“You have to be so smart to understand that.”

“I could never do that, I’m not smart enough.”

The greatest hoax of all-time is certain industries, professions or fields of work telling everyone else they’re not smart enough to do what they do. The greatest hoax is making certain professions or fields of work appear massive and unbreakable. Or making them look complex, hard to see through, or impossible to go over. This is what Wall Street does on a daily basis. It’s what tech firms do today.

“You work at Google? You must be so smart.”

I want to tell you a secret.

Literally everyone on planet Earth can learn to code just like the people at Google. It’s all on the Internet and it’s nearly all free. Sometimes it’s only about following documentation that’s already provided to you by a company or a forum. Or it’s who you follow on Twitter and the free instructional videos you find around the web.

“You work at that investment firm? You must be so smart.”

Anyone out there can learn about the investing world right now. It’s not about any specific school or upbringing. If there’s an internet connection, there’s opportunity. Some of the smartest investors I know have blogs entirely devoted to financial markets. They’re all free to read.

If you’re interested in something today, there’s nothing stopping you from learning about it tomorrow. The next great wave of human capitalism, in my opinion, will come from this profound understanding. It will change everything. It will happen slowly, and then it will simply be. At our finger tips we have access to any concept, equation, thought, or philosophy ever recorded. Yes, you might have to look at an ad for 30 seconds, but after that, welcome to your new line of study. I am definitely not the first person to say this, but it’s worth repeating.

The time it takes an average person to access any source of random information is at its lowest point. Think about that. It took Bobby the Roman four days to get a book on herbs when he was living in Ancient Rome. Joey from the Bronx gets that in four seconds.

The next great wave of achievement is the mass adoption of this realization. That everyone is capable. And that anyone can literally learn anything at a fraction of the cost compared to another point in time.

I can’t think of another moment when something of this magnitude was possible. I find myself thinking of Leonardo Da Vinci, the most well known polymath. He was refined in various domains of art, math, and science. His contributions alone sparked what we now know as a, “Renaissance Man.” But when you step back and realize what’s available to us right now, the massive amounts of information and knowledge online, a question is posed. Why is everyone not a Renaissance Man? Or maybe it looks a little different…

Today, there’s no reason or excuse to not have a strong understanding of anything you’re interested in. You can download a language app on your phone and for 30 minutes a night become proficient at that language. You can find how-to videos on everything. My best friend rode a motorcycle from Alaska to Argentina. He had never rode a motorcycle before. He learned watching and then training by way of YouTube videos.

The greatest hoax of all-time continues to be a wall that does not exist. I believe the last 100 years, while proficient and effective for society, were also some of the most secretive and deceptive. What I mean by that is the mystery, image, and perception of certain industries and titans were built on the back of being mysterious, secretive, and almost mythical.

That has all changed.

Today, the game is as flat and equal as ever, potentially more than ever.

I hope you enjoyed this, and I hope you use it to focus, learn, or appreciate a new field that you previously thought wasn’t possible for yourself. I’m still learning and taking in as much education as I can.

_____

Thanks for reading and remember to follow me on Twitter and StockTwits. Also, you have to sign-up for my email newsletter.

Change is hard.

It’s a grind.

No one changes in a day. Or a week. Or a month.

I think there’s nothing more important than perspective. Perspective is how you learn to embrace the long grind of change. Who you were a month ago and who you are today are not very different. Who you were 10 years ago and who you are today are extremely different.

After 10+ years managing my own portfolio, this has been the single greatest lesson. You come to realize that all of those “moments,” the ones that felt most important, were, in the greater vision you have for yourself or the domain you work in, not really as big as they seemed now that you reflect on them. Maintaining that perspective is a challenge, but you have to do it. I think back to the Euro Crisis sell-off, the Flash crash, the late 2018 crash, Facebook’s plunge, BP, Boeing… The list goes on. Blips in a bigger vision.

The other day, while driving through a rough area in the Bronx, I learned about the SEBCO housing development. What a fascinating and beautiful thing to learn about. A group of churches, missionaries, non-profits, and local organizations banded together in the early 70s to build massive homes for the homeless, elderly, and those who can’t afford high price rents. From the highway, you can see their towering shelters with names like Sister Thomas Apartments, Father Smith Residence, and Maria Estela. I think they now have 15 of them. Maybe more. Very few talk about SEBCO today, but I imagine their time is coming. The grind will be rewarded for people like Sister Thomas (shown below).

The greats, the best, the people who change things for the better, are built over many years. Sometimes, long after they’re gone. Most great artists turn out to be 100x bigger after they’ve passed on. Sadly, it took that long for their work to spread. But that’s part of the commitment they made when they followed their passion into the profession.

On Twitter, a picture of Steph Curry is getting passed around. Basketball fans out there will get it. Most people who enjoy sports will feel it. The other night, for their last game at Oracle in Oakland, the Warriors wore a throwback jersey from another era, a jersey from Curry’s rookie year. The picture shows Curry then and Curry now wearing his old uniform once again. A you vs. the guy she told you not to worry about.

The before and after pictures of Curry are separated by about 10 years. I see this and am instantly reminded about the process of change and the timeframe it exists on. Your awareness of the journey must always extend beyond a day, a week, and a month. This process is going to take years.

I never thought I would be tying this together, back to my portfolio, and to a moment I had in the Bronx, but here I am. I can’t wait to look back at this in 10 years and see how far I’ve come. I hope you’ll join me in doing the same.

Thanks for reading. Remember to follow me on Twitter and StockTwits. Also, you have to sign-up for my email newsletter.

If you missed it, I wrote about this concept earlier and called it, Don’t do dumb things in seven seconds.

I’ve now spent 10 years in the stock market. And I’ve spent seven working directly with the people who make it what it is at StockTwits.

There have been ups.

There have been downs.

But that is true with anything. You will never find a perfect “thing” that has no ups or downs. What you’ll do instead, if it really matters to you, is fight your way out of the downs and strive to remain in the ups. There will always be down moments. While they can brutal, it’s also where you discover what really matters.

In most major sports, whether it’s football or baseball, only a small percentage of the game is a moment of action. Most of the time, it’s a steady slog, timeout or commercial until… WHAM! Something big happens. A must-watch moment. Then, the cycle repeats. In life, it can be the same. You go through the routine and then… WHAM! Something happens. It’s almost as if 1% of moments determine 99% of the rest.

Warren Buffett famously said he, “tap dances to work.” He is a sage investor and he also happens to be a sage at one-liners. I assure you that when he wrote down several billion dollars in his Kraft-Heinz investment, there was no tap dance. WHAM. Yet despite that setback, we both know there will be another act. And he will win again. Because this is what he cares about.

Working in the stock market all these years, I have seen quite a bit. Plenty of WHAMs – even to my own portfolio. I admire the rise of the stock market anti-hero. The one who overcomes setback after setback when by traditional norms they were not supposed to. The ones who do what traditional systems tell you not to do. The ones who did not get a world class education or pass an examination. The ones who have a day job completely different from markets. Instead, they’ve found their own way, and it works for them.

I have seen the portfolios of my friends on StockTwits. In the words of Owen Wilson, “wow” is what I would tell you. I remember the first few times I met a few in person. There was no flashy suit or Mercedes Benz. It was the opposite.

Their humility is probably why they’ve grown such impressive portfolios. The right amount of humility can cure any setback. Because maybe it means you were preparing yourself the entire time. I’ve learned to admire an adage that goes something along the lines of, “hiding wealth is a sign of wealth.” 

In my time in the market I’ve noticed how a select few can dominate the conversation. Generally, it is for their cause. The hedge fund gurus go on TV after they’ve put a position on. The great thinkers tell you why their industry is right because, well, that’s the industry they work in. But the anti-hero rarely has anyone ever speaking for them.

In the early days, I was told we had to go punk rock on the world of finance. The “Wall” would have to be torn down. I think about that today, and believe it more than ever. I hear about the trading desks at big banks where everyone sits silently, insanely self-consciousness, glued to their Bloomberg terminal, trapped in a vortex of worry.

The do-it-yourself investor is coming for that old line of work. If the launch of e*Trade and other trading services in the 90s was a glimpse, today we are on the cusp of a revolution. Low-cost ETFs, mobile apps, social networks to test ideas, and the list goes on. Your Uncle’s wife’s brother’s kid, Bobby, is building a position in Bitcoin as we speak and there’s no manager, adviser, or bank sitting between him and his actions.

There’s an obsession with the rotation of active funds vs. passive funds. You know who you are. But what’s missing is the growing education and interest of the DIY investor. Last I checked, TD Ameritrade had record net new client assets, near record trades per day, and revenue. Should I say any more?

In the words of Marc Andreessen, this is a community of nights and weekend people. They’re getting no credit. They also don’t care. Their returns are all they need to know.

Today, I’m taking their side, and I’m swinging for the fences with them. Because it’s what we care about. Foremost, I believe StockTwits is on the cusp of something massive. Secondly, as someone who manages my own portfolio, I have taken a few big bets related to my core beliefs. Some have won, some have lost. But they’re always something I believe in.

My most recent bet is Twitter, and I think it’s insanely misunderstood and incorrectly valued. More on that soon. The point is it’s where the anti-heroes spend their time and everyone has an equal voice. Including the ones who do it themselves. And those who were told they shouldn’t ever get involved, but did.

Thanks for reading. Remember to follow me on Twitter and StockTwits. Also, you have to sign-up for my email newsletter.

If you missed it, I wrote about this concept earlier and called it, Don’t do dumb things in seven seconds.

I am reminded of how easy it is to do something online.

You can write, reply, like, report, and follow in a second or less. Tap the button, and mission completed. Action, feedback, reward.

We’ve all been taught about Pavlov’s dogs. Or most of us have at least heard of them. Ironically, that’s what we’re all becoming. We are the dogs of the Internet. Obediant to notifications appearing on our screens.

The same is true for investors and traders. It has never been easier to hit buy or hit sell. Many thought the DotCom bubble was the peak for instantaneous actions in markets. That could not have been more wrong when you consider the speed of market structure today vs. back then. Speed and reward are at the cornerstone of the action. Faster, faster, faster. Tap, tap, tap.

There’s a group of social scientists who believe the rise of social interactions online is making everyone more anxious. It also makes people more overwhelmed. We subconsciously obsess with instant feedback and gratification. This feeling or concept isn’t going anywhere, either. It is only becoming far more prevelant to the day-to-day lives around us. There is no sense in trying to stop it. It’s out there, unseen, and misunderstood.

Maybe the cure is to get out of its way.

Some people have tried not touching their phone for the first hour after waking up. Others purposly let their phone die of battery on a 24-hour cycle so it literally, “loses its power” over them. These types of strategies are not made in normal situations. No one ever tried to make a rule to calm the consumption of vegetables. It’s because we’ve come to learn that it’s a net benefit to eat more of them. Net benefits are not throttled. Net negatives are.

At some point, in the great book of cliches, you indeed must call a spade a spade.

While everyone else is tapping, downloading, commenting, perhaps there is something beneficial in doing the opposite. The opposite now would be slowing down. I’m not entirely sure what that means. I think many will have different solutions and insights for this. But if the world wants you to speed up, to consume more, to tap more, try doing the opposite of that.

Thanks for reading. Remember to follow me on Twitter and StockTwits. Also, you have to sign-up for my email newsletter.

If you missed it, I wrote about this concept earlier and called it, Don’t do dumb things in seven seconds.

It’s said we judge the people around us within the first seven seconds of meeting them.

I think something similar happens online. I don’t know what the scientific word is for this, but one image, video, or headline from a Twitter account can push us from 0 to 100 (real quick). This is not a good thing. It threatens our most valuable ability: making the right decision.

The speed from the time a visual is seen to the creation of a unique opinion about it happens with a spark of electricity from screen to neuron. A flash of light, and an opinion is born. It is a remarkable capability. But it is also a weakness, an Achilles heel. It’s how outrage is created so quickly through social networks. It happens in those first few seconds of seeing that one “thing.” Then it spreads like a wildfire. Someone no one will meet has made a dent in the universe, and they probably did it from a basement.

The rise of fake news has overtaken media across the world. So have the networks who mistakenly give it a platform. The real problem goes deeper, though. The real problem is the collapse in the number of people thinking critically. Everything online has been reduced to seven seconds. Maybe we weren’t built to see a tweet and calmly, book case behind us, and a fire stirring, articulate a thoughtful and meaningful take. Maybe we were built to see, and act. See, and react. Seven seconds.

I’ve learned this lesson not through argument, or research, and not through political conflict. But instead, with my own money on the line. I am here to tell you about how I lost money making a decision in seven seconds. I think my story is a reminder of the long road ahead for reworking our day-to-day intake of information.

In the stock market, there’s a theme that’s governed everything since the Financial Crisis. Most readers here will know what it is: the Federal Reserve is behind the rise in stocks. They saved the economy, and in doing so they made it a mandate to support the market. Whether you believe it or not, without question it’s impacted every investor at least once since it was heard. Yet, how many investors have actually taken the time to research what this really means? Or the exact mechanics used by the Fed?

In July of 2017, I took a swing. I still believe everyone should try to make one big call in their time. That’s the point of this all. You have to try for the impossible at least once. I was invited to a radio show to talk about my thoughts live on air. My piece was about my first bearish position on the market, and why I was betting on a stock market drop. I wrote:

“I got bearish in June after the Fed did something about its balance sheet. For the first time since the Financial Crisis, they’re going to become net sellers of their massive balance sheet. Just how big is it? About $4.5 trillion. The chart below shows how that looks (blue line) vs. the S&P 500 $SPY ETF (orange line) over the last 10 years.”

I made this chart:

I was wrong.

In a matter of weeks, my short book was stopped out, and I walked away with a cold loss. Looking back, my reasoning was flawed. It was based on seven seconds. That day I heard the Fed was reducing its balance sheet, and subsequently I followed all the hot takes people were saying on the Internet. The Fed’s balance sheet will start shrinking! That balance sheet propped up the market! On the Internet, no one knows you’re a dog.

My decision that day came down to one thing. The hard work to do my own research, and to look deeper into whatever it was that came across my screen that day. Information is fed to us in feeds. It comes at us from a tunnel that we can’t see. But everything on Internet is being shown to you because that’s who you are. Whether it’s a machine learning from your interests over time or a group of people trying to serve things that align with your interests. 

With a little research, I could have saved myself from a terrible trade. But that piece of information, that one “thing” grasped me that day. It was my Big Short moment. One Google search alone would have saved the entire trade. Yes, the Fed has a blog and they wrote about their balance sheet shrinking.

Everyone is always searching for that one secret to succeed. Wake up earlier! Work more hours! Manage your calendar! When you sift through this advice something stands out. They’re calling on people to do more, to be more, and to add more. Maybe the opposite is true. Step back, and slow down.

Warren Buffett’s protege, Todd Combs, beautifully says he spends most of his day reading books and company financial statements. He’s in total control of his information flow thinking through things in a long-term format. No single tweet or meme would ever persuade him. He’s not looking to add more complexity to his day. It is a slow, and methodical day filled with deep dives, and great books.

“I read about 12 hours a day. Our offices are like a library. So I read annual reports, conference call transcripts, etc. Most things are routine, mundane and obvious, but every once in a while you find something interesting worth digging into.”

The mind is extremely good at what it does.

When we form an opinion in seconds, it’s almost as if it knows it’s so good that now it’s just showing off.

This isn’t about consuming less, or that there’s too much noise, it’s instead the need to reclaim the ability to think critically, more importantly, to think slowly. Never act in the first seven seconds.

Thanks for reading. Remember to follow me on Twitter and StockTwits. Also, you have to sign-up for my email newsletter.

If you missed it, here’s what I learned about the stock market in 2018.

“They’re not gonna give it to you? So what? You’re gonna take it. You’re gonna do whatever it takes. Do you hear me? You’re gonna go your own way. You’re gonna do what they won’t do. You’re gonna be smart. You are gonna cut corners, and you are gonna win. They’re on the 35th floor? You’re gonna be on the 50th floor. You’re gonna be looking down on them. And the higher you rise, the more they’re gonna hate you. You don’t matter all that much to them. So what? So what? Screw them. Remember, the winner takes it all.”

Better Call Saul, Season 4, Jimmy McGill to Kristy Esposito

It’s not easy to talk about conflict. Or competition. Most want to run from it. Or paint the world in a rosier picture. We are mostly afraid to look into what it really means in our day-to-day lives.

Who is your enemy? I use the word “enemy” lightly here. What I mean is, who are you going up against in your career or passions? Who else wants the same thing you want? There are rarely multiple winners. We memorize the names of successful business people and athletes. We never know the names of the other people who wanted the same exact thing, and failed.

I was once told for every billion dollar startup idea, even more is lost among those chasing similar dreams. The drum beat of the few who win is all we ever come to know. Bill Gates beat a lot of people in software for several decades. Buffett destroyed hedge fund gurus year after year. The Warriors and Patriots keep winning despite any amount of fan negativity. Bezos is still eating the retail businesses around him.

At the end of the day, everyone, and I mean everyone, is just like you in that they have a goal to accomplish.

It can be easy to mistake success with hard work. Those who work the most, will win the most. We hear athletes talk about it all the time. They thank their hard work. But the unsung reality is that someone else had to lose in order for them to win.

They worked hard? Yes. They were dedicated? Yes. But more importantly, they were aware of a counter force. They outsmarted someone going after the same thing. Ultimately, this is the sole point of business. To fight for market share. It’s what the analysts are doing at your local prestigious banking job. Eventually, there can only be one managing director. This is the war we are constantly waging. It happens to everyone, all the time.

As an investor, the same story arch governs the markets you play in. You can work as hard as you can, study a stock for months, and calculate the odds of that stock doing well with the greatest statisticians. The problem, though, is that you’ve left out the most important thing. It’s as if you blind folded yourself before walking into the arena.

Who are you going up against?

For investors, the goal is to outperform the S&P 500. If you can’t, you should buy the Index, and sleep easy. Everyone is going up against something. No profession avoids it. Maybe you run a repair shop in your local town. You certainly are not the only repair shop. To grow your business, it’s not about who works harder. It’s about doing something fundamentally better than whoever it is you compete with. These rules have held held true since 500 BC when Sun Tzu wrote:

“If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat.”

Sun Tzu

It’s not an easy task to know who you’re playing against. Sometimes the enemy is hidden. Designing a perfect plan to play your best game against that enemy is equally a difficult thing. If it were easy, I wouldn’t be writing this and you wouldn’t be reading it. I think of two teams studying their opponent for hours, in a war room, film running, and notepads out. They are trying to understand the force they are going up against.

Who is the opposition?

How do they play?

What are they good at and bad at?

How will the weaknesses be exploited and the strengths contained?

I know most people reading are investors, both individual and professionally. So I can start this exercise for you by examining what it means to be going up the ultimate force – the S&P 500. I’m reminded about the strict process the index follows to add, and subtract stocks:

‪1. Liquidity

‪The stock should have sufficient liquidity in the form of shares outstanding, and trading volume.‬ One example of this is monthly trading volume divided by shares outstanding of at least 0.3.‬

‪2. Fundamental Analysis

‪The selection here is surprisingly simple.‬ The absolute must to be added is four quarters of positive net income. That’s the only must. The absolute has to happen criteria on fundamental analysis. ‬

‪3. Market Capitalization ‬

‪For a comparison ny to be included, it has to have a market cap greater than $4 billion. In addition, the company should be considered a leader or top name in its industry.‬

‪4. Sector Diversification‬

‪The S&P 500 is a collection of all the major industries and sectors. The Index is designed to weigh each sector of industry as a fairly as possible without overweighting one or underweighting another.‬

‪5. Fair Representation

The S&P 500, when looking to remove a company, or potentially add one, asks a single question: “if the Index was created today, would this company be included because it absolutely meets the criteria above?”‬

The criteria above should hang across office walls across Wall Street. It’s how the competition selects the stocks they’re trying to outperform. To be ignorant of that, or to think, “everything will take of itself” is a complacent approach. And nothing great was ever built on complacency.

Economists say there’s no such thing as a free lunch. I think that’s mostly true. You’re not going to get much without putting in the necessary work. I might also take it a step further and say there’s also no such thing as an easy lunch. We’re all in a crowded restaurant with a table for one. Your job is to figure out how you will get it, even if that means just a bite or piece of bread to gift to someone else.

We are all going up against something.

It’s not an ugly truth. It’s not a harsh reality. It’s just the nature of things as they are. It can be fun or exciting coming to this awareness. Most of us take it for granted. We’ve stumbled into fortuitous situations entirely overlooking all the people who tried to beat us. Most us don’t even know who we overcame or when. But we did, and the sooner we realize it, the better planned we will be when we suffer our first big loss, and more proud we can be when we get our first big win.

---

Thanks for reading. Remember to follow me on Twitter and StockTwits. Also, you have to sign-up for my email newsletter.

If you missed it, here’s what I learned about the stock market in 2018.

A group of Maryland students sat waiting in a classroom on campus. It was 2013. And then, Warren Buffett walked through the door.

I don’t know how he came to be there or the purpose of his visit. But, the professor of that class, David Kass, took notes as his students searched for guidance and answers from the Oracle of Omaha.

It can be somewhat “cheesy” and even “too easy” to over quote Buffett. I usually question the people who do that. But in the end, his wisdom is better heeded on a mass scale than ignored for snobbery. Buried deep in that day’s class notes is a story from Buffett I have never seen.

I don’t know many investors who call cash an attractive investment. Only the most grizzled traders I know talk about it. My trading friends say cash is, indeed, a position. They talk about it like they’ve seen some serious sh*t. Like the market knocked them down, cornered them, and brought them to a final stand. It was then, at the darkest hour, a powerful weapon stored in the depths of their brokerage account emerged.

Buffett was abnormally ready for the Financial Crisis.

Almost *too* ready.

He had probably seen his share of crashes. He had probably learned something. The level of cash he, and Berkshire had on hand at the time was unlike anything else in the world including Governments, and any tech giant. Had he been an angrier or more sinister person, you have to wonder if he could have bought armies, moved into power, or let the entire thing crumble. What if he did not loan money to Goldman or Bank of America? What if he chose not to help the the US Government at the time?

I stopped reading. “That’s beautiful.” I read it again. Buried in the professor’s class notes, I found the ultimate reminder about the importance of green in its most natural form:

“In September 2008, we came right to the abyss. If Paulson and Bernanke had not intervened, in two more days it would have been all over. Berkshire Hathaway always has $20 billion or more in cash.

It sounds crazy, never need anything like it, but someday in the next 100 years when the world stops again, we will be ready. There will be some incident, it could be tomorrow. At that time, you need cash. Cash at that time is like oxygen. When you don’t need it, you don’t notice it. When you do need it, it’s the only thing you need. We operate from a level of liquidity that no one else does. We don’t want to operate on bank lines.

There is no authority for the US Treasury to guarantee money market funds. Their power comes from Congress. Paulson set up an exchange stabilization fund in September 2008 to guarantee money market funds. This stopped the run of money market funds and it was all over. Something like that will happen maybe a couple of times in your lifetime. Two things when it happens again:

1. Don’t let it ruin you!
2. If you have money and guts, you’ll have an opportunity to buy things at prices that don’t make sense!

Fear spreads fast, it is contagious. Doesn’t have anything to do with IQ. Confidence only comes back one at a time, not in mass. There are periods when fear paralyzes the investment world. You don’t want to owe money at that time, and if you have money then you want to buy at those times.”

Warren Buffett at the University of Maryland, 2013

I do not believe in timing the perfect bottom. But I do believe that with the right strategy and process, you can get a chance to try. And the odds, at that time, will be in your favor. You can only have that opportunity, however, if you have cash.

Cash is optionality on opportunity.

You can’t buy dips, breakouts, or puts, and you can’t be a lender of last resort.

If you have cash, you can chose to play during times of extreme volatility. If you don’t, you will be left hoping it swings in the eventual direction you want it to. Is that a situation anyone wants to be in? Wishing? Hoping? That’s for Star Wars and Lord of The Rings. Putting yourself in favorable situations is what you do when your own money is on the line.

Cash is a position. It is an investment. It’s a reminder you have the freedom to make a choice when oppuruntity arises rather than being dependent on a wish. Or hope. Or a prayer.

Thanks for reading. Remember to follow me on Twitter and StockTwits. Also, you have to sign-up for my email newsletter.

If you missed it, here’s what I learned about the stock market in 2018.