MY EDITORIAL ON YOU TUBE
I am experiencing an unusually long pause between consecutive updates on my blog. I published my latest update, entitled The balance between intelligence and the way we look in seasoned black leather, on June 23rd, 2020. This specific paragraph is technically in the introduction to a new update, yet I am writing it on June 30th, 2020, after having struggled with new writing for 6 entire days. There are two factors. Firstly, quite organically, we are having a persistent storm front over our part of Europe and with storms around, I have hard time to focus. I am in a bizarre state, as if I was sleepy and was having headaches in the same time. No, this is not hangover. There is nothing I could possibly have hangover after, like really, parole d’honneur. Sober as a pig, as we say in Poland.
Tough s**t makes tough people, and I when I experience struggle, I try to extract some learning therefrom. My learning from such episodes of intellectual struggle is that I can apply to my writing the same principles I apply to my training. Consistency and perseverance rule, intensity is an instrument. I can cheat myself into writing by short bouts. I can write better when I relax. I can write better when I consider pain and struggle as an interesting field of experience to explore and discover. By the way, this is something I discovered over the last 3,5 years, since I started practicing the Wim Hof method: that little fringe of struggle at the frontier of my comfort zone is extremely interesting. I discover a lot about myself when I place myself in that zone of proximal development, just beyond the limits of everyday habits. Nothing grand and impressive, just a tiny bit of s**t which I give to myself. When I keep it tiny, I can discover and study my experience thereof, and this is real stuff, as learning comes.
The other reason I am struggling with my writing for is the amount of information I need to process. I am returning to studying my investment strategy, as I do every month, or so. There is a lot going on in the stock markets, and in my own decisions about them. I have hard times to keep up with my writing. Besides, I am really closing on the basic structure of my book on the civilizational role of cities, and I am preparing teaching content for online learning the next academic year. Yes, it looks like we go almost entirely distance learning, at least in the winter semester.
All in all, this update for my blog is a strange one. Usually, writing helps me put some order in my thinking and doing. This time, I have hard times to keep up with what’s going on. Once again, having hard times just means it is difficult. I keep trying and going. By trying and going, I have almost painfully come to the realisation what kind of message I want to convey in this update, when I finally end up by publishing it. Before I develop on that realisation, a short digression as regards the ‘end up by publishing’ part of the preceding sentence. I work in a rhythm of intuitively experienced intellectual exhaustion: I publish when I feel I have unloaded an intelligible, well rounded portion of my thinking into my writing.
What I am experiencing right now is precisely the feeling of having made a closure on a window of uncertainty and hesitation in many different fields. This update is specifically oriented on my strategy for investing in the stock market, and therefore this is the main thread I am sticking to. Still, that feeling of having just surfed a large wave of uncertainty sort of generally in life. I know it sounds suspiciously introspective in a blog post about investment, but here is another thing I have learnt about investment: being introspective pays. It pays financially. When I put effort into studying my own thoughts and my own decision making process, I learn how to make better, more informed decisions.
My financial check from last month financial check is to find in ‘The moment of reassessment’. As I repeat that self-study of my own financial strategy, I find it both hard and rewarding. It is much harder to study my own decisions and my own behaviour (self-assessment) than to comment on sort of what people generally do (social science).
I feel as if I were one of those old-school inventors, who would experiment on themselves. Anyway, let’s study. Since ‘The moment of reassessment’ I made a few important financial decisions, and those decisions were marked by an unusual injection of cash. Basically, every month, I invest in the stock market an amount of PLN 2500, thus around $630, which corresponds to the rent I collect monthly from an apartment I own in town. I take the proceeds from one asset. i.e. real estate, and I use them to create a collection of financial assets.
As I have been practicing investment as a real thing, since the end of January, 2020 (see Bloody hard to make a strategy), I have learnt a lot in social sciences, too, mostly as regards microeconomics. I teach my students that fundamental concept of opportunity cost: when you invest anything, i.e. capital or your own work, in thing A, you forego the possibility of investing in thing B, and thus you choose the benefits from investment A to the expense of those from investment B. Those benefits B are the opportunity cost of investing in A. This is theory from textbooks. As I invest in the stock market, I suddenly understand all the depth of that simple rule. The stock market is like an ocean: there is always a lot that remains out of sight, or just out of my current attention span, and the way I orient my attention is crucial.
I have acquired a very acute feeling of what is called ‘bound rationale of economic decisions’ in textbooks. I have come to appreciate and respect the difference between well-informed decisions and the poorly informed ones. I have learnt the connection between information and time. Now, I know that not only do I have a limited bandwidth as regards business intel, but also that limited bandwidth spreads over time: the more time I have to decide, the more information I can process, and yet it would be too easy if it was that simple, since information loses value over time, and new information is better than old information.
That whole investment story has also taught me a lot about business strategies. I realized that I can outline a lot of alternative wannabe strategies, but only a few of them are workable as real sequences of decisions and actions of a strategy.
Good. Time to outline the situation: my current portfolio, comparison with that presented a month ago in ‘The moment of reassessment’, a short explanation how the hell have I come there, assessment of efficiency, and decisions for the future. Here is the thing: at the very moment when I started to write this specific update on my blog, thus on June 24th, 2020, things started to go south, investment-wise. I found myself in a strange situation, i.e. so fluid and changing one that describing it verbally is always one step behind actual events.
When I don’t have what I like, I have to do with what I have. In the absence of order and abundance of chaos, I have to do with chaos. Good chaos can be useful, mind you, as long as I can find my way through it. Step one, I am trying to describe chaos to the extent of possible. I am trying to phrase out the change in itself. There is some chaos in markets, and some in myself.
Good. Now I can start putting some order in chaos. I can describe change piece by piece, and I guess the best starting point is myself. After all, the existential chaos I am facing is – at least partly – the outcome of my own choices. After I published in ‘The moment of reassessment’, I began with taking non-routine decisions. That end-May-beginning-June period was a moment of something like a shake-off in my personal strategy. I was changing a lot. For reasons which I am going to explain in a moment, I sharply increased the amount of money in my two investment accounts. Now, as I look at things, I am coping with the delayed effects of those sudden decisions. The provisional lesson is that when I do something sudden in my business activity (I consider investment in the stock market as regular business: I put cash in assets which are supposed to bring me return), it is like a sudden shock, and ripples from that shock spread over time. Lesson number two is that any unusually big transfer of cash between into or from any of my investment accounts is such a shock, and there are ripples afterwards.
I think it is worth reconstructing a timeline of my so-far adventures in stock-market investment. End of January 2020, I start. I start investing shyly, without really knowing clearly what I want. I didn’t know what exact portfolio I wanted to build. I just had a general principle in mind, namely that I want to open investment positions in renewable energies, biotech, and IT.
From February through March 2020, I experiment with putting those principles into a practical frame. I do a lot of buying and selling. From the today’s perspective, I know that I was just experimenting with my own decision-making process. It had cost me money, I made some losses, and I intuitively figured out how I make my decisions.
Over April and May 2020, I was progressively winding down those haphazard, experimental investments of mine. Step by step, I developed a reliable sub-portfolio in IT, and I rode an ascending market wave in Polish biotech companies.
At the end of May 2020, two things happened in my personal strategy of investment. First of all, I had the impression (and let’s face it, it was just an impression, devoid of truly solid foundation) that growth in stock prices across the almost entire Polish industry of biotech and medical supplies was just a short-term speculative bubble. I sold out part of my investment positions in the Polish stock market – mostly those in biotech and medical supplies, which proves to have been a poor move – and I transferred $1600 from my Polish investment account to the international one. Besides, my employer paid me the annual lump compensation for overtime during the academic year, and I decided to use like ¾ of that sum, thus some $3 125 as investment capital in the stock market, splitting it 50/50 (i.e. 2 times $1562) between my two accounts.
See? That was the first moment of chaos in me. First, I transferred $1600 from one account to another, and then I paid two times $1562 into both accounts, and all that like days apart. As a results, my Polish investment account noted a net cash outflow of – $1600 + $1562 = + $38 (very clever, indeed), and my international account swelled by $1600 + $1562 = $3 162.
Let’s go downstream. When I did all those cash transfers, I settled for a diversified portfolio. In Poland, I decided to keep my IT positions (11 Bit and Asseco Business Solutions), and to create three other branches: energy, retail, and restaurants. I know, I know: energy sounds cool, but retail and restaurants? Well, I decided to open positions in those two: the shoe retailer CCC, and a restauration giant Amrest, essentially because they were unusually cheap, and my own calculations, i.e. the moving average price, and mean-reverted price, indicated they were going to go up in price. As for two Polish energy companies – Tauron and PGE – my reasoning was the same. They were unusually cheap, and my own simulations allowed expecting some nice bounce-up. Out of those four shots on the discount shelf, two proved good business, the two others not really. Tauron and PGE brought me a nice return, when I closed them a few days ago, the former almost 79%, the other 28%. As for CCC and Amrest, they kept being cheap, and I closed those positions with slight losses, respectively – 4,3% and – 11,7%. Lesson for the future: don’t be daft. Fundamentals rule. This is my takeaway from the last 3 months of learning investment in practice. I need to look at the end of the market lane, where the final demand dwells for the given business.
Question: why did I close on Tauron and PGE, if they were bringing me profit? Because it looked like they had a temporary rise in price, and then it seemed to be over.
I have already learnt that I make real money on accurate prediction of something, which, fault of a better expression, I call ‘market waves’, and by which I understand a period of many weeks when the price of some specific stock grows substantially for largely fundamental reasons. In other words, something important is happening in real business and these events (trends?) provoke a change in investors’ behaviour. As for now, and since January this year, I have successfully ridden three market waves, got washed under by one such wave, and I am sort of in two minds about a fifth one.
The wave that maimed me was the panic provoked in the stock market in the early weeks of pandemic. At the time, I had just invested some money in the U.S. stock market. I had been tempted by its nice growth in the first weeks of 2020, and, when the pandemic started to unfold, and market indexes started to tremble and then slump, I was like: ‘It is just temporary. I can wait it out’. Well, maybe I could have waited it out, only I didn’t. I waited, I waited, and my stock went really down, like to scrambling on the ground, and then I went into solid, tangible panic. I sold it all out, in the U.S. market (see Which table do I want to play my game on?). On the whole, it was a good decision. I transferred to the Polish stock market whatever cash I saved out of that financial plunge in U.S. and I successfully rode the wave of speculative interest in Polish biotech companies.
I noticed that I got out of the Polish biotech market wave too early. As I cast a casual glance at their performance in the stock market, I can see they have all grown like hell over the last month. I decide to get back into Polish biotech, plus one gaming company: CD Projekt. The biotechs and medical I take on are: Mercator Medical, Biomed Lublin, Neuca, Synektik, Cormay, Bioton. I am taking some risk here: those biotechs are so high on price that I am facing a risk of sudden slump. Still, their moving cumulative average prices are climbing irresistibly. There is a trend.
What do I do with my U.S. assets? I think I will hold. I don’t want to yield to panic once again. Besides, they diversify nicely with my assets in Poland. In Poland, I took a risk: I jumped once again on the rising wave of investment in biotech and medical business, only this time I jumped on it at a much more elevated point, as compared to the beginning of April 2020. The risk of sudden downturn is substantially bigger now than in April. In the U.S. market, I am holding assets which are clearly undervalued now, with all that panic about social unrest and about a second spike in COVID-19. Possibly overvalued assets in one market and undervalued assets in another market: sounds familiar? Yes, this is a form of hedging, which, in plain language, means that I spread my assets between several baskets, and I hand each basket to a different little girl in a little red riding hood, in the hope that at least some of those girls will outsmart those big bad wolves. Girls usually do, by the way.
On the whole, so far, I have invested $6 674,76 in cash into my two investment accounts. With the current value of my assets at $7 853,30, I have a total return on cash invested around 17,65%. It has decreased slightly over the last month: by the end of May 2020, it was 23,2%.
I think I need to explain the distinction between two rates of return which I quote as regards my investment: return on the currently open positions vs return on the total cash invested in my investment accounts. Any given moment, I hold cash and open positions in securities. The cash I hold is the sum total of two components: past cash transfers into my investment accounts from my other financial accounts, on the one hand, and cash proceeds from the closure of particular investment positions. When I compare the total value of financial assets (i.e. cash + securities) which I currently hold, to the amount of cash I had paid into my investment accounts, I get my total return on cash invested. When I split my financial assets into cash and securities, and I calculate the incremental change in the value of the latter, I get the rate of return on currently open investment positions, and this one is swinging wildly, those last days. This might be the reason why it took me so long to hatch this update for my blog. Last Thursday it was 12,9%, and today it is 5,5%. What happened? United States happened to be in social unrest, for one, and they keep doing so, by the way (c’mon, guys, pull your pants up, I have money in your stock market). Germany happens too, like all the time, and I have some open positions in their automotive sector.
One thing that happens more or less as I expected is the incremental change in stock price as regards the logistics sector. My positions in Deutsche Post, UPS, and FedEx are doing well.
I have already learnt that I make real money on accurate prediction of something, which, fault of a better expression, I call ‘market waves’, and by which I understand a period of many weeks when the price of some specific stock grows substantially for largely fundamental reasons. In other words, something important is happening in real business and these events (trends?) provoke a change in investors’ behaviour. As for now, and since January this year, I have successfully ridden three market waves, got washed under by one such wave, and I am sort of in two minds about a fifth one.
The wave that maimed me was the panic provoked in the stock market in the early weeks of pandemic. At the time, I had just invested some money in the U.S. stock market. I had been tempted by its nice growth in the first weeks of 2020, and, when the pandemic started to unfold, and market indexes started to tremble and then slump, I was like: ‘It is just temporary. I can wait it out’. Well, maybe I could have waited it out, only I didn’t. I waited, I waited, and my stock went really down, like to scrambling on the ground, and then I went into solid, tangible panic. I sold it all out, in the U.S. market (see Which table do I want to play my game on?). On the whole, it was a good decision. I transferred to the Polish stock market whatever cash I saved out of that financial plunge in U.S. and I successfully rode the wave of speculative interest in Polish biotech companies.
I noticed that I got out of the Polish biotech market wave too early. As I cast a casual glance at their performance in the stock market, I can see they have all grown like hell over the last month. I decide to get back into Polish biotech, plus one gaming company: CD Projekt. The biotechs and medical I take on are: Mercator Medical, Biomed Lublin, Neuca, Synektik, Cormay, Bioton. I am taking some risk here: those biotechs are so high on price that I am facing a risk of sudden slump. Still, their moving cumulative average prices are climbing irresistibly. There is a trend.
OK. I need to end it somewhere. I record my video editorial on You Tube, I attach it to this piece of writing, and, que sera sera (or What The Hell!), let’s publish those uncombed thoughts.
Discover Social Sciences is a scientific blog, which I, Krzysztof Wasniewski, individually write and manage. If you enjoy the content I create, you can choose to support my work, with a symbolic $1, or whatever other amount you please, via MY PAYPAL ACCOUNT. What you will contribute to will be almost exactly what you can read now. I have been blogging since 2017, and I think I have a pretty clearly rounded style.
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