80 Things I Learned About Markets in 2019

What you are about to read first appeared on my Medium page here. But, I am resharing it on my blog for those who missed it. Enjoy!

Each year I do this, I’m reminded of how little I actually know. I think it’s important to accept and reflect on that reality. Someone recently said to me, “every time you meet someone, they know something you don’t.” I think that is a great way to go through life — curious, learning, and listening to all the things you could have never predicted or taken the time to learn about.

I first started writing my yearly investing lessons in 2016. I found it to be rewarding and it was a pleasure to publish it online, in front of everyone, to not only get feedback, but to also hold myself accountable for what I believe in or see in markets. I think that takes guts. You can read my previous reflections here.

  1. The financial statement is what grounds a company in reality. Everything else is a “story.”
  2. There is something new to learn in markets each day and the second you forget that, the moment you think you know better, markets will show you otherwise.
  3. In technical analysis, the most important indicator is volume. You want to avoid slippage. And you want to know where most of the people are transacting.
  4. If you don’t understand something in a financial statement, research it. Do not move on from it. You have to put in the hard work.
  5. Learn to find irregularities. Find the things people are missing, usually buried in obscure foot notes or random slides in management presentations. This is also the most time consuming thing to do.
  6. Watch, read, and study more presentations from management, and press releases from companies. Mastering the investor relations page is an underrated art for any investor.
  7. Read more footnotes in financial statements.
  8. In 2019, I did things a little differently. Spirituality, man. You have to have a belief in something. Whether it’s science, God, Mother Nature or anything else. Your investing career is only as grounded as your personal spirituality.
  9. In 2019, I spent a considerable amount of time reading about Buddhism, Taoism, and some serious hippie stuff related to Mother Nature and the Earth. I don’t necessarily prescribe to any of it, but a lot of the teachings opened my mind up to things the market is generally against: stripping yourself of excess and finding meaning beyond news, money, and markets.
  10. Combining spirituality with markets is a trippy thing, but there are benefits that go beyond a balance sheet or chart. It’s an investment in your sanity and long-term thinking.
  11. They say the same part of the brain activates when people do drugs and a trader makes money. One is socially acceptable and considered “sophisticated” while the other is furthest from it. Just remember, at times, that’s what markets really are.
  12. Market cap is an overused and overstated metric. It’s becoming the PE ratio of this era. I think Enterprise Value (market cap + (debt-cash)) or the difference between the two is a better use of your time.
  13. A low PE ratio is generally low for a reason. If you buy a two month old avocado for 25 cents when avocados normally sell for $2, it’s not a bargain. It’s still going to be brown on the inside.
  14. The stock market is one of the few places where as the price of an asset increases, more people want to own it and buy it even higher.
  15. The market is not driven by greed or by fear, it’s driven by what your neighbor is doing. I am not the first to opine on this. When people hear the neighbor next door banked $10,000 on Bitcoin and bought a new BBQ, it is a driving force for decision-making. It is FOMO. No one wants to miss out and no one wants to feel jealous.
  16. Remember that all social media companies make money by monetizing your time. Don’t let them distract you from your goals.
  17. Free cash flow is still the first thing I check for all companies. Revenue, operating expenses, and enterprise value are not far behind.
  18. Value investors do best when interest rates are rising. Value companies generally have more cash on hand and cash performs best when it’s earning the most interest. It is a tailwind that should not go unnoticed.
  19. Growth investors do best when interest rates are dropping. Low interest rates are the fuel they need for growth.
  20. Growth investors do not outperform value all the time and value investors do not outperform growth all the time.
  21. If you maintain your own portfolio, always make sure you know what percentage of your stocks are considered growth or value — I don’t think it’s wise to be overweight either.
  22. Industries surrounded by hype come and go as they always have from 3D printing to pot stocks and crypto stocks. This will always be a thing. The difference between a newb and an experienced investor is one knows this to be true.
  23. You never quite know when a growth industry becomes a mature industry, but I believe the transition really starts to unfold when companies in the same growth industry start projecting similar growth trends as their competitors. They can’t all be right. They are all counting the same potential customer.
  24. As an emerging industry becomes mature, with each passing day, another sales call is made by a competing company and the market begins to shrink, not expand. I think several industries are approaching this point. Read more on my thoughts here.
  25. Never buy anything based on a tip from anyone. It’s either insider trading or something nefarious. Do your own work.
  26. Always check your research one more time before buying or selling. The market has been open for 100+ years and there is no immediate rush to do anything without confirming it.
  27. Online shills are a thing. Sketchy promoters make fake accounts across all social media networks. Their goal is to make the popularity of a stock appear big when in reality it’s a scheme to trick unsuspecting people.
  28. Social media is a place to connect and learn about investing. It is not a place to find easy money. Generally, if someone is talking about a certain investment, they have already been invested in it. You are late.
  29. Most people in this industry have a position in something and then they talk about it. That’s true for public investors and private investors on TV, on the Internet or in magazines and newspapers. They take a position and then they create their marketing campaign. Most people are pumpers, they just don’t know it.
  30. If you’re going to pay for anything, pay for the education. Pay for a group of people to learn with.
  31. Stay away from “popular” stocks no matter the temptation. The only time it makes even a little sense, is if you use the product first hand.
  32. Try to only own things you know and understand.
  33. The best investments are the ones that you also use in your daily life. The ones you can vouch for. You are an expert of the product and you are doing due diligence each time you use it. Owning shares is a bonus.
  34. 2019 was a year of experimentation for my portfolio and I learned how important it is to embrace new ideas. In only a few examples has dogmatism worked all the time.
  35. If you want to trade aggressively, the after-hours and pre-market trading hours are an opaque, confusing, but also fascinating space to try and gain an edge.
  36. I believe pre-market and post-market trading is gamed and manipulated in ways no one understands and few have really investigated. I am hoping to do more research on it in 2020. You should, too.
  37. Calling tops is hard, but you will never truly learn markets if you don’t try at least once.
  38. No matter who you are, or how disciplined you think you are, unless your strategy is automated to some degree, you will experience moments of tilt or bad decision making at the worst time — the turning point.
  39. Avoiding immoral companies and companies that do things that go against what you believe shows character and integrity. I believe that finds a positive way into your portfolio and life.
  40. Automation is good and once you learn to apply it to your investing or trading, you will also learn to apply it to other things in your life.
  41. They say know your enemy. Building automated strategies will open your eyes up to the people you’re going against — the quants. You have to see it first hand to know.
  42. I believe there is an edge to being the last discretionary trader or investor. While everyone else is moving toward automation, there is something to be said about those who are combining both.
  43. If you’re a long-term investor, don’t ever manage your portfolio from your phone. You need less screen time, not more.
  44. If you’re a trader, you have to learn how to manage your positions from your phone. Find the best mobile app and use it wisely.
  45. Options are an unbelievable casino where you can literally go broke or make a lot of money… and then just to go broke again.
  46. If you can put aside the Las Vegas temptations of options, they are a fantastic place to hedge or place small bets with your risk defined.
  47. My favorite options strategy is to use them as a tool to take a “big swings” or “YOLO trades” on crazy ideas. You can risk very little money on the craziest ideas for potentially big rewards.
  48. If you are tempted to sell a long-term investment that has been an important staple to your portfolio, consider first using covered options strategies to unwind it or at least generate some additional income.
  49. 99% of your gains can be attributed to luck of the moment. But, 99% of your losses are generally due to poor decision-making in the heat of the moment.
  50. Never invest in something without first understanding that you could lose it all. Coming to that agreement with yourself is important. You have to be willing to accept the consequences before they happen.
  51. Work-life balance is one thing, but I don’t think enough people think about investing-life balance. We work to fulfill ourselves, to help a business with its day-to-day activities or to make more money so that we never have to work again. You need to have an investment philosophy in place to guide you along the way so that the first Dollar you earn has the potential to be worth more Dollars down the road.
  52. For every big trade we hear about it, or big winner, we forget to think about all the ones before who tried and failed at the same exact thing. The only difference was timing.
  53. We tend to forget how long the greatest investors sat on the wrong side of a trade, until suddenly, out of nowhere, it worked. That includes Oracle of Omaha himself, Warren Buffett, who in his early days made many terrible trades including the name his company still has today: Berkshire Hathaway.
  54. You learn the most about an investor when you ask them how they managed their worst positions.
  55. The phrase “losers average losers” is wrong. Dollar cost averaging into an investment you like at lower prices is an amazing thing.
  56. I actually like trying to call tops. I think it’s weird that more people are not trying to call tops with a small percentage of their portfolio, at the very least using it as a rolling hedge.
  57. Trying to call a top with your own money on the line teaches you things about the market many will never understand.
  58. Don’t fight the Fed.
  59. Don’t fight buybacks.
  60. Don’t fight the unemployment rate.
  61. Don’t fight tax cuts.
  62. Never ever go short when all of these things are true.
  63. When major macro trends begin to take force, for example millions of people getting jobs, trying to go against that is like standing in front a tsunami with your hands up saying, “you shall not pass!”
  64. Decentralization is going to drastically change financial markets and the modern corporation. Crypto is more than a financial asset, it is a new way of thinking about transactions.
  65. I think Bitcoin is the most important thing to happen this decade. It nearly appeared out of thin air. Totally decentralized. No management. Practically no regulation. It’s complicated and still new to many. Its market cap is $100+ billion market cap and it made a 9,000,000% move this decade.
  66. Zuckerberg sold nearly $1.5 billion worth of Facebook shares this year. Bezos sold nearly $3 billion worth of Amazon. That’s $4.5 billion between *TWO* people who ultimately sold to funds that invest on behalf of the general public. Time will tell who made the better trade. But, I actually believe that this is a serious problem. And it’s not Bezos or Zuckerberg at fault. It’s the laziness and lack of diversity of most funds and indexes. They are all investing in the same equities. The Dow, Nasdaq, and S&P 500 all share insanely similar allocations at the top. In 2020, I want to wage a campaign against this. There are over 4,000 other stocks out there and even more investment vehicles. The Wilshire 5000, for example, is largely ignored and filled with overlooked and fascinating opportunities.
  67. 99% of the population has no idea what the Federal Reserve does, but it largely determines the winners and losers of society.
  68. More people should learn about the Fed.
  69. I have read Geithner, Bernanke, Yellen, and Volcker. One thing is for certain: new policies, tools, and processes are put into place that a previous Fed Chair did not use or even know of. In some ways, they are learning and creating on the spot. I don’t know if this is good or bad. But, people like Bernanke used different tools than Volcker and so on.
  70. Being “cool” is risk taking. You take risks on music or style or your confidence. “Cool” people ultimately drive new movements from music to art or anything else. I think the decentralization of money is one of the coolest things happening in all of finance right now. And while I only own, say 1% of my portfolio in crypto the ecosystem is cool and I want to learn more.
  71. The time to be fearful isn’t when people are selling, but when no one is buying.
  72. Companies who are building their entire business on the subscription model have not been tested, yet. Time will tell how strong they are when that moment comes.
  73. Exercise is still more important than any sum of money. Say you lost everything today, and your portfolio went to $0 — damn that would suck. But would you still be healthy? Able to move? That always needs to be answered yes.
  74. Debt is a burden that eventually impacts the way you think about investing. I am a different investor with no debt than I am with debt. Obviously, at times, debt makes sense, but there are certain levels of your income or cash on hand that it should never reach.
  75. While debt for individual people can be a burden, for companies it is sometimes the opposite. Tapping debt markets in a low interest rate environment and putting that money to work where it returns more than the interest on the debt speaks highly of a company. Especially the team in place.
  76. Study the background and social media profiles of the management team for the company you want to invest in. It’s one way to see who you’re betting on.
  77. Understanding the subscription business model is becoming increasingly more important. It has moved from gyms and magazines to SaaS, music, finance, and more.
  78. Return on invested capital is how you value a management team. How good are they are deploying capital? That’s who you want to invest in.
  79. In venture capital, they say they bet on the person and not the company. The same is true for investing in public markets.
  80. Your significant other is the most important thing in your life. A shared understanding, vision, and belief in one another will change how you approach investing. There is no greater fan of your work and your ideas. A lot of my successes in 2019 are owed to my now fiancée and how she helped me in various situations.

Thanks for reading and I hope you enjoyed this year’s lessons. If you enjoyed it, subscribe to my email here and I’ll send you some of my other writings and notes. Make sure you’re also following me on Twitter.

I leave you with a quote I enjoyed while exploring Buddhism and reading various western philosophers who embraced the philosophy:

“When we speak about freedom, freedom from being a puppet of the past, it simply involves a change in your thinking. You’re getting rid of the habit of thought whereby you define yourself by what has happened before you and instead start thinking in the more plausible and reasonable way where you define yourself in terms of what you’re doing now. And that is liberation from the ridiculous situation of being a dog wagged by its tail.” — Alan Watts

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