Trading with Focus – A pirate shortage caused global warming
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One Saturday morning I was feeling quite spritely (for some strange reason) when there was a knock at the door. Not desperate to get back to whatever chore was actually needing to be done, I was keen to engage with whomever it was that had come knocking – as friends don’t just ‘pop in’ as much as they used to before the invention of texting.
As half expected, some lovely young Christians were doing the rounds and they seemed to have a different spin than the norm, so I decided to find out more. And then to engage in a meaningful debate – as what I don’t want to do is close my mind to all the possibilities of the universe and then find my dead self sitting between Hitler and the guy that invented Reality TV, in eternal damnation.
The twist on their particular view was that in one or two phrases in the Bible they found that a female pronoun was used when referring to God, so therefore, there must be two Gods. Mr God, and Mrs God.
I was obviously keen to explore this logic. I’m well aware of the risks of ‘confirmation bias’ from my years of punting the market and a happy afterlife seems like something worth more to me than a few bucks.
The supporting evidence for this potentially religion-changing argument was but a few lines in a book, originally written well before modern science about events from at least 2000 years ago. It was then edited multiple times by often dubious authors with their own agendas, translated back and forth between various new languages (some long dead), and eventually into this modern version – that still has a lot of dated views, to say the least…
The likelihood of an actual God being either a man or a woman seems quite low to me, given the scale of the work that they are credited with, and as there is little proof of their existence apart from this book I was not totally sold on the strength of the argument. So I did not invest further in it.
But, if you have ever tried rationally debating with someone on Hotcopper you will understand that there is no point trying to change the minds of a true believer, so even after what I thought was a rational and respectful debate easily won, they left to tell the neighbours all about how they alone had proven that there was a Mrs God.
In the same way that Noah’s Ark was probably just severe regional flooding, and the author of that particular story just didn’t know that the world extended beyond the region they were born into, it is easy to get caught in ‘true-believer’ mode. And with shares that means you can lose a lot of money.
“I think that money is the root of all evil and I’ve seen it happen”. That quote can actually be attributed to Kato Kaelin (the weird Ken-doll guy that lived with OJ Simpson). And on the other hand, Mark Twain said, “The lack of money is the root of all evil”.
So which is it; having it or not having it? And which reference has more credibility?
First rule. Be careful about your own personal biases. Kato was no Twain. But that doesn’t mean he can’t paraphrase things that someone else said. Twain was also probably being pithy, as was his way as a satirist. So you would have also missed the context that he said it under.
But its easy to generalize that we mostly crave more money to scratch whatever primordial urge we carry around demanding that we keep the human race going by constantly getting more.
The invention of a car was amazing, but now it can’t just go from A to B if little Josie’s mum has a better one. An iPhone can’t possibly be good enough if it is more than a year old. You rarely see a billionaire that doesn’t want more and more, which is pretty weird when you think about it – because when I have more pizza than I could possibly eat I don’t crave more pizza…
So surely we can all agree that money makes us all a bit crazy. Or does it? Maybe we already were…
When investing and speculating in shares, it is literally all about access to large amounts of information and then using that information in a timely manner to form a basis for a rational decision – before the background information or the price changes again. So if you are buying or selling shares you need bulk amounts of information delivered in a consumable way, as quickly as possible, and as often as possible to you, wherever you happen to be.
There are certainly different ‘types’ of investors for which the depth and timeliness of information required will differ, but there is a lot of overlap in the process for investors and speculators. I would say that an investor is putting aside money so that they will have more of it in the future, whereas the speculator is looking to exploit the shorter-term gaps between the value of the investment and the price of the investment.
So a speculator might buy WES shares (for example) after a big sell-off because they believe them to be artificially cheap, and an investor might buy WES because they pay a better rate of return than cash. But even the investor will want to get a bargain as it improves the long-term rate of return of that asset, so even they speculate a fair bit. Otherwise it would literally sit in cash.
We are currently reviewing our marketing spiel, as we realised early that our platform design suits ‘serious, active traders’. This word ‘trader’ worries some people as you could imply that we could be adding to the gambling problems of society by targeting ‘traders’, when anyone that buys or sells is engaged in ‘trading’.
I agree that ‘trader’ has some negative connotations because of TV shows like ‘Billions’ and movies about Wall St, but there isn’t a snappy marketing word that I can think of that better personifies ‘someone who buys and sells shares using lots of live data delivered in an easy to consume way in order to gain an advantage over the long term’. Because a trader isn’t necessarily just an investor or a speculator, but a bit of both.
So while this is all rolling around in my head I noticed the hamster story. You know the one, where the hamster called Mr Goxx was trading crypto and outperformed the S&P for the year? It’s a doozy and good for a chuckle to see the little hamster office they set up, but to be honest we’ve had a groundhog picking the change of seasons for many years and an octopus correctly calling World Cup winners, so its no surprise that someone got a hamster to trade crypto – nor that it did well in the middle of an unprecedented global bullmarket in everything…
One of the things our platform has as a standard feature is high level technical charts. And sometimes people think our platform is therefore just for chartists. But my argument is that it has a lot of everything – for investors, speculators, people chasing low-brokerage, people that want to connect to Sharesight, people that want to do it all on mobile…so to focus on one feature is flawed logic. Charts are just historical prices in picture form.
The ‘rock in the road’ theory is where if you focus on a rock (in the road) when riding a bicycle you are more likely to hit that rock. And if you stare at charts long enough you could see patterns, as you are looking for patterns. It doesn’t mean you can’t make money only looking for and trading patterns one on chart, over one timeframe, but there are a lot of other reasons why you might ‘crash your bike’ if that is all you do. So I guess that’s why we have stop-loss orders.
Which brings me to pirates. And global warming.
This one is a doozy. Brought to light by the Church of the Flying Spaghetti Monster as part of their argument against teaching Bible verses instead of evolution in US schools, it is a good example of how weird correlations can exist. They make the point that the existence of a correlation is not sufficient to prove – or disprove – direct causality.
In other words, just because there is a correlation between the increase in global warming and the reduction in the number of pirates doesn’t mean one directly caused the other or that the link will continue, so more pirates will not (necessarily) reduce global warming.
But, also, it doesn’t mean that they weren’t both caused by the same ‘something else’ – probably in this case it’s along the lines of the industrial revolution and the move towards a more global economy…but that is also just speculation on my part. And so I wouldn’t have enough evidence to open a new piracy business to try and reduce the rate at which the world heats up. I just don’t have enough data.
Another more topical example is the price of lithium, and the typically irrational ‘everyone back to this side of the boat’ that saw ‘everything lithium’ have a massive rally. There is no doubt that the massive lithium price rally has occurred, and the likelihood of more demand for lithium in the future is also high.
But I also know that with a higher lithium price there will be more exploration for lithium, and that lithium isn’t all that hard to find. So with more exploration comes more exploration success comes more supply, and that means the price won’t go up for ever. Eventually in some cases there will even be periods of over-supply regardless of the demand – just ask iron ore.
Also, some lithium miners are in production and will be selling it right now at higher prices, but some may have had to ‘hedge’ production by locking in supply contracts at set prices and won’t benefit as much from the higher price. And some lithium stocks aren’t even in production yet. So there are a lot of uncertainties about whether they will ever get there, what the cost will be to get into production at that point and whether there will be massive labour shortages and cost-overruns by the time that they do, ruining their profit margin.
So ignoring the past mining cycles or the differences between the stage of development of different companies, and only looking at the correlation in price between all companies within that sector, for a short period of time, it would be easy to think that you should just buy lithium stocks as an investor or a speculator.
But with hamsters punting crypto and winning, a global bullmarket during a pandemic, a global obsession with the rate of growth of every investible asset, an incredibly low rate of interest on cash globally, and a huge number of inexperienced investors using nothing but a line chart and a buy/sell price (and usually nothing else but the ‘vibe’ from the market media) there will continue to be a lot of strange correlations. Especially over shorter periods of time.
Following them blindly probably means you aren’t a speculator, or an investor. That strategy probably falls into the category of gambler, and I can’t think of one truly wealthy person who made their wealth through blatant gambling without having access to all of the information that they could possibly gather. And we would much prefer you stick around as a client for a long time.
In these environments you need more data, not less. And over longer periods of time. You need to question more than just the latest direction, or the technical trends, or what newspapers and people in chatrooms are saying. As both a speculator AND an investor you may have been having a ball, but it has been easy – and even a hamster can do well in a bullmarket.
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This article was developed in collaboration with Marketech Stockbroking Pty Ltd (AFSL 486148), a Stockhead advertiser at the time of publishing. This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.