Phase transitions involve a kind of macroscopic behaviour that seems hard to predict by looking at the microscopic details. When a solid is heated, its molecules vibrate with the added energy. They push outward against their bonds and force the substance to expand. The more heat, the more expansion. Yet at a certain temperature and pressure, the change becomes sudden and discontinuous. A rope has been stretching; now it breaks. Crystalline form dissolves, and the molecules slide away from one another. They obey fluid laws that could not have been inferred from any aspect of the solid. The average atomic energy has barely changed, but the material—now a liquid, or a magnet, or a superconductor—has entered a new realm.
After note: this is not advice just my opinion on the current state of things...
First we must accept that a company stock is not easily controlled, and then we must employ reason to create a checks and balances system for it. Having said this, we must be aware that even reason might fail us, and at that point we need to be brave enough to seek alternative solutions. Not being able to control your company stock is not a crime, it is not a sign of weakness, surrendering is.
Never should a gifted company feel inadequate just because of its merits, never should the brilliant denounce their intellect just because of the troubles it may cause. Those of us blessed with working for a good financial company must learn to love and fear it.
We must respect what it can do for us and for others, and accept that our lives will not be simple. We must accept that we are different, not lesser, and we must act with caution. A good financial company instigates battles, eternal inner struggles.
To bring the point home, the world we live in might cultivate this illusion that the smarter you are, the better you’ll do in life, when in reality it has absolutely no inclination of rewarding excellence. However, in this highly imperfect world, this utterly anti-intellectual one, the one that fears wit, and dismisses wisdom, we at a good investment firm, with this troubled stock price, yes tortured in the stock market, stand as true differentiators. We are the thinkers, the doers, the creators, the protectors, the influencers, the misfits, and the just. We are the enlightened even if we do have a company that underperforms the overall market. At the end of the day it is a matter of channeling our power, not obliterating it.
So if Mr. Market demands you to be humble enough so as to comprehend that the market can take you wherever it chooses to. What then? What happens then? Logic?
Logic acts as your only guide through the endless corridors of your company’s journey. Logic i.e. the ability to reason, attempts to steer your strategies, attempts to be your ally in this endless war that is taking place inside your own company. However, logic, as do strategies, sometimes fail. Logic is not invincible, it kneels when confronted with emotion, it breaks when challenged by the anomalies of finance. So if not logic, then what?
When logic fails to act as your ally, as a pace-maker, a metronome, then awareness and self-preservation will be your enabler, will help you seek solace and find solutions. The biggest problem we are faced with is not that at times our company’s tactics might consume us; it’s that when this happens, and logic fails us, we tend to self-blame. For what makes more sense than to try and destruct what it is that is causing us stock price pain?
That is why it is easier for us to feel inadequate, instead of accepting how helpless we truly are when it comes to our own capabilities. There is no right or wrong when it comes to coping with a troubled company stock. There are just efficient and non-efficient solutions.
Suddenly that blessing can become a curse. If thinking that we live in a fair world is the first misconception, then thinking that we are in full control of our company’s stock performance is certainly the second flawed premise we live by. This is one of the greatest paradoxes of all time, you cannot say that you possess a good company, but at the same time think you can command its stock performance. The stock market demands you to be humble enough so as to comprehend that Mr. Market can take you wherever it chooses to. So what then? What happens then?
To be continued…
We are taught from a young age to compete. We are told to work harder, try harder, reach further, and just be better. This is so deeply rooted in all facets of society – education, work, career, religion – that we start buying into this notion of a cosmically balanced universe where the good gets rewarded, and the bad gets punished. Starting from our early days of education, in school we are given grades. Meaningless rankings that are nothing more than reward systems meant to promote this idea of meritocracy. The harder you study, the better you’ll do, our teachers say, reap what you sow, our parents proclaim, work more and make more, our governments tell us. Yet all this is based on a very flawed premise, that the world we live in is a fair one. We do not live in a world where the best of us get promoted, where hard-workers get compensated, or the do-gooders get appreciated. And there, right there, is where all the troubles begin. For what happens to the qualified that stay behind in life, what happens to the gifted that do not get acknowledged for their merits, what happens to the brilliant?
See, a good company is not a peaceful company, nor an easy company to understand. A good company has the ability to race. It has the ability to over-perform. Every scenario, every strategy, every dot on a convoluted canvas this company can connect; every dot but one, the one that owes it a proper stock performance return. A good company knows that it’s good, by virtue of comparison, but the one riddle it cannot solve is why it cannot claim its rightful place in a world that supposedly would reward it. You know what happens to a good company when it is denied what it is worth? It begins to doubt, and that doubt is when a blessed company can become a tortured one. When a brilliant company is challenged for being brilliant, it does not fight back, instead, it trails off into a vertigo spiral. For at that moment, this super-weapon turns its aim upon itself.
And Now What?
While algo trades should not be dismissed, because they do after all account for something like 70% of daily trading activity, they should be used with caution.
We live in the information age, meaning that we have vast access to information. If we want to be able to track markets we need to be willing to put in the legwork required to do so. Following news and events, understanding behaviors, and using an abundance of open sources and platforms that are readily available is a good start. Wanting to auto-pilot such a complex industry, during the most complicated of times, is pure delusion.
The past has value, and the future will always be unknown, but ignoring the present simply because the systems we have grown to rely on have no way of understanding it, is quite like being in a world where the living have to fight the dead in order to survive.
If we surrender to the algo craze we will end up in a financial sphere filled with slow-walking zombie predictions.
Where Algos Fail
The problem with algo trading is that it tries to predict what will happen based on what has happened. It assumes that history will repeat itself so knowing all there is to know about the past will most certainly help us predict the future. But what about the present? How can algos be treated as a full-proof source when they cannot apply any qualitative analysis on our current state. Take the inflation scenarios for instance. Based on historical data and rule-based analysis, economists confidently said that printing new money would cause inflation. That's true, based on historical data alone, the printing of new money, should cause inflationary pressures. Yet here we are, 7 years post quantitative easing and inflation is nowhere in sight. The reasons why inflation did not spike are plenty, all of which are entirely new to us. There is nowhere in history that we can look, or algos can find, where a similar event occurred. This means that we are in uncharted waters, a new, and at times, scary frontier that cannot be predicted simply by looking at what our ancestors did. We are in the process of making history, not repeating it. That's where algos completely fail, and that's precisely what can transform them from a useful tool into a dangerous one. Taking algo predictions at face value, without applying any solid research and analysis of your own, is a high-risk game.
Machine learning, optimization, big-data analytics, robo-investing, and of course algorithmic trading, are all words that pretty much sum up the bright future of finance. Yet how confident are we that all these systems - systems that base their knowledge strictly on quantifying the past - are accurate in predicting the future? We live in a world of unprecedented events, a world of "firsts," (disinflation, zero interests rates, flash crash, to name a few), how then, can algos, assess things they cannot understand because they never existed? Under such light algorithmic trading at times feels as if we are trying to conjure the spirit of Pancho Villa so he can explain the impact of SnapChat. What you end up with is a series of poorly correlated events, yielding a string of ghost predictions haunted by the walking dead.
Man vs. Machine
We have learned to depend on technology for pretty much everything. We rely on smart calculations for all our decision-making, what to eat, what to watch, where to travel, what to wear and where to buy it from. Truth is that technology has optimized many aspects of our lives and our business. It has simplified many things and has made others possible. This has granted technology a golden status, making computer-generated predictions almost indisputable. The saying, "computers don't make mistakes, people do," has elevated algo trading into a science of accuracy, being regarded as the highest and most credible authority. When you are told that a prediction was made after processing giant amounts of data and running complicated calculations, you are prone to think that the outcome is correct and trustworthy. For why doubt this super tool that can "outsmart" any human? However, algo trading has a fundamental flaw, and that can be summed up in one glorious term, GIGO.
Pride & Prejudice.
While many classify this work as a love story, it certainly goes beyond the sphere of romance. The closing act of the story has Bingley reuniting with Jane and Elizabeth finally accepting Darcy’s proposal. Despite the expected “happy-ending,” Pride and Prejudice is truly a marvelous story of people crippled by their own blindness. Following Darcy’s trepidations and Elizabeth’s painfully slow realizations, their story stands as a cautionary tale of first impressions, how misleading and harmful they can actually be. This is especially clear when one considers the alternative, for had these two characters not been able to overcome their pride and prejudice, they would have most certainly missed each other completely. Had Darcy persisted in his pride he would have forever dismissed all Elizabeth was, and had Elizabeth not challenged her prejudice she would have forever condemned Darcy to something he was clearly not. "And your defect is a propensity to hate everybody." "And yours," he replied, with a smile, "is willfully to misunderstand them". Austen does a brilliant job in painting an environment that allows both pride and prejudice to exist, only to stress the necessity of overcoming both these aspects. Due to her ability to craft a flawless story filled with conflict, obstacles, and resolutions, Austen’s Pride and Prejudice is absolutely worthy of its high praise as it holds within it two of the most beloved literary characters and one of the most celebrated love stories of all times and beyond.
It’s Superb! (said in a perfectly posh British accent)