When will I be a great investor?
6/13/24 Prospero.Ai Investing (128th) Edition (Mid-week)
Not going to mince words here, we are having a fantastic week. We were at 76% above SPY 10 days ago and now at 93% this with win rates moving from 61% to 63%. But as we said about our disappointing week 10 days ago: a few weeks of getting things right is pretty boring in terms of teaching lessons. And if anything you end up doing the thing we dislike the most, which is making something difficult seem easier than it is. The majority of people who “stopped investing because it is rigged” have this problem.
So what is the opposite of that? We call it “seeing the whole field”. And this story had to be told because even though this is the most important thing I remind myself day in and day out, I am constantly applying it in a sub optimal way.
But let’s start this past Saturday. My girlfriend is a reporter for a major news outlet. She is detail-oriented in a way that puts me to shame at times, which is why she woke up 2 hours before me on Saturday to prepare for a last-minute fire-putting-out-interview in response to her reporting. She was letting people that were not really being fair to her make her call into question some of the quality work she had done.
And if there is one thing I’ve learned from seeing the whole field in her career, it is that if you aren’t uncovering some at least slightly buried truth, you aren’t going to be writing a good article.
But when people are being exposed, they will engage in mental gymnastics to avoid seeing the flaws in their actions.
People will do anything to avoid seeing the whole field — and often they aren’t aware they’re doing it.
I felt compelled to tell this and the following story for a variety of reasons. The first being that I pitched Prospero for years to many talented quants, walked them through how it worked more than I should have, answered all their questions, asked them to poke any holes in it if they could. Many times at the end of this, the quant would say something like, ‘I just know it doesn’t work, if it did you wouldn’t give it away for free.’
But maybe these quants weren’t “seeing the whole field”?
And now we start getting into the meat of this. Becoming a hedge fund simply was not on the table for Prospero. People don’t trust hedge funds. At that time I would often say “we want trust, not money.” (Both are obviously our goal but we won’t make trust the afterthought.)
What these people were saying in my opinion was: we are in this culture of extreme competition and profit maximization and what you are doing doesn’t fit in that framework.
And sometimes I failed to see the whole field too because I believed too much of the feedback.
If you believe something most others don’t, you inevitably end up asking yourself if you are the crazy one?
A good portion of the end of last year, I wasn’t my best portfolio manager at all. I was too concerned with ‘losing my big year’ that I couldn’t see the whole field. I changed my strategy, I traded too defensively at times and aggressively at others. Hell, I truly believe this is my best year because I finally dropped my imposter syndrome.
One of the reasons I’m constantly emphasizing the dangers of investing is because there is a good degree of importance in understanding that the odds are infinitely higher that you think you are a good investor than you are.
Over 70% of retail investors lose and if you looked around social media you’d think it the reverse. I just told myself I was getting pretty lucky and my luck would turn sooner or later.
But facing this and understanding how to see the whole field was when I became a great investor.
I told myself as long as I didn’t get a big head, I could see no logical reason why assuming I was lucky was doing more for me than acknowledging: ‘Hey, I’ve been a professional value investor for more than half my life and leveraged that and technology to invent signals that even other people use well without me.’
Why shouldn’t I be great at this?
That my dear readers is how you know you are a great investor, not being perfect every day, or seeing the field every day, but having a rock solid home base, that you’ve worked for. You can’t stop people from throwing doubts at you, or you throwing them at yourself. But you can keep yourself from becoming so defensive or emotional that you lose sight of the field, or think you are seeing it when you aren’t.
Have a growth mindset and every day you get better at both forming and evolving your process to give yourself the best shot at seeing the big picture and weighing all the facts in a methodical, peaceful and logical way — instead of overweighting the ones that stress you out and cause you worry.
Now let’s go back to Sunday. After passing on my big “see the field” wisdom on Saturday, I promptly did a horrible job of it on Sunday. I have a jam packed week of meetings in London this week, I was flying on a red eye pretty much straight into 3 of those meetings and much like my counterpart the day before, I was inflating problems. And you should ALWAYS deflate problems if you want to see the field. That doesn’t mean ignoring the gravity of them it is just acknowledging that you won’t find the best solution if you have a big old problem taking up too much real estate in your head.
When I first looked at our Screener there were 7 shorts I liked and 3 longs. Which was a core issue as you’d have to be insane to have that ratio with QQQ Net Options Sentiment at 53. I decided quickly that I wanted to solve this first by having AVGO 2X, LLY 2X and META 1X because I had the most comfort in those. But I labored over something dumb, I didn’t like the uneven price action on NVDA or any of the chips other than AVGO despite the high QQQ Net Options Sentiment.
If you look back at 2022, we were up about 50% pretty much on the strategy I was distrusting on Sunday. That’s right, many of the first newsletter picks were me swing trading QQQ when I saw Net Options Sentiment going up ahead of price. (or down and shorting) So here I was worried about packing and actually finishing my letter at the airport because I apparently needed to labor over doubting this thing I had a long history of trusting. And here is the most important point of the whole lesson. I really should not have not been 7 long and short on Sunday based on the data, honestly 14 and 7 would have made more sense than even long short based on QQQ and SPY Net Options Sentiment. But being more than fine with that as well as selling MSFT and 1/2 AVGO’s (yikes it could have been an amazing week!) because we’d seen some quick Bear turnarounds on neutral to above average economic news in the last few weeks. And THAT is seeing the whole field. Just because QQQ Net Options Sentiment has done so well for me doesn’t mean I’m being a good researcher if not managing risk around the face that we’ve had more than a few of those Bull starts turn quickly recently. ESPECIALLY the even more important task of always taking a step back to say “how much am I favoring this because we invented this signal/process/etc.” It is paramount to walk the line between having a process of your own that you are proud and having a process for knowing exactly how, why and when you explore and integrate new information.
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