Investing

It also follows, as noted, that duration and liquidity should typically correlate together: more liquidity forces investors into longer duration investments. Another irony in this story is that technology stocks are long duration i.e. high P/E investments and largely outside the ‘value’ framework. However, they are exactly the assets that gain most... See more

Consider cash to have a zero duration, technology stocks to have long duration (because they pay-off far into the future), counted, say, in decades, and Bitcoin to have a near infinite duration, because it pays no dividends and is never redeemed. If follows that, with just these three asset choices, an investor with an investment time horizon of,... See more

The only decisions investors can realistically make are: (a) how much to commit and (b) over what time horizon ?

Not only have finance and economics lately drifted even further apart, it gets worse: rather than economics (or economic expectations) driving finance as the textbooks tell us, finance seems to increasingly drive economics . Bitcoin and crypto, for example, fit badly into the traditional framework because they lack conventional ‘fundamentals’.... See more

What value investors implicitly assume is ‘perfect liquidity’ (at least when they need to sell), but the history of investment over recent decades confirms that market liquidity is highly cyclical moving over a 5-6 year frequency from abundance to scarcity. The chart below demonstrates the close correlation between weekly changes in Global... See more

24) The world is in a constant state of decay. Reality keeps shifting, and everyone’s models drift out of date and out of calibration. That is why there will always be room for the young, the hungry, and the obsessed to make money. People are like exponential moving averages of their lives. Short windows catch new trends first, even if some of what... See more

21) Profitable trading implies a worldview that is more aligned with reality than that of the market’s dollar weighted average participant. But alignment in one market does not automatically translate into alignment in other markets. What carries over are the meta skills in recognizing and monetizing edges, understanding adverse selection, and... See more

18) Trading is a zero sum game inside a larger positive sum game. Though every trade has a winner and offsetting losers, markets as a whole direct resources across space and time and help civilizations grow. The emergent objective of complex systems is usually only visible in hindsight. If you get too cynical about the uselessness of what you do,... See more

16) Only the paranoid survive. Panic early. Always have an exit plan. Avoid deep drawdowns. Have humility and leave room for unknown unknowns. Be aware when you are selling tails. Stay liquid. Respect counterparty risk. Respect path dependence.