Category: Theory And Training
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IT’S ALL MONTE CARLO
In the original Market Wizards, commodities trader Larry Hite talked about four types of bets: Good Bets, Bad Bets, Winning Bets, and Losing Bets.Hite’s point was that a winning bet is not always a good one, and a losing bet is not always a bad one. We can see why through the lens of Expected…
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Working Capital: What It Is & Why It Matters
Working capital is your current assets minus current liabilities (CA – CL). Current assets are things like: Cash in the bank Accounts receivables (money that needs collecting) Inventory Investments Current liabilities are things like: Accounts payable (bills you need to pay) Short-term debt Current portion of long-term debt Unearned revenue outstanding (similar to A/R) Apple’s (AAPL)…
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The Law of Returns and How To Exploit it
Vilfredo Pareto was an Italian economist born in the mid-19th century who made an interesting discovery about land ownership in Italy.While surveying his Italian city he found that 80% of the land was owned by only 20% of the population. After further inquiry, he found that this 80/20 distribution was prevalent in other cities as…
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Our Framework For Analyzing Gold
In March 2019, we pointed out the incredibly tight compression regime in gold, writing: Volatility in gold as measured by the width of its monthly Bollinger Band is at levels last seen over 17-years ago, in 02’ right before the barbarous relic began its decade-plus run… Markets tend to work like rubber bands. The tighter…
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How To Read Market Sentiment
On being a contrarian from Michael Lewis’ Liar’s Poker: Everyone wants to be, but no one is, for the sad reason that most investors are scared of looking foolish. Investors do not fear losing money as much as they fear solitude, by which I mean taking risks that others avoid. When they are caught losing…
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Thinking In Essentials
The other day I shared my thoughts on E.O. Wilson’s quote, you know the one where he writes “We are drowning in information while starving for wisdom. The world henceforth will be run by synthesizers, people able to put together the right information at the right time, think critically about it, and make important choices…
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Synthesizers Win
“We are drowning in information, while starving for wisdom. The world henceforth will be run by synthesizers, people able to put together the right information at the right time, think critically about it, and make important choices wisely.”- Edward O. WilsonIt is mind-blowing to think about how much information is available now versus 20 years…
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The Narrative Pendulum
via GIPHY Fractalized sine waves are encoded into the very fabric of our reality. Like the Golden Ratio and the second law of thermodynamics, they appear throughout the universe on nearly every level of scale and function. It’s no surprise then that they underlie the structure of our market. This makes intuitive sense because a…
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Sifting For Asymmetry
The market moves off stories. These stories are based on both the underlying fundamentals and people’s perceptions of the underlying fundamentals.Our job as traders isn’t to try and predict where the market is going (that’s a fool’s game). Rather, it’s to identify areas of potential asymmetry.We like asymmetric opportunities as traders because they allow us…
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The Perils of Too Much Information
The other day I was flipping through Tim Ferriss’ book “Tribe of Mentors” and came across this great section from Adam Robinson. For those of you not familiar with Adam, he’s a rated chess master, founder of the Princeton Review, and now a global macro advisor to some of the world’s most successful hedge funds…