My editorial on You Tube

It is 5:43 a.m. (yes, forty-three minutes after five o’clock in the morning, and I am completely sane), and I am starting another day of fascinating life. I know I could say: another day of this horrible epidemic, or another day of that limiting lockdown. I know I could, yet I am not. I say: fascinating life. This is how I feel. This whole situation, i.e. the pandemic and the resulting lockdown, it all makes my blood flow faster. There is a danger, out there, and there are us, who can face this danger. Us, not just me. There is the collective ‘us’ who adapts, organizes, and collectively says: ‘There is no f**king way we surrender’. This is the beauty of life.

Would I say the same to someone who has just lost their job, due to the lockdown, and has a family to take care of? In spite of all the apparent ridicule of such a claim in such a situation, yes, I would say the same, and you know why? Because there is no viable alternative. Should I say to this person: ‘Yeah, they’re completely right, those people who say you are f**ked. There is nothing you can do, just sink into despair and complain occasionally’.

I am drawing a bottom line under my yesterday’s quick trade, in the Polish stock market. You can read about the details in A day of trade. Learning short positions. I am progressively wrapping my mind around the day of yesterday. Conclusions start floating on the surface of my mind. When I go into a quick, daily trade on short positions, the best moment for making decisions seems to be around 11 – 12 o’clock CET, in the middle of the day. Deciding early in the morning, e.g. starting to trade with a morning sell-out, is not really a good idea. Deciding by the end of the day is tricky, too: the end of the trading day frequently pushes me to selling or buying just out of sheer rush, under the hot breath of time rather than the cool breath of reason.

Recently, a student of mine asked me what I think about short trade. I answered that it is interesting, but it generally sucks for me. It is true that never before have I done any short trade successfully. I remember feeling the pump of adrenaline, peculiar to gambling, yet the financial results were never good. I said it generally sucks for me, and then I tried again, yesterday. This is something I discovered lately: facing my fears and apprehensions can be a fascinating experience. At my age, 52, fears and apprehensions come out of accumulated learning, and the big thing about it is that we accumulate learning in order to stop learning. Facing the things which I am wary or afraid of means questioning my acquired knowledge and habits. It is like digging into one of those cellars, full of objects from the past: I discover new kinds of beauty.

And so, I did it again: I tried short trade, and I meant confronting my acquired wariness. I can see that trading on short, daily positions is a useful skill, and I can develop that skill, to a reasonable level, quite quickly. It is most of all about being aware what I am doing, i.e. cognitively stepping back from action, for a moment, and correct it slightly, so as to make it coherent and purposeful. The key is to own my own story. When I have both cards in my hand: that little gambling nerve, and the intellectual discipline in self-questioning the gambling reflexes, I can thrive on that mix. I love it, actually. My action leads me to forming new ideas about myself. I have just realized that I thrive, as an investor, on two types of action. I can be like a gardener, for one, watching my long-term positions grow and bring fruit in due time. For two, I can be like a hunter, going out for an informed, wise kill.

Wise kill means predating, i.e. violently harvesting from the ecosystem, not killing for the sake of it. There comes an important question I ask myself: how to practice short trade, every now and then, and stay sort of constructive in my investment? I have already learnt, after the day of yesterday, that short trade is a powerful method of quickly adapting my investment to just as quick a change in external conditions.  On the other hand, I want to join, in an informed way, a big stream of investment in positive technological change. Can I reconcile these two: short-term, wisely predatory strategies of adaptation with long-term, positive orientation?

There comes an afterthought, which has just popped up in my mind: wise hunters wait for their prey, instead of running after it. My experience of short trade tells me that it is wise to have a strategy prepared for those days of short positions. To me, short trade is adaptation, and, logically, I should do it in the presence of quickly changing conditions. Just as logically, I should tool myself with some kind of early detection mechanism for violent outbursts in the stock market, when a local speculative bubble is about to swell, or about to implode. Detection in place, I should have strategies for riding a mounting wave, as well as surfing down a collapsing one.

My point is that I can stay constructive in my episodes of short trade when I stay strategic, informed, and prepared. Blueprints seldom work perfectly in real life, yet they provide robust structure. I can become destructive in my days of short trade if I go chaotic, and to the extent of chaos in my actions.

A numerical strategy comes to my mind. I target a handful of companies I would like to sort of hang around with, equity wise. Let’s suppose they are Polish companies from the biotech – medical complex, plus some interesting IT ones. I check regularly their prices in the stock market, as well as the volumes traded. I assume that the market can be in two alternative states, from my point of view: either it allows me to be the placid gardener of my investment positions, or it forces me to become the alert and violent hunter. The ‘gardener’ state is when I don’t need to do anything quick, i.e. when I don’t need to adapt through daily short trade. I need to go for a day of short trade hunting when the market somehow goes off the rails. I need to define those rails.

Mathematically, I assume that whatever happens to those stock prices, happens inside a stochastic process, i.e. something slightly crazy, yet crazy in a generally predictable manner. Within that stochastic process, there is the calm and picturesque Gaussian process, where local values go hardly away from their moving average, like no more than one moving standard deviation away either way (i.e. plus or minus). Anything outside that disciplined Gaussian happening triggers the hunter in me and makes me go short trade. This is an approach similar to mean-reversion: the further something drifts away from the expected state, the more alarming it is.   

I assume that cognitively, the still waters of Gaussian process, from my subjective point of view, are set by the behaviour of prices over the last 30 days. I take the moving average price, and the moving standard deviation from that price, from the 30 preceding days. Below, I am exemplifying this logic with historical prices of the company whose shares I sold yesterday – and I regret having been too hasty – namely Biomed Lublin. The curve in the graph shows values calculated as:

Mean_reversed Price (day x_i) = {[Price(day x_i)] – [Mean(Price x_i-30, …, Price x_i)]} / Standard deviation (Price x_i-30, …, Price x_i).

On the graph, I marked with green dashed lines the corridor of ‘calm’ variance, within one moving standard deviation around the moving average ( -1 ≤ x ≤ 1). Inside that corridor, I assume I can just hold whatever stock of Biomed Lublin I have, or, conversely, I should abstain from buying it, unless I really want. The bubble marked with red dashed line shows an example of price wandering way out of that safe corridor. It is an example of alarm zone: it is price rocketing up, and a possibly good occasion for the short trade I planned, and did not complete finally, for yesterday: selling in the morning for a higher price, and buying back, for a lower one, by the end of the day, or next day. If the curve flares in the opposite direction, i.e. below the bottom green line, it is a signal to buy quickly, with an expectation to sell at a higher price.

The graph shows a time window between May 27^th, 2019, and yesterday, April 8^th, 2020, thus some 10 months with a small change. During that period, should I have been actively trading Biomed Lublin, I should be about half of the time on alert, and going into short trade. As you can see, this otherwise simple strategy of trading involves behavioural assumptions about myself: do I want to go hunting, in the grounds of short trade, as frequently as the graph suggests? It is reasonable not to narrow down the zone of calm, i.e. below one moving standard deviation away from the moving average. On the other hand, I can increase my zone of tolerance (calm) beyond one moving standard deviation.  

Summing up, I have two perspectives on trading a given stock, with this simple model. First of all, in the long view, I can observe how does the curve of mean-reversed closing price behaves generally. Is it rather wild, i.e. does it swing a lot out of the safety zone between -1 and 1, or, conversely, is it rather tame? The more swinging is the curve, the more the given stock is made for a series of short-term trading operations, like buy in and sell out, in a sequence. If, on the other hand, the mean-reversed price tends to stay a lot in the safety zone, that is the type of stock to hold for a long time rather than to prance around a lot. Secondly, I can observe the short-term tendency over the last few days, like the last week of trading, and make myself an idea as for the immediate stance to take.

I use this simple tool to study my own current portfolio of investment positions, plus the two stocks I sold yesterday but I sort of keep them in my crosshairs, as they are biotech, presently dear to my heart sort of generally. Biomed Lublin, to follow, is a wild one, especially those last weeks. Its mean-reversed price has been swinging a lot out of the – 1 ≤ x ≤ 1 zone. This is the type of stock to watch closely, and to be ready to go for a quick kill about it. As for the last days, you can see it gently returning from a ‘quick sell’ zone, and getting into the ‘hold’ one.

Mean-reversed price of Biomed Lublin

01.04.2020      3,196722673

02.04.2020      3,590790488

03.04.2020      4,173460856

06.04.2020      3,713915308

07.04.2020      1,870944561

08.04.2020      1,71190807

As regards 11Bit, it used to be a wild one, with a high potential for ‘sell’ recommendations. Yet, since the COVID-19 panic erupted in the stock market, and after the Polish stock market started to flirt a lot more with biotech, 11Bit has gone sort of tame. A few weeks ago, there had been a short window for buying, which I missed, unfortunately, like between February 27^th and March 27^th. The latest developments suggest holding.

Mean-reversed price of 11Bit

01.04.2020      -0,470302222

02.04.2020      -0,418676901

03.04.2020      -0,308375679

06.04.2020      0,518241443

07.04.2020      -0,230731307

08.04.2020      -0,036589487

Asseco Business Solutions is in a different situation. In the past, before the COVID crisis, it would stay a lot above the 1 barrier, thus offering a lot of incentives to sell and consume profits. Yet, over the last month or so, it has nosedived into the alarm zone below -1, just to climb into the -1 ≤ x ≤ 1 safety belt recently. Looks like it morphed from something to kill into something to farm patiently.  

Mean-reversed price of Asseco Business Solutions

01.04.2020      -0,498949327

02.04.2020      -0,454984411

03.04.2020      -0,467396289

06.04.2020      -0,106632042

07.04.2020      -0,062469251

08.04.2020      -0,006786983

Airway Medix is another wild type, with a lot of spikes out of the -1 ≤ x ≤ 1 zone. Still, since May 2019, there was more occasions to buy rather that to sell. Those last weeks, it seems to have really changed its drift, and has rocketed up above 1. I have to be vigilant about this one.

Mean-reversed price of Airway Medix

01.04.2020      2,362791403

02.04.2020      1,922976365

03.04.2020      3,70150467

06.04.2020      3,768162474

07.04.2020      1,973153986

08.04.2020      1,441837178

Biomaxima is a strange case, at least as compared to others. For months, like until the first days of 2020, it had been mostly in the safety zone, with occasional spikes down, below -1, thus with occasional incentives to buy. Since January 2020, it started to sort of punch the ceiling and to burst more and more frequently above 1. Right now, it seems to be in the ‘sell or hold’ zone, with a visible drift down. To watch and react quickly.

Mean-reversed price of Biomaxima

01.04.2020      3,81413095

02.04.2020      3,413908533

03.04.2020      3,001585581

06.04.2020      2,378442856

07.04.2020      1,631660778

08.04.2020      1,668652998

Bioton is a still different story. Over the last 10 months, it had remained like half in the calm zone between – 1 and 1, whilst spending most of the remaining time in the ‘buy’ (x < -1) belt. There was one spike up, in July 2019, when there was some incentive to sell. Yet, now, it is a different story. As it is the case of many Polish biotech companies, the last 2 months have dragged Bioton out of that grey lethargy, into the spotlight of the market. Right now, the mean-reversed price from the last week suggests selling (if I have profit on it) or to hold. Looks like I bought this one on a selling wave: a mistake I could have avoided, had I remembered and applied earlier that method of mean-reversion in price (which I read about regarding the market of electricity).  

Mean-reversed price for Bioton

01.04.2020      1,219809883

02.04.2020      1,50983756

03.04.2020      3,76644111

06.04.2020      3,986920426

07.04.2020      2,434789898

08.04.2020      1,888320575

Mercator Medical is another case where, although I have currently some profit, I should have rather bought earlier (August – September 2019, something like that). That had been a relatively long window of ‘buy’ recommendation. Right now, as I have been investing in it, it is rather the ‘sell or hold’ time.  

Mean-reversed price for Mercator Medical

01.04.2020      1,664368071

02.04.2020      1,605024371

03.04.2020      2,408595698

06.04.2020      3,673484581

07.04.2020      1,846496909

08.04.2020      2,130831881

That cursory, technical analysis of my investment portfolio, together with my immediate targets in the biotech sector, brings me a few interesting insights. First of all, and once again, it pays to do things, and to write about me doing things. The urge I felt to phrase out my feelings after the yesterday’s intense day of short trade pushed me to formalize an acceptably dumb-proof strategy, based on the method of mean-reversion, which I knew theoretically but never thought to apply in practice to my own investment business.

My editorial on You Tube

I am betting on short-term developments in the stock market. Yesterday, the stocks of biotech and medical companies in the Warsaw Stock Market went through a rapid depreciation. I decided to play short-term today. This is something that has NEVER worked for me in the past, yet, this year, I want to learn new things about investing in the stock market.

During the day of yesterday, the profits I described in my last update, entitled ‘Doing things we don’t quite know how to do well is what we, humans, do all the time’, suddenly melted down, to a large extent. The strategy I am going to test today consists in selling, in the morning, three of my positions – Airway Medix, Biomed Lublin, Biomaxima – betting that their price will fall today just as deeply as it had fallen yesterday, and then buy them back at the end of the day, at a lower price. Selling them today in the morning will allow me to consume the profits I have still left on them, and, if I am betting correctly on the today’s developments in the market, their price will fall even more today. By the end of the today’s trading session, I should be able to buy them back at a lower price.

In the table below, you can see a short summary of the situation.

Company (position)	Rate of return on April 7th, 2020 (YESTERDAY MORNING)	Rate of return on April 8th, 2020 (THIS MORNING)	Remarks
11Bit	-16,39%	-22,90%
Asseco Business Solutions	-5,88%	-5,88%
Bioton	-15,87%	-27,30%
Biomed Lublin	410,20%	246,94%	For sale in the morning, to buy back by the end of the day
Biomaxima	21,82%	1,82%	For sale in the morning, to buy back by the end of the day
Airway Medix	116,82%	72,73%	For sale in the morning, to buy back by the end of the day
Mercator Med.	19,33%	-5,95%

Why am I not waiting for the early-morning developments in the stock market? I could wait like 30 minutes, from 9:00 to 9:30 a.m., and then decide whether I sell. If the prices of those three – Airway Medix, Biomed Lublin, Biomaxima – bounce back in the morning, there will be no point in selling. There is one caveat to that: if the day is a downwards revision day, the first 30 minutes of trade, precisely between 9:00 and 9:30, are usually marked with a very sharp drop in price. This is a recurrent pattern I have already noticed. Thus, if wait that first half-an-hour, I can lose some opportunities to make profit.

I need a plan B, in case the daily developments in the market go against my expectations. There are two issues, as regards my expectations. Firstly, it is possible that prices of those three stocks rise during the day and I cannot buy them back at a lower price. Buying them back at a higher price would not be good business. I need a plan what to do with the proceeds from the morning sell-out, if these particular events play out differently from what I expect to happen. I thought I could observe the movements in prices on the remaining 4 positions –  11Bit, Asseco Business Solutions, Bioton, and Mercator Medical – and maybe buy into those. I am particularly interested in Bioton. In the past, that stock gave me a huge gain, and in that whole portfolio of mine, this is the only clearly undervalued position, with a market-to-book ratio of 0,73. There is potential for growth in this company.

Secondly, for the moment, I assume there will be no big quake on my other positions. What of the entire market goes amok about downwards revision, today? That is a good question. There are two opposite logics to that. Logic A says ‘cut your losses short, don’t keep positions with negative returns’, whilst logic B protests: ‘it is a first principle of business that you sell at a higher price than the one you bought at, unless you really need cash or unless that thing is just never going to go up in price’. From my own experience, which I developed more broadly in the update entitled ‘Which table do I want to play my game on?’, I know a third logic, a cognitive pattern in myself: I need to have at least the impression I understand the rules of the game. Sometimes, I feel that my investment decisions – at least some of them – become so uninformed that what I am doing is actually pure gambling for the gambling’s sake. My experience is that in such moments I should just pull out of the game.

That third logic, which is strictly my own, is certainly an impediment when it comes to quick trade on short positions. I intuitively pull out of situations when I feel forced to make very quick moves, or, if I stay in such a situation, I start making haphazard moves. I have hard times to step back emotionally, and to figure out a quick, on-the-spot strategy. By doing what I am doing today, I expect, precisely, to develop my skills for such situations. I want to force myself to understand quickly the rules of a short-term game in daily trade.  

That’s an interesting thing from the scientific point of view. What is my personal, cognitive distinction between a game I know the rules of – the Abraham de Moivre’s game – on the one hand, and the Bayesian game, where I have to figure out the very space of the game and my essential bearings inside of it?

I have just realized another thing. I can update myself on how the daily trade is going on, at the Warsaw Stock Exchange, with a 15-minute-lag (in practice, it is 20 minutes of lag), and this sets something like a pace of observation for playing out my today’s strategy. Oookay, here comes a report from the battlefield: my selling orders have been executed. Let’s see. Biomed Lublin sold at PLN 3,13 per share, 219,39% of return on this one. Right now, I mean at 9:28, it was at PLN 3,03. For this one, my plan seems to be unfolding nicely, as for now. You know, that’s the thing about big plans: they seem to be unfolding nicely, up to a point. Airway Medix sold at PL 0,718 per share, 63,18% of return in this position. Keeps falling, was at 0,68 on 9:28. Biomaxima sold at PLN 21,60 per share, and, unfortunately, this one comes with a loss of – 1,82%. In this case, the follow up is less clear. It plunged in the morning, but now (9:35) it is climbing back and is at PLN 20,8 per share.

OK, step A done, let’s outline the strategy for step B, to be carried out during the today’s trading day. From the sales of 1000 shares of Biomed Lublin, I have proceeds amounting to PLN 3 130,00  PLN, and I had to pay a brokerage fee of 0,35%, which I will have to pay once again should I be buying back into this stock. Thus, my break-even price for the daily trade would be: PLN 3,13 * (1 – 2*0,35%) < PLN 3,108. That’s the condition I need to strike.

As I have sold my position of 2300 shares in Airway Medix, I have PLN 1 645,62  PLN of proceeds net of brokerage fee. I do the same calculation as for Biomed Lublin, and it goes: PLN 0,718 * (1 – 2*0,35%) < PLN 0,713. In the case of Biomaxima, I can reuse, to buy back in, the PLN 430,49 of proceeds net of brokerage fee, provided the condition PLN 21,60 * (1 – 2*0,35%) < PLN 21,449 is met. Ve vill zee…

Now, a quick look at the remaining sheep in the herd: 11Bit, Asseco Business Solutions, Bioton, and Mercator Medical. 11Bit jumped nicely right after the opening of trade, up to PLN 375, which reduces slightly my loss on this position. Asseco Business Solutions remains stationary, no movement at all. Bioton, my tacit preferee, is at PLN 4,77. Good. It is climbing nicely. If my intuition is correct, investors are moving capital inside the biotech-medical sector, from the clearly overvalued positions (see ‘Doing things we don’t quite know how to do well is what we, humans, do all the time’) to the undervalued ones. It is good financially, as my so-far loss on Bioton is getting shallower each minute, yet it is bad cognitively. If Biomed Lublin, Airway Medix, and Biomaxima go down, as I expect, and Bioton goes up, as I expect as well, which way to go: buy back into those three sold ones, or buy further into Bioton? Oh dear, life is complicated…

Mercator Medical is going nicely up, it was PLN 27,10 on 9:57, which puts me back in saddle, so to say. I start making profit on this one, just 0,74% for the moment, barely to pay for the brokerage fee, yet it looks promising. As I look at the volumes traded, there is a lot of reshuffling. Big volumes get purchased. Looks as if people were buying into this one.

Now, I face two alternative paths. Path A, I go psycho, I keep staring at the quotes in the stock market, whilst writing a live account in this log. Path B, I step back, into the safe realm of science, I think and write a bit about collective intelligence, and then I come back into the market like early in the afternoon, to decide about the closure of my trade for today. I think I like stepping back more than going psycho, and I choose path B. I am busying myself at phrasing out some intuitions about collective intelligence. What we do is in loop with what we claim we should do, and what we do is the stronger of the two. In other words, behaviour is in loop with consciously formulated cultural content, and, on the long run, behaviour is the spiritus movens of that interaction. In my so-far work, I apply this claim mostly to strategies and ethical values. The latter, i.e. collective ethical orientations, are particularly fascinating for me. I have developed a very simple neural network to uncover the values of a society, out of quantitative socio-economic data. As regards this path of thinking, at the limit of science and philosophy, you can find it developed a bit more in the You Tube video (https://youtu.be/TEdqkprPSS8 ), which accompanies this update.

It is 12:05. A quick update on the market. Biomed Lublin – on 11:50, it was at PLN 3,53, and it is essentially climbing. Much above my break-even threshold. The situation unfolds, as for now, unfavourably for my strategy. With that price, there is no way I should buy it back. Airway Medix – on 11:52, it was at PLN 0,74. Too expensive. Am not going to buy back in. Biomaxima – the price is growing, on 11:50 it was at PLN 23,60. Not buying back.  11Bit –  falling gently, on 11:56 was at PLN 359. Asseco Business Solutions stays firmly stationary, almost no trade at all. Bioton – sort of hesitating, swinging up and down. On the whole, it shows a descending trend. On 11:57, it was at PLN 4,45. Mercator Medical shows a gently ascending trend in price. On 11:58, it was at PLN 27,50.

For the moment, my attempt at short-term trade in the surfing-the-descending-wave style has failed lamentably. Even if I decided to sell the same positions I have actually sold, the later during the day, the better profit I would have. I yielded to panic, and this is something I need to work on. I noticed that I tend to consider profit on my investment positions as something really my own: I develop an emotional attachment to those margins. I need to step back. Still, this is good learning. There is some hope, though. Yesterday, prices really collapsed by the end of the day. Maybe today it will be the same?

As I have feeble prospects to unfold my initial strategy, the plan B, i.e. buying into the positions still held, sounds like a good idea. I am going to wait until around 2 p.m., and then it will be time to go into the fine details of the plan B. For now, I take a partial decision: I am buying further into Mercator Medical. The price is growing steadily over the day, there is no apparent reason why it should fall. I decide to place a ‘buy’ order on this one, 40 shares.

As I am waiting for the right moment to conclude on my biotech positions, I am observing the market. There is that gaming company, Artifex Mundi, sort of a cousin to the 11Bit I already have in my portfolio. I wonder: maybe it would be a good step to diversify, from that overexposure in the biotech sector, into the IT? That Artifex Mundi thing has a nice growth today, and it looks as if they were bouncing back from a temporary trough. Looks like a classical configuration of bull horns. What if I spread the cash I have in hand between Bioton, 11Bit and Artifex Mundi?

I ask myself strange questions. I have set my limits for buying back into Airway Medix, Biomed Lublin, and Biomaxima. Does it mean that I will ever buy their stock again only if their respective prices go below those limits? What if they don’t? Should I refrain like forever from buying those stocks? Funny, I haven’t thought about it before. How long is enough to forget that I could have done a better business?

In the meantime, I notice that I have received the money transfer from my international investment account with the DEGIRO platform. Happened faster than I thought. I am forwarding this money into my Polish investment account.

2:15 p.m. Another market check today. 11Bit keeps swaying gently. It could be interesting to buy in. Biomed Lublin is anchored around PLN 3,50, above my critical threshold. Airway Medix is at PLN 0,71. Just at my threshold, buying those shares back would be stupid now. Artifex Mundi keeps an interesting high, could be worth having a go. Asseco Business Solutions went down slightly. I don’t know what to think about it. Bioton is at PLN 4,40. It does not look good. I prefer to wait with buying into this position. Mercator is around the same position. Biomaxima at PLN 23,80, way above my break-even-threshold.

3 p.m. Decision time. I split my investment between four companies: 11 Bit, Artifex Mundi, Bioton, Airway Medix (at 0,7, below threshold, I buy back 2400 shares; a bit of risk, but workable).

My editorial on You Tube

Here I go again with my investment strategy, and with a live account of what is happening in a tiny little, Central European stock market, namely in Poland. This is a crazy rush on biotech and medical companies, with their market value growing like hell. I joined the fun, like 2 weeks ago, and this is madness, like really. In this update, I am trying to find some method to that madness, and more specifically, I am going to investigate the kind of business, and the kind of assets I have invested in.

Before I develop further, a few words about my stance on the current situation. As I go on any medium, social or general mainstream, everybody is taking a position regarding the COVID-19 pandemic. I am a strong partisan of getting my s**t together in the presence of danger, rather than moaning and complaining. I guess the way I can get my s**t together is to be a good person to the people whom I am close to – my son, my wife, my elderly aunt – then to be a good teacher to my students, and, on the top of that, to be an inspirational scientific blogger for whomever wants to read my blog ( https://discoversocialsciences.com/  ) and follow my You Tube channel ( https://www.youtube.com/channel/UC_jdCg5y7OuyQr_5bijNxvw?view_as=subscriber ). When I see a lot of people freaking out about things which they don’t have any leverage on or which are really secondary in the present situation, I say to myself: ‘This is the right moment to remain calm and be the glue which holds at least some things together’.

Yes, things are rough now, and they are going to stay this way for quite some time, and they are likely to drift into even stormier waters. Life is brutal, as we used to say in Poland, back in the times of communism. Yes, it is, and whatever kind of coziness we develop, it is just a soap bubble. Thus, however rough things are going to be, there is always a tomorrow, and it is a good idea to work (work, not moan) to make that tomorrow a better place.

Now, a tough question comes: do I really think that investment in the stock market, even successful, can make tomorrow a better place for anyone else than me? I am honest: there is egoistic pursuit of gain in what I do, yet there is more. I deeply believe that the Beasty (you know, THAT virus) is already changing our civilization. We will have to be tougher and more resilient, and healthcare is one of the fields which the Beasty has really exposed as f**king feeble. We will need better healthcare, and more of it, and we will need a lot of good, new science in the game, properly developed into something workable in real life. I hope that massive investment in biotech stocks, currently taking place in Poland, means a deeper, fundamental drift of resources towards that industry as a whole. I hope that by investing in this sector via the stock market, I am taking part in something socially valuable, which will pay off in the future at many levels of economic utility. I want to find my bearings in that social change.

Moral stance taken on the virus and its corollaries, I pass to the substance of my update: my investment strategy and its scientific development, peppered with some educational content addressed to students of economics and management, my students as well as students in general.

Here are the positions open in my portfolio (hyperlinked names send you to investor-relations’ sites of those companies): 11Bit (IT), Asseco Business Solutions (IT), Bioton (biotech), Biomed Lublin (Biotech), Biomaxima (Biotech), Airway Medix (medical equipment), Mercator Medical (medical equipment). 11Bit and Asseco Business solutions are pre-COVID-crisis acquisitions (beginning of February 2020), and I bought all the rest over the last 2 weeks. As for April 7^th, 2020, in the morning, thus ahead of the trading day, my weighted rate of return on investment with that portfolio is 188,4%. Yes, you have seen right. The thing almost tripled in value, and still, I have some positions with negative returns. I start the detailed analysis of that stuff with specifying the individual rates of return I have on each position. Here comes the table with a snapshot of my portfolio.

Company (position)	Number of shares held	Price per share	Value in portfolio	Rate of return on investment, net of brokerage fee
11Bit	4	469,50  PLN	1 878,00  PLN	-16,39%
Asseco Business Solutions	25	31,40  PLN	785,00  PLN	-5,88%
Bioton	200	5,30  PLN	1 060,00  PLN	-15,87%
Biomed Lublin	1000	5,00  PLN	5 000,00  PLN	410,20%
Biomaxima	20	26,80  PLN	536,00  PLN	21,82%
Airway Medix	2300	0,95  PLN	2 194,20  PLN	116,82%
Mercator Med.	20	32,10  PLN	642,00  PLN	19,33%

As I am writing these words, I am lurking on how the market is doing, in real time. Bioton falls by 14%. Biomed Lublin falls too. There is visibly a market correction. Do I cut my losses short and sell, or is it just some trading game, and I should hold? Example of emotions vs intellect. As I observe these two, since the beginning of the trading day, i.e. since 9:00 Central European time, there have been a few spikes in volume traded. Some people have either decided to consume their profits from the past days, or to punch the market a bit so as to make the price go down, and they buy back in. Still, both stocks climb back. The morning loss folds onto itself.

Right now, I am experiencing that discrepancy between the long-range view, proper to investment strategy, and the immediate shot of adrenaline on the moment of trading and seeing the market change in front of my eyes (literally, I see it on the screen of my MacBook).

Good. I detach myself a bit from the immediate experience, and I give my mind a kick, so as it takes flight, back into the high registers of prudent, long-seeing strategy. I am going to develop on two points. The method of calculating the weighted rate of return on the whole portfolio, in the first place. That’s educational, skip it if you know it. Then comes the market-to-book analysis, just to see the size of financial bubbles on each of those positions, as well as on the whole thing together.   

I go educational. The first step is to estimate the structure of the portfolio: I calculate the percentage share or the percentage contribution of this specific position to the whole portfolio.

In the next step I take the individual rate of return that comes with any individual investment position, and I multiply it by the share of the corresponding stock in my portfolio. I go like: ‘how important is that thing multiplied by what pay-off that thing brings me’. Once that individual multiplication done, I get the weighted individual rate of return. I do the same for each company, whose shares I hold. Next, I sum up all the thus-calculated, weighted rates of return. The sum total is my WEIGHTED AVERAGE RATE OF RETURN.  

Good, having delivered the parcel of basic teaching, I go into strategizing, i.e. into trying to predict things which are essentially impossible for a human to predict 100% accurately. Doing things we don’t quite know how to do well is what we, humans, do all the time. This is probably how we do so well, at the end of the day.

I walk down a classical financial analysis called ‘market to book’. I take the market capitalization of each company (data from market closure on April 6^th, 2020), and I divide it by the book value of its equity. The table below summarizes the results. You see? I like weighted averages. I did it again with the ‘market-to-book’ ratio.    

Company (position)	Total market capitalization (PLN mln)	The coefficient ‘market-to-book’ (to book equity)
11Bit	901,16	7,53
Asseco Business Solutions	1094,33	3,46
Bioton	455,08	0,73
Biomed Lublin	311,3	9,47
Biomaxima	102,11	6,12
Airway Medix	55,73	1,67
Mercator Med.	339,91	2,55
Weighted average	4,74

By the look of it, the whole thing looks pretty swollen. Only Bioton keeps a low profile, and there is visibly some potential for long term growth. As I am writing these precise words, it is 1:30 p.m., April 7^th, 2020, and I keep lurking at the stock price graphs in real time, and what I see is a downwards revision. Not much, yet prices go down a bit. Minds calm down, gambling yields to strategizing. That’s good, on the whole. Yes, I lose some money from my portfolio, as the day grows older, but I have a comfortable cushion under my ass, anyway, and too much of a speculative bubble is never good for any market. Besides, as I look at those intraday quotes, it was a nosedive in the morning, followed by a gentle growth, yet too gentle to compensate the dive. I will see tomorrow. If it is the same, I will sell, just to keep my gains and see what happens next. By the way, this is a good example of balance between the perceived value of financial stock, and the perceived value of money.   

Now, I want to walk a bit down the avenue I hinted at in my previous update, the one entitled ‘Which table do I want to play my game on?’: to what extent that rush on the stock of biotech companies will reflect in a fundamental change as regards their business? I want to focus on one specific question: ‘What if these companies reacted to that push from the stock market, by   accumulating capital in assets at the same pace as their market capitalization grows?’. From now on, I will focus on the biotech and medical companies in my portfolio. I assume that right now, those from the IT sector follow slightly different a trajectory. I summarize that hypothetical change in the table below.

Company (position)	% change in market capitalization over the COVID crisis, since January 1st 2020	Assets now (PLN mln)	Hypothetical assets, if following the market push (PLN mln)
Bioton	33,0%	914,18	1 215,84
Biomed Lublin	376,2%	81,11	386,26
Biomaxima	643,7%	43,42	322,91
Airway Medix	68,6%	43,00	72,48
Mercator Med.	206,3%	386,71	1 184,52
Sum Total		1 468,42	3 182,01

I quickly check the active side of those companies’ balance sheets, so as to nail down the distinction between fixed assets and current assets. I translate the simulation from the table above into a hypothetical investment in fixed assets. Here are the results, i.e. the hypothetical amounts of capital, to be possibly invested in the productive base of those five biotech and medical players: Bioton +PLN 254,39 mln (+ €56,03 mln), Biomed Lublin + PLN 249,62 mln (+ €54,98 mln), Biomaxima + PLN 167,68 mln (+ €36,93), Airway Medix + PLN 24,96 mln (+ €5,50 mln), Mercator Medical + PLN 403,64 mln (+ €88,91).

Now, I have a stupid question. If I were the CEO of Biomaxima (which I am pretty sure I am not likely to be in the predictable future), and I were offered €36,93 of capital to invest in the fixed assets of my business, would I know at all what to invest that money into? I mean, that would mean making my business more than seven times bigger, like in one go. Interesting.