I am starting a new log of activity: investment. After some 18 months of pausing in active investment in financial markets, I am going back into the game, and I want to do it as rationally and as artfully as possible, using all the science I have in order to achieve three consecutive goals: a) achieving predictable, attractively positive growth of market capitalization in my portfolio b) adding positive cash flow to that growth of value (i.e. turning my portfolio into a source of cash revenue, and c) creating an investment fund, i.e. a fund where I manage capital entrusted by third persons. One word of explanation as for that last one, as it could seem overly pretentious. I simply want to develop my skills in investment up to a point, where a group of other people – probably a relatively small group – would trust those skills of mine enough to coordinate their capital investment in businesses of interest common to all of us. I want to develop at least one business connected to renewable energies, and to tackling climate change. Becoming a trusted fiduciary for other people’s investment, and standing up to the corresponding promises, could be quite a good step on that way.
Over the last 3 years, starting in Spring 2017, I used a scientific blog as a tool to boost my scientific creativity and I think it worked: I reached a level where I make true discoveries, and I feel I bring a real contribution to the development of social sciences. For the time being, my biggest scientific achievement is research published: “Energy efficiency as manifestation of collective intelligence in human societies”. I intend to stay humble and consider what I do just as a contribution to the development of social sciences, not as personal glory. I also intend to develop on that science I already have, Still, achievement is achievement, I know I have gone a path of personal development as a scientist, I think I understand how I have accomplished what I have accomplished, and I want to repeat the experience with a practical application of social sciences, i.e. with financial investment.
The method I intend to use consists in keeping a log of exhaustive, written auto-analysis of what I do, publishing that analysis in the form of updates on my blog “Discover Social Sciences”, and using the insights I develop in the process so as to develop my skills as professional investor. In other words, I know that if I write a lot about what I think I do in a specific line of activity, it makes me think about what I do, and true insights appear. It is a long, laborious process, still it has one advantage from my point of view: I already know the pace of that work, and I know how to structure it, because I have already done it in another line of work, namely in science.
Publishing that investment writing on my blog will be painfully humbling. I will certainly make laughable mistakes in my investment decisions, and many a professional broker will have good times mocking how stupid and pretentious I am if I think I can become proficient enough to create an investment fund of my own. Yes, that’s the desert to walk through, and I know that walking it through brings a reward.
I start with the account – and the analysis – of what I have done as my first steps, during those last two weeks. I am investing via two digital platforms: a Polish brokerage house CDM PeKaO, and DEGIRO for investment in foreign financial instruments. I put 2500 PLN thus some €585 in each of them, and I did some very intuitive, quick shopping. Precisely, I just did a bit of thinking before buying my first basket of financial instruments. I am learning the way I observe it in neural networks I use. Error is learning, and more error means more learning, as long as I can sustain the consequences. I make errors, I study my errors, I try to understand how exactly I make errors, and this understanding will help me to make more and more informed decisions in the future.
The way I intend to pace myself in that learning of investment is precisely based on the sequence: decision >> analysis and definition of errors >> outline of a strategy free of those errors >> implementation of the new strategy, i.e. next investment decision(s) >> analysis etc. My plan is to practice that loop on a monthly basic, i.e. I invest once a month, in a relatively short window of time, and I spend the rest of the month on studying my own decisions.
Before I go into describing the details of those first investments of mine, which I made in the first days of February 2020, one thing as sort of popped into my mind. When I was starting to use my account with DEGIRO, I was dealing with something new. DEGIRO is not exactly a brokerage house: it is a transactional platform, something like a very fluid investment fund, where I decide what exact assets I want to have for the money I pay into my DEGIRO account. It was new for me, and I made a series of, if my memory is correct, 3 consecutive transactions where I just paid money onto the DEGIRO account and then withdrew it back onto my main bank account. Why was I doing that? Good question. When I look back at those specific decisions of mine, they were quite emotional and impulsive. I remember being sort of vibrant in my thinking, as I was stroking an unknown animal, wondering whether it is going to leap to my throat. Lesson #1: when I do a new type of financial operation, and I use a new type of financial instrument, I experience strong emotions and those emotions tend to blur my rational thinking. In this case, I was probably afraid that once I pay my money onto the DEGIRO account, there could be problems with recouping it, e.g. very high fees. As a matter of fact, none of that happened. Conclusion: I can make irrational, possibly erroneous investment decisions out of fear. I need to understand what I am afraid of, in my investment, in order to make as informed decisions as possible.
It is interesting to understand my own fears. What exactly was I afraid of, in connection with investment through the DEGIRO platform, and what triggered those fears? In the first place, I freaked out because I did not quite do my homework as for the functionalities available. When I invest with DEGIRO, my account has a few metrics. Among them, I have the amount of cash available, and the so-called ‘free space’, or the exact amount of cash I can use to buy financial assets. The default currency of DEGIRO is the euro, and my balances appear in euro. Right after I effectively transferred Polish zlotys on that account, i.e. right after they became visible as the cash balance as euros, they mirrored in the ‘free space’ account. Still, when I tried to use them for buying financial assets, the platform blocked me and an error message of ‘Insufficient free space’ was displayed. Then I freaked out. ‘They stole my money!’, I thought. I know this was stupid. DEGIRO is a licenced operator, and they are legit as for financial reliability. However, seeing that I have no full access to my cash made me extremely nervous and irrational. This is when I suddenly withdrew, back onto my main bank account, all the cash I had paid onto the DEGIRO account.
Only after having done that, I did my homework in the FAQ section of the DEGIRO page and found out what exactly happened to my money. The default currency at DEGIRO is the euro, but display in euros is not exactly the same as conversion into euros. When I do my transfer in Polish zlotys, they are recalculated into euros in real time, for the needs of display on the cash account, and in the free space account. Yet, they are not immediately converted into euros, and thus not immediately available for transactional purposed. Conversion into euros takes place automatically once a day (technically, once a night) or I can do it manually whenever I want. Thus, when I want to use the zlotys I have just transferred, I need to convert them manually into euros, or I have to wait until the next day, i.e. wait for automatic conversion.
That’s the homework I neglected to do before starting with DEGIRO, and the lack thereof made me do those frantic transfers back and forth between my basic bank account and the DEGIRO account. What exactly was I afraid of? As I try to deconstruct my behaviour, I was anxious because I thought I haven’t immediate control over my money. Fear #1: loss of control, possibly loss of immediate liquidity. It’s funny, but John Maynard Keynes wrote about the same thing: many people truly feel they have money when they are convinced they can spend it whenever they want. He called it propensity to conserve liquidity or something in these lines. Lesson #2: when I invest, I tend to be afraid of losing liquidity, i.e. immediate transactional control over my money.
My fear #2, as I think about the situation, is reputational. I was afraid that someone I know could like have a look on what I do and say: ‘You have done something stupid and you lost money’. Here comes a nice paradox: I invest online, privately, and yet I tend to be very concerned about the possible opinions of other people. A part of me want to look 100% professional in my investment decisions. I know, that’s stupid. A few paragraphs earlier I stated that I want to learn how to be a pro. Lesson #3: when I invest, I need to define my true ‘free space’, i.e. the amount of money I am ready to put on stake without being afraid of losing immediate control over its liquidity. Lesson #4: I need to work through the classical question of personal development, namely ‘How will other people know I am successful in my investment decisions?’. Good question, once again, and I think it is the right moment to describe my first investment decisions.
My general idea was, and still is, to focus on three sectors: biotechnology, renewable energies, and IT. Why? The most honest explanation is that I am interested in those fields of technological change. As it is frequently the case with general ideas, they remain sort of general. As I was sailing the ocean of investment opportunities, and as I took a total of 13 investment positions, 6 among them are biotech businesses: OAT – OncoArendi Therapeutics, APREA THERAPEUTICS , FREQUENCY THERAPEUTICS INC, INCYTE CORPORATION , MACROGENICS INC, VIR BIOTECHNOLOGY INC. Those names of companies are hyperlinked to their respective ‘Investor relations’ sites. As for IT, I have one investment position, namely CYFROWY Polsat. They are not exactly the type of innovative IT company. It is more of a generalist in telecommunications. Why have I bought their stock? Because I have studied their case with my students, in the class of management. The same applies to a TV production company: ATM Grupa. Lesson #5: I tend to invest in companies, which either I have an intellectual interest in, or I have discussed their cases in class.
As for renewable energies, I have one position open: FIRST SOLAR INC, a photovoltaic business. I have one more energy business, a Polish one – PGE – yet, in all honesty, you wouldn’t really call them a renewable energy-based business. It is mostly your (well, our) basic coal, with some timid glimpses of RES here and there. As for the First Solar case, I am somehow familiar with them: they were one of the first topics I discussed on my blog, back in 2017. As for PGE, kill me (figuratively), I don’t know why I opened that position. I think I was intuitively looking for something big sort of next door.
There is one position which I opened like a real dumb f**k, i.e. after having read a piece of news. I am talking about ASTON MARTIN WI, ISIN GB00BFXZC448. I read that a new big investor decided to acquire a significant portion of their stock, and I made quite stupid a move of following the grizzly bear all the way into its feeding grounds. Now, you are going to have fun. There is one company, which I haven’t the faintest idea why I opened an investment position on: BLACK DIAMOND GROUP LTD. They are in industrial real estate. WTF? Why did I do it? Go figure.
The last investment position I took is a so-called ‘tracker’: an investment fund supposed to reflect, as closely as possible, the structure of a big stock market index. I chose Amundi Epra DR ISIN LU1437018838 . As I am deconstructing my way of thinking about it, I a pretty sure I wanted some kind of stabilizer, sort of independent from my own judgement.
As I have a look at those investments of mine, I re-ask myself the question: namely ‘How will other people know I am successful in my investment decisions?’. Two assumed factors of recognition seem to emerge from my decisions: coherence, and sort of a general alertness. I want to feel that I am following some sort of coherent strategy, and, intuitively, I want to save some of my money to investments outside that strategy, as if I wasn’t entirely trusting my own judgement.
That’s all in this update. I hope to keep a nice pace in the months to come. Thank you for your attention.