Long-Term Investing Ideas in a Volatile Market
Simon recently spoke with a $35 billion global asset manager about how they're navigating the market volatility. The key takeaways are to think long term, tune out the noise...
August 8, 2023 – By JT Street
Episode 23 of No Limit features Luke putting on his science superconductor nerd glasses and dreaming about a magnificent future, going over the fundamentals of why the LK-99 phenomenon has gripped the world’s imagination. But he also displays the qualities that high level investors need to cultivate: a skeptical framework and a measured approach to too-good-to-be-true claims.
Krzysztof meanwhile bemoans the risks of investing in small-caps, updates the ongoing Eos saga, and pontificates further about why risk management and a stomach made of titanium are a requirement for these kinds of high volatility investments.
In the context of vulnerable small caps and preventing massive losses due to cleverly calibrated short-attacks, we discuss whether stop-losses are a boon or bane in the investor toolkit. In the trivia game, Luke looks to shame Krzysztof with some technical patterns and candlestick trivia— can you tell how hard Luke has to work to keep his disdain for chart fortune tellers under his svelte exterior of cool?
[00:00:43] Luke: Hello and welcome to the latest episode of No Limit with Christoph and Luke. Today is episode 23 and it’s the 31st of July. Christoph, you’re back in your beautiful office surrounded by books and whiskey. What’s happened?
[00:00:58] Krzysztof: 23 episodes, huh? You’ve stuck it out with me for 23 episodes. My God. Uh, forgive me dear listeners, if I sound a little off. I’ve had quite an adventure home, so I think, uh, what day is today? Today’s a Monday. Uh, so yeah, I have the jet lag going on and I didn’t sleep, uh, for two consecutive nights. So, I was, quite delirious and I’m just starting to come back to myself, uh, vaguely.
[00:01:29] Luke: in Sicily, in your wife’s homeland for a couple of weeks and now you’ve returned to Austin.
[00:01:35] Krzysztof: Correct, but not before the, the, one of the two major airports in Sicily caught fire. Close, closing down a terminal. So, uh, that leads to exciting adventures with not knowing, uh, not only whether your flight is leaving, but from which airport it’s leaving. And then, uh, you know, blah, blah, blah, travel, you know, we’ve, travel is a, it’s a fascinating thing, you know, like as moderns, we, we expect things to go, you know, we forgot that just what, a hundred years ago, uh, people would spend or 150 years ago, you know, you’d get on boats and six weeks later, hopefully you haven’t drowned.
And, you know, whereas now, you know,
[00:02:21] Luke: you might get sacrificed to the wind gods to, uh, make sure you get that.
[00:02:25] Krzysztof: yeah. But I did, you know, but it took me 35 hours to get home, including, uh, including sleeping on the airport floor, which, you know, bring, uh, yeah. Cause they, my flight got canceled. Then, uh, uh, they rebooked me for a flight at 5 30 in the morning next day, but it’s already.
So, you know, make me, make me feel like a kid, you know, camping, uh, you know, like when you camp out before a concert and you know, when you’re 20 something, it’s, you know, you sleep wherever, however, but in our finer, riper, more sophisticated age, you know, like the, the thought of sleeping on the cold, hard.
Fluorescently lit, uh, airport floor with the, you know, cleaners, vacuuming, and, uh, the weekend playing in the background like at three in the morning. Like, come, oh
[00:03:16] Luke: That’s what, uh, that’s what alcohol and noise cancelling headphones are for though, buddy.
[00:03:20] Krzysztof: Oh, I didn’t see I was so delirious. I didn’t even put on my, put on my headphones. Anyway, I made it back. I made it back, uh,
the irony, the tragic irony, further irony, is that here in Texas, there’s a non stop heat wave. Since early June, the temperatures now are, uh, in the triple digits.
And, uh, you know, excessive heat warnings and all that. Whereas,
[00:03:46] Luke: the cause of the fire in Sicily, because I know they had crazy weather in Italy right now too.
[00:03:51] Krzysztof: yeah, well, that’s the irony, is that, uh, Sicily had a severe heat wave where it got into the 116s. So, I’m sure the airport caught fire for, I mean, who knows, someone might have, you know, forgot to unplug a thing.
So, that’s my bitchin and moanin
[00:04:10] Luke: you know, you’re not looking like a man who’s had no sleep for the last three days, has had a very strong coffee in front of you,
[00:04:18] Krzysztof: it’s actually my, uh, my juju juice.
[00:04:22] Luke: still drinking that magic mind stuff, excellent.
[00:04:25] Krzysztof: This isn’t meant, that would be a heavy dose of the magic mind, but this is my, my vitamins, my vitamins. Luke, what’s going on in your world? Yeah.
[00:04:34] Luke: well, let’s, uh, let’s bring it onto an investing topic, right? So, uh, from magic mind to like casting the magic bones, how’s the technical trading going?
[00:04:43] Krzysztof: The technical trading has been put on pause temporarily because I don’t want to be stupid about it. And so I watched a whole bunch of tutorials and, you know, did a bunch of lessons. And so my, My repertoire, my toolkit is increasing. I’m now happily drawing with my magic crayons on the charts.
I have, I have all the squiggles. I, I, I’m learning, you know, I’m learning the platform. And by the way, you know, it’s not like I’m a complete noob to this in the sense that I’ve been Over the years, you know, you see things repeatedly, you know, you see the heads and the shoulders and the inverse Skull crossbones and candlesticks and all that.
So I’ve seen it for a long time It’s just, of course, it’s different when you’re trying to do it yourself, right? And so I am in the happy Exploratory phase where it feels like I’m learning a lot it’s, it is very different when it’s hands on, it’s, it’s just very different, right? When you’re doing it yourself.
So I think I’m going to give myself maybe a month or two of ingesting, which is my way usually reading, ingesting, watching tutorials before I kind of officially set sail and think of it as an active strategy.
[00:06:06] Luke: Okay. And I think last week you said you’d set yourself a six month, not so much a challenge, but just kind of see how your technical stuff performs compared to your sort of fundamental, your main portfolio. So that six month clock’s going to start in about three months time, you think. So give us an update when, uh, when you’re ready to go and we’ll be listening keenly on No Limit episodes 40 to 60 to, uh, to hear how that’s playing out.
[00:06:31] Krzysztof: Well, maybe, maybe even a little bit earlier, you know, one asterisk to this is I’ve been in the options world for a long time, and those are, I, I would reckon by definition short term. So I already have a kind of, uh, mid range gain via options. I think what we’re talking about is. Being even more deliberate about the timing of the buying and selling with the crayons and the charts on top of the options So Yeah, I’ll give you an update
[00:07:01] Luke: All right. Shall I, uh, shall I tell you what I’ve been looking at for the last week or so, what’s been consuming my Twitter feed?
[00:07:07] Krzysztof: Yes
[00:07:08] Luke: know you’re an energy buff. Uh, you’ve had a, you’ve got a number of stocks in your own portfolio that are battery companies or, you know, stuff in the, in the energy domain.
So, Hopefully this is on your radar. Have you seen what’s happened in Korea a couple of weeks ago, uh, where two gentlemen, uh, in academia believe that they may have created a room temperature superconductor?
[00:07:32] Krzysztof: Yes, I saw that on the on the Twitters and I saw that in the news feed correct me if I’m wrong that there has been pushback against the veracity of potential veracity of this paper.
[00:07:47] Luke: For real, like extraordinary claims require extraordinary proof. And this is a extraordinary claim. Like this is Nobel prize winning stuff. If they’ve actually. Managed to create this and, as a layman looking at their approach seems to be using kind of pretty common materials and a pretty straightforward approach.
So there’s now a bunch of folk all over the world, including a guy I’m kind of tracking, some kind of space engineer dude who seems to be a, I think he’s the CEO of a smaller space tech company in the US. Well, in his evenings, he’s trying to reproduce, uh, their experiment in the garage. , so this is super interesting.
We’re going to find out in the next week whether these guys have actually, you know, justified their noble prize or not.
[00:08:28] Krzysztof: can you walk us back maybe to the fundamentals as best you understand them? In layman’s terms, what is the claim being made that they’ve discovered and why is it such a big deal if true? Hearing you
[00:08:40] Luke: So, we have superconductors today, um, and a superconductor is, it’s going to sound kind of boring, but it’s essentially like zero resistance, able to get electricity, power, current, from A to B without any resistance, and that sounds kind of trivial, but it’s actually… incredibly important. And it’s going to lead to like a revolution in energy storage, energy transmission.
It’s literally going to change the world. And it’s, there are so many technologies. I mean, just to give you a couple of examples of ways this will directly impact us, not straight away, but You know, let’s say over the 5 to 10 years after we’ve confirmed, like next week, potentially, if we’ve confirmed this is a real effect with a material that can be produced potentially at low cost.
Um, so, uh, could be much more efficient power grids, much more. powerful computers, you know, for example, silly stuff like your phone, the battery will last a lot longer, the phone won’t heat up, it will just be much more efficient, the processes will be quicker. It’s going to help things like quantum computing, it’s going to help things like transport, so like a common example when I was googling around the topic the last few days are if you have a room temperature superconductor, you can like levitate things, you essentially have something called the, uh, Meissner effect.
So you could have like a maglev train, um, so basically very, very efficient, very cheap high speed transport at low cost, um, better sensors, be able to improve our particle accelerators, like searching the universe and doing science, just… kind of incredible stuff across the board. This is really important.
We, uh, so we have superconductors, but they only operate at super low temperatures, like near to absolute zero. So the interesting thing here is essentially with kind of garage equipment. Like, you know, not a, not a particularly spectacularly powerful vacuum pump, a, a furnace to be able to heat stuff to about like a thousand centigrades, something like that.
Don’t want to do that on my barbecue. Um, and, uh, some fairly basic materials, uh, they believe that they’ve created, or they claim they’ve created a superconductor. So, uh, there’s some skepticism because it is an incredible claim, particularly given how simple the process is. Um, but like I said at the top, we’re going to find out fairly soon because people are out there trying to reproduce this right now.
[00:11:05] Krzysztof: talk about that, it does seem
hard to imagine for me how something that would change the world Um, is not in a sense immediately known to be, uh, you know, true or false because obviously the scientific community could look at this and say, does, does the theory add up or why is this just at the skeptical phase?
Why isn’t this kind of obvious whether it works or not?
[00:11:31] Luke: So there’s something called the Meissner effect, where, uh, it’s almost like you’ll see something levitating. Uh, and it’s, it’s, I’m going to get the terminology completely wrong here, but it is, uh, it’s quantum locked in position, and so you see some quite fascinating sort of physical effects with this thing just got floating in the air.
So these guys published their research. Yeah, before it had been peer reviewed, so that’s kind of a no no to start with, because, you know, there’s just like for a thousand things that get published, and then, you know, maybe only one gets peer reviewed, and it’s proven to be true, and it’s a reproducible thing, and it ends up in a, you know, legitimate journal.
This is such an exciting, uh, breakthrough. Probably everyone’s got way ahead of themselves, and this shouldn’t be, you know, so high in the news cycle, uh, that people like me are hearing about it, but it is exciting, um, and The skepticism, or at least the, everyone’s kind of holding their breath, it may not be a superconductor.
It might just be something called a dimagnetic material. So they’ve got quite a cool little video of this thing kind of semi levitating, um, but it could be basically, um, a particular kind of magnetic field, which is pretty boring, rather than being a superconductor. But we’re going to find out, like I say, going to find out in the next couple of days, probably before this podcast publishes.
So, uh, That’s part. Let’s park it for two weeks and we’ll find out, you know, actually, I stumbled into reading about this in the last few days. I stumbled into a cryptocurrency backed betting exchange called polymarket. com and only stumbled into it because apparently, um, Uh, this, this claim about superconductivity is the highest trending bet that you can make on this exchange right now.
So there’s, uh, several hundred thousand pounds being wagered by, I guess, geeks all around the world using their, uh, USDC cryptocurrency, uh, and at the moment the, the betting market says about 77% of people believe it’s not a superconductor and then 23% believe it is. I haven’t put my bet down yet.
[00:13:35] Krzysztof: Wow, that’s fascinating. Luke, what was the, what was the name of, uh, of this bedding site? It’s just, uh, I don’t know. You know,
[00:13:45] Luke: Polymarket. com, but, uh, I,
I can’t, yeah, I can’t, I can’t back its veracity. You might be sending your crypto into the ether and never see it again. So, uh, be wary, let the buyer beware.
[00:13:58] Krzysztof: Yes. Well, if I were a bedding man, I, I would look into it. Ha ha.
[00:14:04] Luke: let’s come back to that next, in probably next episode, in two weeks time, and we’ll see if it was actually real or not.
[00:14:09] Krzysztof: Wow, it’s good. It’s so unusual to have something that could change the world and here we, you know, uh, overnight almost. And, uh, yeah, yeah, we’ll find out.
[00:14:20] Luke: stuff. Yeah. So something nearly changed your world overnight, a few days ago. Do you want to tell us about what happened with EOS? Yep.
[00:14:28] Krzysztof: Yeah. Well, you know, this is a, this is, uh, I think a very valuable story to tell because it’s. I’ve lived through these kinds of things several times before, but you know, each time, each time it happens there’s enough space in between and you know, you, you forget and then you lick your wounds and then you, what I’m talking about is orchestrated short reports.
They tend to work better when the company you’re dealing with is a small cap. And, or is underfollowed because the pressure, the selling volume pressure ends up being extraordinarily high. You don’t have big institutional holders kind of holding down the fort. What’s, sorry, I’m going to digress a little bit into the personal because in these situations, the context really matters.
It was a bit of a tragedy. in the sense for me personally, because I was literally leaving, uh, Sicily to catch my flight and the internets and being able to actually process information was not on my side in this case. So when the short report hit. in most cases is exactly, Luke, what you messaged me personally.
You want to keep a cool head, give yourself time to parse the facts, and only then make a decision. Most of the time, I don’t want to say obviously not all the time, but I think it’s fair to say the majority of the time. Even if there is some truth to the short report, much of it is wrong or exaggerated and not the end of the world.
However, in my particular context, I had no time. I literally had no time because I was going to be out of pocket without Wi Fi. The first glance at that report, it looked really bad. And that’s because… In this case, EOS’s situation is precarious to begin with. And the puzzle piece is, you know, the way short reports work, is of course they’re designed, they’re fundamentally designed to make you question every last thing about the company.
And in this case, it was a question about whether, according to the report, 60% of EOS’s… orders was more or less fake or fraudulent, or I mean, it was a complex piece, but let’s just say for simplicity’s sake, 60% of their backlog was immaterial. Well, from everything I know about my investment in EOS, it’s built on the future of energy storage that there’s an, in a sense, unlimited demand for.
batteries that, you know, the kinds of batteries EOS is working on. So that’s not the issue. However, this particular investment case depends on the department of energy funding their, their expansion to make these batteries quickly enough to make the financials work. So when you read that 60% of the backlog is made up, might that affect what the Department of Energy thinks, right?
The chances of them backing the company. And if they don’t back the company, then bankruptcy, then I either major dilution is on its way or, or legitimate bankruptcy issues. Right? And so in that moment, when I have something like feels to me internally, like five minutes to make a call, because Um, my wife is saying we have to go with, you know, very Italian gestures and, uh, this being a very highly, uh, high allocation position in my portfolio, uh, it’s kind of like being stuck in a horrible, horrible place.
I’m damned if I don’t take the time to make a, to, to, to investigate thoroughly. And I’m damned if given what I know in the moment turns out to be true. Because then it goes to zero. And so I think, uh, the lessons I could offer our listeners is when in doubt, I would say wait. Don’t do anything. Of course, in hindsight, because I think now what we know is that this was an overly exaggerated, uh, hit piece, essentially.
I think in hindsight, when in doubt, don’t, your, your advice to me is right. If I have to leave and I don’t have the privilege of knowing, just, just do nothing. The odds are in your favor. Uh, the second piece that I want to talk about is something that I might need to update in my own investment toolkit.
For all these years… I was operating under, uh, maybe the illusion that putting in stop losses, stop losses for any, uh, beginning investor are limit orders that you set on your positions ahead of time so that if the price share falls below that limit, and often they are set A lot below where the shares are trading in the moment.
So it’s kind of like think of them as emergency insurance limit orders, right? That if things, let’s say if the position needs to fall 30% to hit that limit, the reason you would, you would. install it is, well, there’s no good reason for shares to fall 30% unless something is really majorly wrong, like cases of fraud or these kinds of hit pieces.
Well, my entire investing career early on, I read that stop loss orders are actually very harmful be, uh, because the anti stop loss theory says. In the short term, anything could temporarily drive a price down 30% or 40%. But then if you sell at that point, you might be selling at the bottom and then the price will rebound and you’ve just screwed yourself out of a lot of money.
Uh, I think my updated view on this with this EOS experience is maybe I’m gonna add a little subtlety to this. If it’s a position in a mega cap or a large cap, I think I would stay away from stop loss orders. The market will, in the end, figure itself out. And there’s no way something like Apple, just to use an obvious example, is going to be found fraudulent or broken, right?
So whatever short term major fluctuation, that will over time come back. But in a case like EOS, where I know the company is precarious to begin with, And I can expect short reports like the one that came out on Friday to be just part of that realm. I’m thinking it was a mistake not to have a stop limit set, say, uh, whatever, 30% below share price.
So that, as the actual is it going to zero fears develop. I’m actually protecting myself much higher than what the low could ultimately be.
[00:21:53] Luke: I wonder if you really are, though, because if we look at what actually happened with EOS, I wasn’t following it, like, second by second, but it seemed that, um, the stock was dropping precipitously. I think it may have opened, like, down 45% on the day, and then it, it kept getting stopped by the market, um, because they were trying to, you know, the exchange was trying to stabilize it.
Then the stock, the trading would be reopened and it would drop like another chunk. Um, like in that case. If you’d insured yourself in inverted commas for, say, a 30% downturn, well, if the stock opens, like, 40, 50% lower, you don’t magically get your 30% loss. You’re getting, you’re looking in like that 50% loss.
So, even then, it’s not foolproof.
[00:22:36] Krzysztof: this is one of those ideological things that I’ve read both sides of. Obviously my own initial position, just ignore them. And that’s because most of the time I’m dealing with, with legitimate big time companies.
So I’m not messing with. With shady areas. But I’ve also heard, you know, and this maybe takes us back to the short-term versus long-term mindset. People in the more short-term mindset game, uh, think you’re, you’re, I mean, I’ve, I’ve heard it expressed as crudely as you’re an idiot if you don’t use stop losses in your repertoire.
Precisely because, and this, this is maybe the third point. This is the unsavory side of investing if you’re looking for, you know, very leveraged, high risk, high reward kind of stuff, which I would squarely put EOS in. When you have those kinds of dynamics, you have shady actors. And I think these kinds of reports, these kinds of short reports, which are so deliberately crafted and set up, To hit every last weak point and emotional point.
And they, they, they manipulate the truth to the point where it becomes unclear to what extent this is playing within the legal bounds of what can be said. That’s not, you know, therefore, uh, open for libel or some sort of lawsuits. Like, for example, just to give you one example in this one, the initial claim was that this backlog of orders that’s in question was something like 62%.
Management’s comments later that night said, these reports pertain only to 45%. it’s a problem one way or another, but if you think about psychologically and emotionally, there’s a 17% difference and looking at a report that says 62% versus 45%,
it just makes you utterly terrified that if true, like this is devastating. So. Because you’re dealing with potentially illegal, unethical, manipulative, short selling, motivated lies, stop losses might be a potential counter against that kind of tactic.
[00:24:55] Luke: I suppose, like the, you set yourself up to give yourself a really difficult time because you’ve, by design, you know, not like, not with your head in the sand, by design, you’ve made a significant allocation in one of these like yo yo potential stocks, which is, you know, potentially. Right for manipulation because of the maturity of it and the size and kind of where it is the precipice.
It sits on. Um, and so, you know, that’s the kind of stock I have in my portfolio, but I’ve literally got like, you know, half a percent, 1% allocation and a couple of those. Um, but if you’ve got like a material number. Which I, for me, would be anything over five percent.
You know, you’re probably looking at that and going, five percent? That’s like amateur numbers. But if you’ve got material allocation, then yeah, you know, you’re, you’re setting yourself up to have like a sweat, right?
[00:25:46] Krzysztof: Yeah, and I think the big point here is, we’ve talked about this a lot of times, know the game you’re playing and be, be okay playing that game. And so, uh, I’ve played both styles. And, you know, in the end, I much prefer the style that is currently your predominant style.
The equal allocations, the large portfolio, that there’s no one position that could totally blow things up. You sleep way better at night. You don’t have to, you don’t have to panic. You don’t have to deal with stop loss orders. You don’t have to do any of this other stuff. So why, you know, it’s almost like I’m making a very clear case against the other kind of game.
Well, it, it is clear if you, if you wanna sleep well and your, your risk, uh, profile is lower. The, so why would anyone involve themselves with these kinds of insanities? Well, unfortunately, there’s a lot of money to be made and it could be made quickly it can be effective. It’s not like a lotto ticket where you know you’re not winning.
[00:26:53] Luke: Yeah,
[00:26:54] Krzysztof: situations, with enough due diligence, with enough of the tools in your toolkit, it can be a consistently, generate consistently large alpha. It’s just that the cost is these, uh, you know, all it takes is one, right? And in the poker analogy, right, you just have, you could play great poker for months.
Build up your bankroll, and you have that one night where, for whatever reason, the cards aren’t working in your favor. You, you, and you, you psychologically get weak, and months or years of effort could go down the drain. I think this is one of, uh, I know a lot of people got badly hurt with the short report on EOS.
I got pretty badly hurt. Uh, I’m looking for smart ways to rebound and, um, I think I can, I can get there, but, you know, invest that kind of investing is, is dangerous.
[00:27:54] Luke: Yeah, you know, as you said, right, risk and return go hand in hand. And if anybody tells you there’s a sure thing, you know, here’s this, you’re going to double your money. There’s no risk involved. That’s got, that’s pure garbage, and if you want to double your money, okay, maybe stick it on black at the casino or, you know, find, find some sort of bet, and the probability is you’re going to get, half the time you’re going to get wiped out, half the time you’re going to double your money, and so if you’re making a high volatility bet, As you’re doing with your EOS allocation, you’re doing that in the, with the 20 plus years of experience, knowing that your position could get wiped out, but you’re kind of mentally prepared for that.
The upside of that is you could really. As you say, generate alpha, magnify your returns. The cost is, though, potentially some pretty horrendous, uh, nights in airports or overnight flights wondering what your net worth is when you land and the Wi Fi comes back.
[00:28:48] Krzysztof: Yeah. You know, that’s the odd thing, you know, that’s the fascinating, uh, human element of this is, you know, doing this as long as I have at this point, at some point you think you’ve seen it all, you’ve seen a lot. What, what haven’t you seen? A short report that drops right as you’re about to lose your wifi heading to the airport that had burned down in Sicily.
Right? Like, like put that in your, in your, uh, you know, your, your map of investing. So anything could happen, right? Anything, uh, at all. And it does, I guess, right? Give it enough time and… we’re obviously, uh, talking about Eos, uh, openly, because I think it’s such a fascinating case study, I, for our listeners who might not have caught some of the details, and maybe this will already be, uh, Um, old news, but, uh, shortly, uh, afterwards management rebutted the report and also in the open market, the CEO and the CFO bought shares, which is the pretty clear, uh, cut signal that says, uh, we know more than you do.
We can’t disclose non public information, but uh, it was a manipulative attack.
[00:30:07] Luke: Yeah, fair enough. Um, I think to be, to be a bit skeptical, like the CFO bought a fairly small allocation, like less than 10, 000, right? So that, that could be, that could equally just be a. You know, trying to signal something and build confidence that’s perhaps not there.
[00:30:22] Krzysztof: CFO, that’s right, the CFO was a very small number of shares. The CEO was like, uh, 70, 000 worth, 69, 000 worth, also relatively small ish, but, I mean unless these guys are going to jail for outright fraud. Uh, when you already have, you know, your, your life’s work is revolving around this company, you already have a high compensation package to take an additional 70, 000, knowing that, you know, if it’s, if the short report is right, that the company’s pretty much going to zero, no one lights 70k on fire willingly.
[00:31:00] Luke: Well, if you, if you know, if you know if it goes bad, you’re going to jail. It doesn’t matter, right? You might as well bet the, bet the house.
[00:31:10] Krzysztof: Uh,
[00:31:10] Luke: So, so, so we, uh, so we’re gonna find out about superconductors in like the next two weeks. So when are we gonna be sure about EOS?
[00:31:16] Krzysztof: the word on the street is that, uh, there’s, uh, the reason that management pushed back earnings from originally scheduled in early August to now mid August is that the likelihood of the Department of Energy loan is, is now higher than ever. And so we’re looking at middle of August to kind of put this saga.
And the sense behind us, at least the first phase of it as I outlined it, which is loan or no loan.
[00:31:48] Luke: All right, good stuff. Well, also we can check in on that next episode then. That’d be great. Hey, you know, so while you were, um, battling with your emotions on that flight, wondering what had happened, we talk about Manage your emotions and how that’s such a critical part of being a good investor.
Um, but I thought maybe it would be good to make it a bit more practical. And I thought I could share maybe some tactics, some stuff that I do, uh, like day to day. and year to year that actually help me manage my emotions. So should I share some of those? Maybe you could, uh, you could tell me which of these you do, if you’ve got any tactics yourself.
So, um, so I’ve kind of, I’ve grouped them up into kind of two sets. One which is about, literally about managing your emotions and how you think. And then the other one is about like mechanical stuff, what I do. Uh, to help me achieve that.
So, uh, first thing is, um, acknowledge your emotions, right? Don’t act on them, but remember, I mean, just internally, remember, um, But if you’re like a long way away from retirement and needing to actually spend the money in your portfolio, if stock prices go down, that’s to your advantage, right? Especially if the good quality companies are at a discount.
So that’s, that’s one thing I try and literally just remind myself, this is potentially good news, not bad news. Um, another sort of thing you can do to help you manage your emotions. It’s a basic one is do not invest with money you’re going to need in the next five years, because then. You’re just giving yourself like a torrid time because you’re like goddammit, like I told my wife we’re gonna move house or we’re gonna upgrade the car and uh, I need, I need this short report to not be true otherwise we’re selling the car and I’m buying like a skateboard.
Um, so don’t do that. Uh, and then… If you’re really struggling with all that stuff and the volatility like hurts, sounds dumb, but it can really help to stop checking your portfolio. Like I, I am literally addicted multiple times a day on my phone. Ooh, this is up. This is down. Don’t do that. Do what I say, not what I do.
[00:33:55] Krzysztof: Yeah.
[00:33:55] Luke: But because when things are bad, you’re just magnifying, you’re making it hard for yourself. But here’s, here’s now some actual tactics, actual things I do that help me achieve some of that stuff. Um, so first thing I literally do on my phone, I have just in Google keep for me, but any to do list, or, you know, it could be on a bit of paper.
Um, I have my investment to do list. And if I’m ever thinking about. buying something, selling something, adding, trimming, you know, doing something in my portfolio, I’ll stick it on my to do list as a thing I’m considering, and then I won’t do it, and I’ll try and force myself to leave it on the to do list for at least like a couple of weeks, a month, and then when I come back to it, if it still seems like a good idea, um, And I live my life by to do lists, so I’m like checking all of my to do’s multiple times a day and that’s how I try and be like super efficient with everything.
But uh, so it’s always there in the corner of my eye. Oh yeah, I’m thinking about buying puts on Lucid, that’s on my investment to do list right now. Someone inspired me to think about that like a month ago, and I haven’t done it yet because I want to let that go. bubble away for a bit.
Um, another tactic is, and I literally do this, I have an investment diary. So, uh, every so often I’ll just do like a little update for myself, what I’m thinking, what’s going on. Um, but if I make a trade as well, like that’s part of the diary, I try and record what’s my rationale for doing that thing.
So if something like sits on the to do list, eventually I decide to do it, I write down why I did it. And that’s really helpful if you saw my half million view Twitter post a few weeks ago, uh, that I pulled out of my investment diary going back like 20 years, uh, I had to fill in a few gaps because I wasn’t like super precise in the early days.
Um, but I’m able to look back and then basically improve my process. It’s just a good way of being very conscious about what you’re doing.
[00:35:50] Krzysztof: Are you, Luke, are you talking about an actual journal that’s pen and paper or computer?
[00:35:56] Luke: it on, I keep it in like Google Docs, uh, and also I actually keep it in my spreadsheet of trades. I have like a column in there which is my rationale. I consider that to be part of my diary. Just keeping track of what I’m, yeah, what my thinking is at a point in time. Uh, and then this, this one’s going to sound kind of dumbish, but, um, It’s really helped me.
So I was forced to do this because I used to work for a bank. I had a compliance department. If I wanted to do any trade, I would have to get approval from my line manager. And it was a really sort of tedious process. It took at least a day. So, um, and because someone else had to approve it. I was just conscious that, like, I don’t want to be doing like 20 trades a day because, like, the guys, the guy would be like, what the hell, like, you have a job to do.
It’s not, like, managing your portfolio. That’s not your job. So it forced me to be much more. considered about my trades and, uh, to, to force me to have like a 24 hour break before I could actually do something. So, you know, we, I haven’t got a compliance department now, but I do mostly, most of the time, Check in with my buddy Albert, trusted friend who understands this stuff.
You know, we chat about investing all the time. He’s got his own investing diary. We read each other’s, um, and he’s my artificial compliance team. I try and tell him just on WhatsApp, Hey, I’m, I’m planning to do this. What do you reckon? And I’ll try and explain my rationale, and then, uh, I’ll get just like a, a thumbs up or, you know, a pushback or some comment from him, generally, before I’ll act.
That’s quite helpful. Probably just a bit more like, uh, uh, bringing a third party into that to do list idea, forcing you to slow down and be a bit more deliberate. Um, yeah, so there’s some, there’s some tactics, probably a hundred other things, but that’s stuff I could think about today, as I was thinking about your own EOS dilemma.
[00:37:43] Krzysztof: Yeah, you know, that’s, that sounds great. You know what the common theme I heard amongst a lot of those was creating deliberate artificial space between decisions, which is exactly what you do in meditation. Um, the, the art of witnessing what’s arising without immediate reactivity. I think that’s what was tragic in the, I keep using that word well, unfortunate about the EO, my EO situation is that that was the element that was the, uh, the thing that was taken away from me in that particular context, like the, you have to make a decision now because you don’t have this time.
And that’s why I feel so terrible. But all these, uh, everything you’ve said, it sounds really wise.
[00:38:32] Luke: Do you, uh, do you do any of that stuff? Have you got any of your own tactics you employ to try and help you manage your emotions?
[00:38:38] Krzysztof: No, I think, uh, maybe I’m over exaggerating my own ability, uh, which is a common bias, you know, you think you’re better, you know, more than you do, or you think you’re more in control than you actually are. I think I’ve talked myself into… saying, like, that I don’t do things emotionally, but I know that’s not true.
If, if, you know, the, the objective data were, were to be read out, so you might be inspiring me to start the journal process. or maybe one of these, um, accountability relationships that you, you talk about.
[00:39:17] Luke: I’m always happy to, uh, to be the person who signs off informally when you’re about to double your EOS position.
[00:39:24] Krzysztof: Oh, so, so you could be my Albert.
[00:39:27] Luke: I’m going to say no most of the time. Compliance says
[00:39:30] Krzysztof: yeah, yeah, so wait, so what do I do? Do I then fire you or do I like, you know, actually that reminds me, have you seen, uh, the comedy special with John Mulaney, uh, baby J
it’s, it’s, it’s really good. It’s also, uh, quite poignant. The whole thing is about his actual rehab experience.
Uh, he was very addicted to drugs and his friends staged an intervention. It’s a, it’s a really good, uh, good comedy routine. But what’s funny, uh, I’ll, I’ll spoil it a little bit. Uh, he, his delivery is of course much better, but he knew that because of his addiction, he could not trust himself with his own finances.
So he set up a relationship with a professional. I don’t know what the, what the right word is, um, um, not financier, but, uh, I don’t know, somebody that had access to his money. And so therefore he couldn’t access money. when he wanted to so he had to circumvent his own his own and he had to find a way of you know stealing from himself which but you know humans you know like what are you gonna do and it’s a good story check it out so
[00:40:52] Luke: I shall do.
[00:40:53] Krzysztof: right i’ll hire you luke but uh Eat it
[00:40:57] Luke: But I’ve got to approve everything, okay. But at least I’ll force you to explain everything. How’s that?
[00:41:03] Krzysztof: Right, that sounds good.
[00:41:05] Luke: All right. So, uh, so you ready to explain something else? You want to play the two truths and a lie game before we wrap up today’s episode?
[00:41:12] Krzysztof: Let’s do it. Uh
[00:41:13] Luke: Okay. Now, uh, you’ll find this super easy because at the episode you said you’re a technical trading guru and you’ve been doing this stuff for months and you know all of the lingo.
So here we go. Let’s
[00:41:25] Krzysztof: is that what that said? Is that, is that, are those my exact words? Okay. Oh dear.
[00:41:30] Luke: Yeah. Yeah. Okay. Okay, Christoph. Christoph, here are three technical trading terms that indicate the price of the stock is expected to rise in the near future. One of these is a lie, right? A pennant following a strong upward move in the stock price is an indicator that the price is going to rise in the future.
[00:41:55] Krzysztof: A pennant.
[00:41:57] Luke: Pennant, following a strong upward move in the stock price. Hammer candlesticks
[00:42:05] Krzysztof: Mm hmm.
[00:42:05] Luke: indicate that the stock price is going to move upwards in the future. And an upward flag indicates that stock prices are going to increase in the future. One of those is a lie.
[00:42:18] Krzysztof: The second one is a lie.
[00:42:19] Luke: Hammer candlesticks, you believe, is an indicator that the stock price is going down.
[00:42:23] Krzysztof: Yes.
[00:42:25] Luke: Good. Yes. Yes, I got in. Last I got in. So you were correct to observe that a pennant following a strong upward move. I’m, I’m saying all of this in my like magician voice because this, I was reading this gobbledygook. This is
still such garbage, right? You can prove otherwise to me when you do your six month experiment.
A pennant following a strong upward move. is after a period of consolidation, uh, creates sharp converging lines, and then we’re going to get a breakout in the same direction. So that was correctly an upwards move. Um, A hammer candlesticks when a long shadow, it’s so ridiculous, when a long shadow extends down from a small body at the top of a candlestick.
This is a bullish pin bar, also known as a hammer candlestick. The logic is that the price was rejected the long shadow end of the candlestick, suggesting the market will continue moving upwards away from it. Does that mean anything to you? Bloody mysticism to me.
[00:43:32] Krzysztof: does. I picked that one because I do know what a hammer looks like. So on the chart, you have to imagine what we’re talking about is. There’s a, uh, the actual close open and close creates a bar that is wide, like imagine a spreadsheet with a natural colored bar, but the inner day movements, you’ll see a thin line that represent just how high and low.
the price has gone during the middle of the day. So a hammer looks like a thin line at the bottom with the heavy, uh, thick line on top. Uh, I think I, uh, I might have confused myself with, uh, inverting it somehow. Logically, I was thinking of it. You have to think of it visually. If you think of a hammer, it looks strong on top and sort of weak on the bottom.
So that would be a bullish indicator. Why I said that’s the lie is, is, uh,
[00:44:35] Luke: Don’t worry, I’ll take it, I’ll take the, I’ll take the win anyway. And to close out the, uh, the abracadabras of technical trading, upward flags are composed of parallel trend lines that buck the larger trend. Flags that slope upwards appear in a downward trending market.
I hope this is going to be very helpful for you when you start your experiment. Look for those hammers. Be careful of the hammers. Yeah.
[00:45:03] Krzysztof: All right.
[00:45:04] Luke: All right.
[00:45:05] Krzysztof: so I guess that’s a, what, that’s a wrap for today, yeah?
[00:45:09] Luke: That is, hopefully your EOS position doesn’t wipe you out. I didn’t ask you in the recording, I might ask you when we stop the recorder, whether you did actually do some crazy action in the few seconds before the Wi Fi died, but, uh, Keep, keep that stuff together.
[00:45:24] Krzysztof: Okay, yes sir, I’ll hire you, yeah, I’ll hire you, as my compliance officer and I’ll give you, I’ll give you the deets, the nitty gritty.
[00:45:33] Luke: Great stuff. Well, you’ve been listening to No Limit with Christophe and Luke. I hope it was a fun discussion. If you got some value out of today or you just enjoyed the conversation generally, do us a favor and forward it to a friend. Otherwise, I’ll see you in two weeks time.
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