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Survival of the fitbit

I heard the other day that Fitbit the once darling of wearable fitness devices is coming out with a competitor to the plethora of smartwatches that are now on the market. To my eyes Fitbit falls into that wonderful category of companies that either created or dominated a niche and then failed to adapt to change. Perhaps Fitbit is the Kodak of this century.

Fitbit

It is interesting how companies are afflicted with blind spots – Fitbit obviously failed to see the danger in smartwatches that do everything their little bracelets did and more. Makes me wonder what my blind spots are….

S&P 500 Panic Attacks

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How Our Strengths Can Weaken Our Performance

Many years ago, I met with an intern at a trading firm who was struggling with performance despite being mentored by some of our most successful traders. One went so far as to lay out a blueprint for the struggling trainee explaining what he should do in different situations. It was to no avail. The intern simply did not follow the blueprint. This seemed odd to me, because the young man had demonstrated discipline and learning skill in past activities. When I directly observed him, I noticed that he became fascinated with the market behavior he observed and tried to make sense of it, rather than focus strictly on his blueprint. He strayed from the lessons he was taught out of sheer intellectual curiosity. We wanted him to follow a formula; he wanted to understand markets.

 

More here – Forbes

Vision Mercedes-Maybach 6 Cabriolet


 

When There Is Blood In the Streets

In the way of that selective perception works, shortly after having written a piece on the Art of War the following article popped into my feed – When There is Blood in the Streets which contains the following opening paragraph.

There is a famous quote by the 18th century banker Baron Rothschild:

The time to buy is when there’s blood in the streets.

Rothschild made a lot of money in the panic that followed the Battle of Waterloo using this exact motto. However, his advice is far easier said than done. I’ve noticed this problem within the personal finance/investing community that seems to suggest that a few common rules can solve almost all of your financial problems. The issue is that it is far easier to memorize a simple catch phrase that looks good retrospectively, than to act on the same advice in the moment. I will expand on this point later, but first…some data.

There are two points I want to make about only the opening paragraph since it sets the tone for the rest of the article. The first is a factual point – one of the things I urge all traders to be is a market historian. My urging to head down this road is simple – no one makes an original mistake. All the mistakes you have made and will make have been made by everyone else (including me) who have participated in markets. No one is Robinson Crusoe. Being a student of the history of markets brings this simple fact into sharp relief, in addition to this you get a powerful sense that whilst the technology of our markets has changed dramatically even in the last 30 years the basic underlying principles have not. So you get a sense of how simple but not easy trading is, you also understand your point in the timeline of trading history.

 The original story  regarding Nathan Rothschild and the battle of Waterloo goes something like this. The Rothschild family at the time of the Battle of Waterloo were the prime banking dynasty in England and it is said that the victory over Napoleon brought them a massive windfall. This windfall came about due the speed at which Rothschild was able to obtain news of the victory at Waterloo. It is said his agents boarded a boat at Ostend in Belgium and headed to England. When Rothschild received word of Napoleons defeat he initially went to Parliament to inform them but they were still in the grip of panic because of news had reached them of an earlier  Allied defeat at Quatre Bras. They made a leap of logic and assumed that this earlier defeat has translated into Napoleon being victorious at Waterloo. Rothschild is then said to have headed to the Stock Exchange and began to dump what were known as Consols – a form of bank annuity. This lead to a panic in Consols as other traders thought Rothschild knew something definitive about an Allied defeat, as they crashed news of the Allied victory arrived but in the moments before that Rothschild entered the market and bought all that he could. It is said he made millions of pounds in that moment.

It reads like a wonderful story of a robber Baron taking advantage of better intelligence and acting with steely resolve whilst others around him panicked.  There is only one problem, it most likely is not true. The original story is thought to first appeared in an anti-Semitic publication in about 1846 and over the years has been embellished to further this cause. Unfortunately this story has taken on the life of a zombie story that is impossible to kill as it is repeated over and over again. Any fortune Rothschild made as this time is most likely due to contracts he had with the British Government to supply Wellingtons army with cash. The English lack the international infrastructure necessary to perform this task but Rothschild had been able to build up an effective international distribution network.

The second point that I take issue with is the use of the metaphor of buying when there is blood in the street. Whilst this sounds all wonderfully macho and gung ho it is actually a bit of a wankfest and is a very poor metaphor for trading. When you generate metaphors you build a filter through which you see the world and this filter dictates your emotional response to events. If you see all events in terms of a binary conflict where blood is being spilled then your brain is going to latch onto this and give you the appropriate emotional response for this idea. Emotion is the enemy of the trader because it overrides the logical decision making essential to successful trading. It is tempting to view yourself as a balls out speculator taking on the market but this is a somewhat primitive Neanderthal approach. Trading is more akin to surfing than war. Surfers have no idea when the next wave will arrive, nor do they know the size of the wave they will catch. Some will be large and spectacular but most will be small. Sometimes you can go all day without catching a wave but that is the nature of surfing and this is not a problem because you know there will always be another wave.

Apparently the CBA ARE LOOKING FOR A NEW BOSS

The good old corporate euphemism of exploring new opportunities has been applied to the resignation of CBA CEO Ian Narev. Apparently you are not allowed to say listen mate under your reign we have had a big arse Ponzi scheme, the bank has tried to deny the terminally ill access to insurance they paid for and we seemed to have forgotten to report some 53,7000 transactions that breached money laundering and terrorism laws. So best you piss of and run a milk bar somewhere else. With this in mind I thought I would take a look at the performance of CBA relative to its counterparts.

The chart below compares the relative YTD performance of CBA ot the other members of the big four.

CBA

As you would expect over the short term there is not much difference in the relative performance of this cohort – their businesses are highly correlated within a small market. What I also found interesting is the lack of shareholder punishment applied to CBA for yet another transgression particularly given the seriousness of the money laundering charges. Whilst talk of fines into the billions is plainly stupid there will be some form of smack and it appears that politicians sense of self interest will play a part in making certain it is not too large. After all you shouldn’t smack someone you want a board position off when you leave politics. But it also indicates the lack of depth in the local market – there is simply nowhere else to put large sums of money so investors both retail and wholesale are stuck with a limited range of alternatives.

Simply for the sake on interest I wanted to see what the long term relative performance of the four banks was and I was quite surprised.

10

Since the GFC NAB begins to lag behind quite a bit, so I looked at  all the data had.

ALL

NAB has always unperformed the other three and CBA’s level of out performance is a relatively recent phenomena.  It is also intriguing what you see when you begin to compare similar instruments over extended time frames – the history of markets and their instruments is a fascinating thing. As for someone who can take over from Ian Narev I would suggest that the CBA board forget all the expensive recruitment bullshit they go through and just pick someone from the street – they couldn’t do a worse job and they could probably do it for less than the $12M that Narev got paid.

Sun Tze – The Art of War

The video below has lately been doing the round of investment sites and at a little over five minutes long it is a short introduction to the Art of War by Sun Tze.
 


 

For many years the Art of War has been a staple of not only business schools but also investment firms. More than one firm I have been associated with considered it to be compulsory reading. However, I have have always had problems with it, not only because much of it reads like a fortune cookie but because it automatically assumes that everything is a conflict and should be treated as such. The inadequacy of this as a philosophy is particularly true in trading. To my way of thinking trading is an internal endeavour – there is no external enemy who you can deceive or overpower since markets only exist in the most ephemeral way inside your head. Markets may appear to be physical constructs but they are largely an illusion, trading occurs inside your head where your own perceptions and distortions of reality influence your decision making. Without drifting off topic too much – all reality is a construct of our history, beliefs and idiosyncratic perceptions. We do not view reality through the laser like focus of a lens but rather through the muddied filter of the prism of our perception.

This internal confusion renders things such as The Art of War an irrelevancy because taken to its extreme it means that you need to view yourself as the enemy and granted we do get in our own way with disturbing regularity but to consider yourself the enemy is to head down a path that will in no way lead to investment or trading success. Trading is a collaborative endeavour between you and the market. The market offers up opportunities on a regular never ending cycle and you decide what you will do with these opportunities. There is no enemy in this transaction it is a symbiotic relationship and a failure to accept this is at the root of many of the problems that traders have. The notion of a symbiotic relationship troubles many because it means that there is a sharing of the responsibility in the outcome of each action and the last thing we want to do is to take responsibility for our own actions or our contribution to a given outcome.

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