A few people have asked me in the past week how I find the time to write so much.
There are a number of explanations for this — its part of my routine, I prioritize it and I don’t have a ton of other hobbies (no fantasy football, no Facebook, no drinks with friends every night, etc.).
I also really enjoy the process of writing which is about far more than the act of typing something on my keyboard. It’s also about thinking, reading, researching and learning. It forces you to clear up your thoughts and think deeply about what it is you really think. Barry’s favorite quote on this is, “I write to know what I think.”
One of the biggest reasons I enjoy this process is because I enjoy the subject matter. When you write about something you’re interested in it doesn’t feel like a chore. I hated writing in high school and college. It’s not so much that I enjoy writing now as much as I enjoy thinking about the markets through the act of writing.
I absolutely love the markets.
Some people find this stuff boring but I find it utterly fascinating. Here’s why:
Markets force you to learn about other topics. The markets have forced me to learn more broadly about psychology, history, statistics, economics, policy, business, personal finance, sales, incentives, negotiation, failure, compound interest and how to communicate effectively.
The learning process is never over. At our EBI conference in June, Michael Mauboussin was one of our keynote speakers. Usually, at these events, the biggest names show up right before their time slot and are whisked away by their handlers immediately following their speech. After he was done I noticed Mauboussin in the audience feverishly taking notes on talks from the other speakers for the remainder of the day. This is someone I consider to be one of the great investing minds of his generation and here he was consuming knowledge and trying to get better. I love that the markets are a place of continuous learning.
It’s one giant experiment on human psychology. Over the long-term fundamentals certainly matter but over the short to intermediate term, the markets are really just a huge laboratory for testing the limits of human emotions and behavior. There’s always the opportunity for some combination of fear, greed, panic, euphoria or complacency.
They’re built on trust. It’s kind of mind-boggling financial markets function as smoothly as they do when you consider the entire system is based more on trust than anything. We don’t really know what a corporation is worth but investors agree on a price and we all pretend like it makes sense. Very few people ever question how it all works behind the scenes. The amount of faith we all put into these markets, businesses, and institutions is quite remarkable when you think about it.
There’s no such thing as a “normal” market. Averages lie. Every single market environment is different. Things are constantly evolving as we update our priors with new information and research. Things are always uncertain and there’s no such thing as normal in the markets, making them always and forever interesting.
No one ever completely figures it all out. Even the best investors of all-time make huge mistakes late in their careers. No one is right all the time.
The playing field is wide open. If you like playing basketball you can’t just wander onto an NBA court to play with LeBron. But in the markets, investors of all shapes and sizes can trade with one another. This is both terrifying and exciting.
There’s always a reason to be happy or miserable. Markets have been described as long periods of nothing with occasional bursts of something. Some like the former while others prefer the latter. When markets rise it feels good to see your portfolio’s value increase but it makes it harder to find good investment value. And when markets are falling it stings to see your portfolio’s value decrease but it opens up more opportunities to find cheaper investments.
No one knows what anything is worth. Since 2015 Amazon has added over $330 billion to its market cap. Apple has added more than $210 billion this year alone. Exxon Mobil has shed more than $100 billion in market cap since 2015. Macy’s has seen its market cap go from over $22 billion to less than $7 billion since late-2015. Have these businesses really changed that much in this short period of time? Maybe. But it’s more likely that investor expectations of the future have shifted substantially in this time and valuing even some of the largest corporations in the world is not easy.
No one can agree on anything. The markets are a mishmash of different opinions, goals, time horizons and strategies. On an average day, over 80 million shares trade hands in equity markets around the globe totaling more than $350 billion. You’ll never really understand the motivation of the person on the other side of your trade but the fact that no one can agree on anything is what makes the markets function so well.
There are many different ways to express your opinion. The avenues to express your opinion on the markets are plentiful — buy, sell, long, short, hedged, leveraged, stocks, mutual funds, ETFs, closed-end funds, derivatives, currencies, bonds, commodities, cryptocurrencies and the list could go on. There’s something for everyone.
Business matters. You can have below average investment results and still have a successful business. Or you can have above average investment results and a below average business. Both may not last forever but sales, marketing and running a business have a lot to do with the allocation of capital in the markets (which is why career risk is one of the largest underrated market inefficiencies there is).
Markets are constantly evolving. I asked an old boss of mine if he thought it was possible to see any new assets or asset classes in the future. He told me it was nearly impossible and that everything would just be a derivative of something else that already exists. It’s been a number of years since this conversation and now Bitcoin has a market cap of around $60 billion. I guess you could make the case that cryptocurrencies are a derivative in some ways of fiat currencies but here’s something that didn’t exist over a decade ago and it’s all people in the markets can talk about right now.
Never a dull moment…
The Benefits of Writing
Now here’s what I’ve been reading this week:
- Behind the music of investing (Research Puzzle)
- Familiar hard vs. unfamiliar hard (Bason)
- Horrid, stubborn facts (Above the Markets)
- Risk is the payment we make for a chance to reach our aspirations (WSJ)
- There’s no perfect retirement spending strategy (Oblivious Investor)
- Two good posts on gold from (Of Dollars and Data) and (Fortune Finacial)
- The pros and cons of illiquidity (Abnormal Returns)
- A dozen lessons about money from Dan Ariely (25iq)
- Why is value investing so difficult? (Behavioural Investing)
- Ben Graham on passive investing (Alpha Architect)