11.7.2020: My fifth and latest post on Sijoitustieto, plus a response to a response
A little update in honor of a rainy day. Looking ahead at the future of this blog, I’d like to ask out loud (and hope for an answer): does anyone in this world actually want this blog to continue? For me, the original purpose of the blog was a) to structure and improve my own thinking, and b) to generate discussion, thereby improving both my own and others’ thinking. I’ve found more than enough ways to structure and improve my own thinking outside of this blog, to the point where the time spent writing posts is completely out of proportion to the value gained from it. No discussion has emerged here, so my own thinking—or anyone else’s—has hardly improved.
So, if anyone is actually interested in the topics I’ve been rambling about, please share your thoughts, or else I see no reason to keep publishing texts that provide me more value with less effort if kept private .
Investment strategy and why people understand very little about strategy (or, on average, about anything else):
What is human action at its core?
As I’ve outlined earlier in my blog, thinking, ideas, learning, and creativity are pretty much at the core of all human activity, simply because:
- All our actions are based on unconscious or conscious thinking (brain processing in the weirdest possible ways).
- Our brains process ideas, which are abstract constructs built piece by piece through cognitive work and turning ideas over. Einstein’s concept of the theory of relativity required a few other foundational ideas before everything suddenly clicked into place.
- Learning is the working through of new ideas, continuous processing, and transferring between working memory and long-term memory, so that as much of the processed ideas as possible is stored in long-term memory in a structured, durable form, ready to be used in developing new ideas.
- Creativity is essentially just an extended version of learning: based on old ideas, we generate a new idea in our brain, which other people then judge as creative or not. Einstein came up with a revolutionary theory, but in a way, he just learned one new thing.
As I’ve shouted into the void on my blog before (with no one shouting back), far too many investors don’t understand these concepts. Consequently, they jump into stock investing after studying a few financial ratios—in my opinion, a terrible long-term investment strategy and a poor way to start structuring one’s thinking.
On average, people also don’t understand the concept of ideas and creativity well enough to, say, smoothly take ideas from one context and copy-paste them into another—while onlookers watch in awe, thinking: “Wow, that’s so creative! That person must be so creative, I could never do that!” The point I’m trying to make here is that creativity is needlessly mystified. It’s a funny coincidence that someone coined the communicative concept of the “creative type” just to explain why certain people supposedly can be creative while others shouldn’t even try.
Similar delusions surround “intelligence” and “status,” simply because people unfortunately never even bother to Google what these concepts that constantly affect their lives actually mean. People remain stuck at a level where they confuse intelligence with status. They view someone as somehow supremely “intelligent” or some kind of “superhuman” merely because, as the outcome of some function, they ended up in a role that a particular social group deems high-status and therefore valuable. In investing, I think Wall Street is a prime example of this: “Well, those folks on Wall Street know what they’re doing, and markets are always efficient. There’s an endless supply of Harvard grads and raw brainpower analyzing these things better than I ever could, so why should I even try to beat the index?”
What are stocks or business activities at their core?
If we look deeply into stocks, on the one hand, they are purely objective, utterly worthless ideas—honestly, one of capitalism’s finest and, IMO, most morally bankrupt concepts. On the other hand, they are an entirely speculative construct accepted by a broad social consensus, and they are somehow linked in the real world to the idea of a publicly traded company. And a public company, in turn, is also just an idea—an idea that enough people believe can interactively become reality. And when it comes to public companies, the fundamental layers are:
- The craziest group of people (i.e., management and employees), who believe in the idea of that public company the most.
- The next craziest group (i.e., customers), who believe in the public company’s idea enough to trade some of their own value, imagining that what the company provides in the transaction (= product, service) holds more value than their own original asset (e.g., money).
- The least crazy are the capitalist pigs putting value (= money) into circulation so that those crazier customer segments can worship their religion and perform their semi-deranged rituals.
I won’t delve any deeper into the concepts of value or exchange here, but based on those three groups, this is how most business operates: customers trade with corporate employees for something both consider valuable; corporate employees scurry around madly trying to execute those trades better than the lunatics believing in a competing company (= religion); and along the way, they skim off enough value to return the excess to the capitalist pigs—who already held the most value to begin with and are laughing all the way to the bank.
I’ll keep these musings brief for now, as I see little point in thinking out loud publicly if hardly anyone gets anything out of it.
What is strategy at its core?
Strategy is fundamentally about competing with another person and trying to do things better than they do across the spectrum I mentioned in the section “What is human action at its core?”: idea processing → thinking → learning → creativity → action. In my view, the exact same applies to chess, golf, and investing alike.
I think Jens had a great point on his blog a while back that helped me organize my own ideas and thinking better, framing investing through a familiar lens. A great example of learning and ideas: Jens modeled investing in the same way as online poker. Both are competitions against others, where you make money by thinking, making decisions, and executing better than your direct opponents. In poker, you can choose your opponents quite concretely, whereas in investing, that choice exists, but in a somewhat more abstract form. If your only goal is to make money as quickly as possible, you should be asking yourself: a) Can I win more money by playing against my current opponents, or b) Are there opponents elsewhere against whom I could win more money faster? and c) How do I extract the maximum amount of money from the opponents I’ve chosen?
In other words, do you stay at your current table full of poker pros (= which could roughly correspond to institutional investors, though not necessarily), or do you move around midnight to the table where rich, drunk, and arrogant businessmen have just arrived with glitter on their ties (= e.g., Finnish retail investors making investment decisions based on pure emotion and Kauppalehti headlines)?
Personally, I don’t believe in “making money as fast as possible” as an intrinsic value—I simply see no personal worth in it. I believe one should organize their human actions and choose their competitors such that they enjoy the competition, maximize their learning through it, and thereby ensure that, over the long run, they will beat most other competitors.
Most people think far too short-term. They don’t invest in enjoyment (which, in my view, is fundamentally one of life’s greatest purposes) or in learning (thus losing in the long run to those who continuously refine their thinking and actions); instead, they just try to cash out as fast as possible. Did someone say quarterly capitalism?
My investment strategy in a nutshell
Now, after a few segues, we finally arrive at the core topic: my investment strategy, which I’ve been meaning to finalize and post here under social accountability for quite some time. For a while, I debated whether I should even publish it, since arguably rule number one of strategy is that you don’t reveal it to competitors who could exploit that information to gain a competitive edge. Then I realized: a) my blog has a minimal readership; b) even those few readers aren’t truly my competitors, even if Finnish retail or institutional investors were; and c) my “strategy” likely holds zero value or competitive advantage for anyone else anyway. I see the competition more along the lines of Finland vs. the rest of the world, because I genuinely believe that, driven by healthy Finnish values, it would benefit the entire world if we had as much capital—and consequently power—concentrated here as possible. Distributed as evenly as possible, of course, rather than hoarded by a handful of capitalist pigs.
Alright, down to business:
Vision:
To be financially independent within five years and a significantly wiser, better, and kinder person than I am today—and consequently a better investor. From there, let the compound effect run full throttle until, within 20 years, I rank among Finland’s best, most influential, and still kindest investors.
Mission:
To enjoy life and continuously develop my ideas, thinking, learning, and creativity, compounding capital through investing, decisively beating the competition and averages in thinking, execution, and the resulting returns.
Culture:
As capital scales to truly significant amounts and begins to wield real impact in the world, I will increasingly incorporate my own strong principles and values to guide my investing. Right now, there’s no need to focus on that; the focus is purely on growing my capital and influence. Investing will fit around the rest of my life, but still remain a semi-active part of it. That is, I aim to extract as many lessons and ideas as possible from everyday life and apply them to investing, without spending too much effort studying investing itself. I don’t find that particularly interesting, nor is it a source of sustainable competitive advantage if all you know is the same playbook as half-wit sub-optimizers chasing money on Wall Street.
Investment Strategy:
I aim to maximize capital both over the long run and the short run, with the latter—through a well-executed strategy—accelerating the path to the former. My decisive strategic and competitive advantages are:
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My own culture of continuous enjoyment and development, which compounds into exponentially better thinking and a better life over the long term.
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An inherently strong culture, set of values, and principles that will ultimately outlast and override short-sighted competitors.
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High self-esteem and confidence, fostering the ability to think differently, take risks, and tolerate uncertainty better than the competition. This is pretty core to investing, where the sheep blindly following the herd get sheared the worst, and IMO, those who back their strong convictions most boldly win the biggest, if not the most frequently.
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All other factors that set me apart from the crowd regarding cognitive ability, information processing, learning, and creativity. These represent the real core of the strategy—true VRIO material.
Without getting into full OKR territory, a few targets for the coming year could revolve around iterating and validating the long-term strategy, and achieving significantly above-average short- and long-term returns based on this highly exceptional investment environment, which I believe most people still fail to grasp over both time horizons. Right now, my approach is to deploy fairly aggressive risk and leverage into companies that stand to benefit significantly from the impacts of COVID-19, both short- and long-term. Those benefits should ideally be recognized and accepted by the market to a small degree already, providing some hedge against the risk of another massive crash. On the other hand, I operate independently and swiftly; if a crash unfolds, I’m ready to make decisive tactical moves rather than following the herd into passive index investing and mindless “buy the dip” mentalities.
Hopefully, someone managed to read through most of this and felt at least a small spark intellectually or emotionally. At this stage, stranded in splendid isolation within the blogosphere, it would already be a positive sign if someone got pissed off enough by my rambling garbage here to come talk shit and start a little flame war.
User Artsipappa commented:
Pretty good read, definitely keep going. Have you made your vision and mission realistic? Are they actually achievable? Financially independent in 5 years. I assume you already have a pretty massive portfolio? What kind of annual return percentages are you targeting?
Investiget Group’s reply:
Hi Artsipappa, thanks for the message! In my view, a vision doesn’t need to be super realistic; it should be super optimistic, ambitious, and an aspirational dream that provides stronger motivation to grind toward. The mission, on the other hand, is extremely realistic and describes the present moment and the reasons why I invest in the first place.
I definitely don’t have a massive portfolio yet, and financial independence is a relative concept anyway: for one person, a €10k yield is plenty to live on in some cheap, warm country, while someone else has inflated their standard of living so absurdly that they require a multi-million-euro fortune. For me, it’s enough to have the financial assurance that I can spend my time exactly how I want—without anyone having financial power over me or being stuck in wage slavery. In that sense, I’m already in a fortunate position, spending most of my time in ways I truly enjoy.
At this stage, aiming for or forecasting a specific return percentage is precisely the kind of positivist nonsense that the finance and business world is unfortunately packed with. Let’s see how the economy, the stock market, and others fare on average over the year, and aim to beat the competition across both the short and long run.
User Artsipappa commented:
If you aren’t targeting specific return percentages, how can you set a goal of ‘financially independent within 5 years’? What I mean is, usually when people set these kinds of goals—say you have a €250,000 portfolio and need €500k to consider yourself financially independent and live off yields in the future—with a 250k portfolio, you need roughly a 15% average return. If you fall behind, that required percentage for subsequent years naturally climbs quite significantly.
Though €500k is hardly enough for that nowadays, given how hard it is to get any sort of “guaranteed” yield on capital.
Investiget Group’s reply:
Hi again, Artsipappa—great to finally have some actual two-way dialogue going!
This touches on a fundamental problem in human communication: people assume that when someone else uses the word “vision,” it carries the exact same meaning they hold in their own head. This is why I encourage people as much as possible to Google the mutually agreed definitions of words (at least for words they use frequently or fundamental concepts), which academic literature and online dictionaries are full of. Personally, I like an explanation of vision popular in academic literature that goes roughly like this: “Vision explains what the firm wants to be in future and the level it wants to attain and is the communication of dream concerning the future that is desired.”
In short: why modern quarterly capitalism sucks
Here are the key points:
A) A vision does not have the same meaning as a target, and even the meaning of a target isn’t entirely cut-and-dried, considering English uses terms like goal, objective, or end, all of which imply slightly different things.
B) You’re slipping into overly objective thinking here and perhaps didn’t quite catch my drift when I said financial independence is relative. Re-read my previous message and try to truly understand it. You can find more food for thought to develop your thinking along the objectivity vs. interactivity vs. subjectivity axis here: Relativism - Wikipedia Postmodern philosophy - Wikipedia
C) It’s impossible for me to know what financial independence will mean for me personally five years from now: it could mean needing a €5M net worth to sustain a standard of living inflated by consumerism off investment income (my worst nightmare), or it could mean living cost-free in a monastery, feeling no need for material possessions whatsoever—in which case I would also be financially independent.
D) The issue with return percentages as targets is that they encourage sub-optimization instead of focusing my thinking and actions where they belong: on my long-term vision. A year is ultimately a very short timeframe. If I set a target of, say, a 30% annual return, I’ll end up sweating bullets toward the end of the year chasing that metric, making poor decisions relative to my long-term goals. In some years, hitting a 30% return might be impossible due to external macroeconomic factors; in other years, 30% might be so laughably easy that it provides no motivation or meaningful direction.
This is also my biggest critique of quarterly capitalism. Companies (or rather, the people within them—companies are merely an invented religion/construct, not real entities, and therefore make no decisions of their own) are driven to make decisions that are utterly foolish and destructive in the long run, simply to appease capitalist pigs and hit their short-term return expectations, rather than striving to create holistic value for all stakeholders on an ever-increasing, long-term scale. In my view, monetary value doesn’t even exist objectively, and companies (as fabricated religions) certainly cannot possess it intrinsically; value is purely interactive, experienced subjectively by humans. Money has only functional utility as a medium of exchange, and there is a finite supply of it in the world. It is completely idiotic for companies to focus on competing over a finite pool of something with no intrinsic value, when they could stop playing zero-sum games, stop immiserating people, and focus on expanding the total value humans experience in the world. Capitalism in its current form is an exceptionally stupid, poorly designed, and antiquated religion. I view it as comparable to people still believing in ancient deities today—except traditional religions at least teach decent values and bring happiness to people’s lives. If someone in the 2020s is considered eccentric for believing in a religion founded two thousand years ago, why isn’t someone considered just as eccentric for adhering to a long-obsolete economic dogma?
In this global climate, we no longer need capitalism in its current iteration, but rather some form of “happytalism,” where the ultimate objective function being optimized is the minimization of human misery and the maximization of well-being and happiness across humanity.
If one wants to create new ideas (in their own head or in their own culture), one must be willing to be wrong surprisingly often.
