Quote of the Week
“The farther one gets into the wilderness, the greater is the attraction of its lonely freedom.” – Theodore Roosevelt
On the heels of what was the single worst quarterly GDP drop in US history, a disconcerting development occurred in the latest Initial Jobless Claims report. Last week, the number of Americans filing new claims for unemployment benefits topped 1.4 million. It was the 19th straight week where initial claims were above a million. More importantly, it was the second straight week where initial claims rose after declining 15 straight weeks. That issue is more meaningful and concerning than the historic GDP report. It appears the US is going in the wrong direction.
With the virus out of control, according to Dr. Anthony Fauci, the Director of the National Institute of Allergy and Infectious Diseases (NIAID), the “V” shaped economic recovery appears to be only a dream. He has been the head of NIAID since 1984 and has served multiple presidents, so I trust him to tell the truth about the virus.
In other news, our illustrious/unelected/unaccountable Fed Chairman Jay Powell remains in La-La-Land as he continues pouring gasoline on a raging asset price bonfire. Look no further than shares of Eastman Kodak in this week’s edition of “Markets Gone Wild.”
In case you didn’t know, the onetime camera manufacturer is apparently now a “pharmaceutical” company. And in case you didn’t know, over 72,000 Robinhood investors sent the stock up as much as 2,189% last week. This after the company announced a $765 million loan from the US government to begin drug production.
To be clear, what we are witnessing right now is an incomprehensible escalation of market distortion and a moral hazard across the board courtesy of our friends as the Fed and the Treasury. On the bright side, at least the company isn’t in bankruptcy like Hertz.
Meanwhile, despite overwhelming evidence to the contrary, Powell remains adamant that the Fed monetary policy is “absolutely” not contributing to wealth inequality. Try telling that to the 30 million unemployed Americans who literally who are living on the financial edge as billionaires Jeff Bezos, Mark Zuckerberg, and Elon Musk minted another $115 billion this year alone.
As usual, the truth tends to reside over in the bond market where the 10-year Treasury note is currently yielding just 0.515%. Gold is knocking on the $2,000 door. We own both Gold and Treasuries in the portfolio.
This movie won’t end well. We remain invested in a conservative portfolio, and we will sleep a lot better at night.
As most of you know, we use a systematic approach to investing. Anyone can do it. It requires no special ‘talent’ or ‘gift.’ You don’t have to be six feet tall or have an IQ in the ‘genius’ range or have some sixth sense about whether markets are going to dip or surge.
Miami Dolphins head coach Brian Flores has a mantra that applies nicely to systematic investors: ‘TNT’ or ‘Takes No Talent.’
“I tell my players this — I can go out there and get conditioned if I just go out there and run every day. I’m not going to do that, not like they do; but I could do that. Any of us in here can do that. That really takes no talent; it just takes hard work, effort,” Flores said. “Everybody talks about, ‘This guy is talented; that guy is talented.’ The talent on the team and a lot of things in this game come down to focus, execution, not making a bad penalty. Really, that’s not a talent issue. It’s a focus issue; it’s a mindset issue. I try to, and us as a staff, we try to make an emphasis of those specific things. Things that take no talent, I think those are the details that help you win games.”1
I hope you see how this concept applies to systematic investing. Successful systematic investing truly requires no talent. In fact, it doesn’t even require much ‘hard work’ or ‘effort,’ or even ‘focus,’ as is required of a professional football player.
What successful systematic investing does require is the proper ‘mindset,’ as Flores put it. For systematic investors, that means adopting a humble mindset, one which acknowledges just how uncertain the future is and how misleading our gut instincts can be, particularly in times of stress, which includes any time our money is on the line.
Success also requires ‘execution.’ For us, that means pulling the trigger and making the trade every time the process says to do so. It is not enough to see the signal; you’ve got to execute on it, no matter how uncomfortable it may feel.
And finally, Flores highlighted the importance of ‘not making a bad penalty.’ That concept also applies to successful systematic investing. If you make even a small handful of unforced errors, you can seriously undermine your chance of earning the system’s long-run potential.
As is often the case in investing and life, it’s as essential not to do bad things as it is to do the right things. And all of these things require discipline.
You need discipline to maintain the proper mindset since ego and fear and greed are continually trying to creep into your decision-making process. You need discipline to execute on every trade signal, even the ones that look and feel counter-intuitive or downright crazy. And you need discipline to avoid making errors, which can mean doing anything other than what your system is designed to do.
Sure, some folks are naturally more disciplined than others. But I believe that discipline is not an innate feature that either you are born with, or you aren’t. I believe discipline is a decision you must make; then it is like a muscle; the more you exercise it, the stronger it becomes.
The big test comes tonight when I get home. Do I have discipline and the mindset to do my cardio tonight, or will I grab a beer and become a vegetable in front of the television?