#144: Bad Is Not Always So Bad

S2N Spotlight

It is Friday, which means Mike likes to get philosophical.

We have all done something we are embarrassed about. Let me go a step further something we are ashamed about. I am yet to meet a trader or professional investor who doesn’t have a hair raising story of self-sabotage, such as placing too big a trade, or refusing to cut a losing position, resulting in a large loss of money. There are endless variations of this idea across our business and personal lives. The natural inclination is to hide it, forget about it, or deny it ever took place.

One of the reasons we run away from this shameful action is because it hurts our ego. Running away might help financially or superficially in the short term, but it also robs us of an opportunity to remind ourselves of what might have hurt us in the past and has provided lessons for growth. It doesn’t matter if we haven’t yet learned how to grow from this flaw. It is part of our story and it is an opportunity to grow. My experience tells me that trying to erase this part of your story from yourself almost always comes at a cost, sometimes financial, but always at a cost to your personal growth. Remember, it is OK to be human.

These messages are directed at myself as much as they are to you.

Side note: Yesterday I launched a coaching program, I only realised after sending it I never actually sent a link to the program .

S2N Observations

Yesterday the PPI inflation year on year numbers continued to come down showing producers inflation well below the mean of 3.23%. This is good news as inflation usually starts are the producer level and then gets passed on to the consumer.

Before we get a little too excited let us look at core PPI excluding some of those items that are more seasonal and volatile. Here the picture is not as bright. For the second month we got an increase in core PPI. It is still below average, but if you look at the picture below we have seen this movie before. It tends to climb once this hook gets a bit more body. We will need to wait and see as it is still too early to tell.

I noticed a lot of big moves in gold and silver yesterday, so I pulled together this chart with a gold and silver ratio with a 100-day moving average of the ratio to smooth it out. I am always looking for clues as to what might indicate if the markets are likely to go up or down. That is where I was going to leave it. I have so much on this weekend, so I was going to leave it there, and then I realised this is exactly the kind of research I hate. I have noticed my research has also become lazy. These kinds of charts are completely open to whatever bias we have lurking in our subconscious.

I am not saying the research below has all the answers, but at least I have made the effort to create a backtest framework that puts emotion aside. When the moving average goes above and below a threshold of the ratio, it triggers a buy and sell order. This approach is ever so slightly better than buy and hold from a risk-return point of view. I hope to build more depth to this kind of research going forward so that the numbers speak for themselves.

Happy Friday.

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