when we don't know why something happens we find stories to fill in those gaps. But they're just that ... They're stories. We can theorize all day long about what's moving the market, but it makes no difference.

It's not what happens that matters, it is what you do that matters. 

Onwards!

Coronavirus Tracker

Fears around the Coronavirus continue to mount. Quarantine of the superbug has been tough ... the disease shows up in more countries every week, and the death toll is likely being underreported in China. 

That being said, the death toll compared to the "recovered" toll should give you hope that if you're relatively healthy and get proper treatment, your survivability rate is very high.

Here is an interactive tracker if you're curious to see a visual representation of it's spread.

 

1hakr via Visualist.io

Keeping yourself at a low risk of contraction is pretty simple. You know what you need to do to avoid it, but, as a reminder: wash your hands, don't share food/drinks with strangers, avoid touching your face, and don't go to China till you believe the "all clear."

How do you believe this will affect the markets and economy?