Hey Investors,

I hope everyone is doing ok out there during these troubled times. It’s rough out there, so I wanted to jot down a few of my thoughts on COVID, your mental health, what’s going on in the economy, and investing. Feel free to share if you find it helpful.

Also, I wrote the following therapy session last year and didn’t have enough time to send it out. But it just goes to show how markets can turn on a dime from going from up and up and cash is trash, to an economic panic and doom and gloom. Markets are much more fragile than they seem and this is something you need to keep in mind when you make an investment.

Now lets get to today’s therapy session.

Hans was a special horse who seemed to have the ability to do math. You could ask Hans a simple math question, and he would provide you with the correct answer by clopping his hoof against the ground the exact right number of times. Once his talent was discovered, Hans developed quite a following, and eventually, Hans’ story was even featured in the New York Times.

Due to all of this fanfare, groups of researchers began to visit Hans to investigate how a horse could possibly be doing mathematics. Unfortunately, it soon became evident to the researchers that Hans wasn’t actually deducing anything; he was only reading the body language of his trainer as the man unintentionally reacted to the number of clops that Hans clopped out in response to the math problems posed by his visiting fans.

Hans’ real superpower, it turned out, was the ability to recognize nearly imperceptible changes in his trainer’s body language. As Hans clopped each clop, he would watch his trainer for the tiny micro-expressions and shifts in body language that signaled to him that he was approaching the correct answer. Then, when he saw certain other changes, he would stop clopping and give the impression that he was correctly solving math problems. Hans fooled hundreds of people into thinking that he could answer questions that he could not actually answer by learning to interpret the unintentional signals that his trainer was giving him.

Sadly, Hans wasn’t a math genius; he was just exceptionally good at reading body language. 

To state the obvious, seeing a horse do math is captivating. Seeing such a feat adds a bit of magic into a post enlightenment world that is devoid of the enchantment that the old world was enmeshed in, such as thousands of gods, spirits, devils, and mysteries that helped our ancestors cope in an uncertain world. In our day and age, we live in a certain world, mostly everything is explained, rational, and devoid of spirit. If I need to know anything I go to wikipedia and get a mechanistic explanation of how things work. But when a certain world deals with uncertainty, we tend to strive for immediate order, and not accept the mystery of an uncertain future. So to rectify the problem of uncertainty, we look to others to tell us how things will enfold.

While we can laugh at folks who thought that a horse could do mathematics, we tend to take seriously economists, financial analysts, and hedge fund managers who claim to foresee the future. Unfortunately, the economy isn’t static; it’s a dynamic system that’s in constant motion and full of ambiguity. This makes it impossible to predict exactly what will happen next.

When times are good in the economy, we’re constantly on the lookout for potential dangers. This is a smart thing to do. But too much fear can cause investment paralysis and foregone opportunities. As an investor, you must be flexible, and you need to make peace with the fear of investing because you won’t earn a premium on your investment if there isn’t uncertainty. As soon as something becomes common knowledge, investments become priced nearly to perfection, and there’s no longer any true value to be had.

We tend to listen to those of us who claim to know the future. Because we seek answers to the questions in this uncertain world, we are hungry for stories about forecasts that allow us to peer into the future, and the forecasters who make them. It’s easy and profitable to make these forecasts because if you’re right, then you can write a book or launch a hedge fund and make quite a bit more money; but if you’re wrong, then your prediction will be lost to history among the pages of other failed predictions. Forecasters have basically nothing to lose.

Predictions soothe our feelings in the following ways:

What this esoteric quote is saying, is that we need to stop robbing ourselves of our personal power by looking for solace in forecasts and predictions. Realize that no one can truly predict what will happen with the macro economy, or, more importantly, know exactly when exactly an event will happen. It’s better to focus your attention on your surrounding environment and determine what investment opportunities you can take unique advantage of and to not take risks or make investments that, if they blow up, will take down your finances completely because you don’t want to find yourself chasing clever horses.

 

Cheers,

Jordan

 

P.S. - As always, this is an open therapy session, so if you know of a friend who needs help, then please share this newsletter with them!