This post was part of a thread on SIGNAL VERSUS NOISE, on X.
In it, I discuss “Return on Time” for an analyst , Navigating FinTwit, figuring out WHAT MATTERS…critical/independent thinking…predictive power, sample size, macro considerations, frameworks, and mental models.
(1/12) INTRO/FOLLOW-UP
“Success is a poison that should only be taken late in life and then only in small doses.” Anthony Trollope
there’s a few things I glossed over in the last thread…for reference, all prior mkt threads and longform are here in the Highlights tab or on my Muckrack page.
The one thing I kept taped to my desk at every job was Mauboussin’s book of base rates, but I’d also add that a list of cognitive biases will serve you well…I’m not sure if there’s one list that I’d recommend in particular (there’s tons on Google Images) but these affect investors at all levels of the game and need to be mastered.
Two examples of biases from last thread that I should’ve labeled:
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1. “For any position, there exists some fact X that would invalidate your thesis and lead you to sell. This should ideally be planned for in advance (“pre-mortem”). There is also some other fact Y, that you didn’t see coming…it couldn’t have planned for because the future is unpredictable, and yet this fact ALSO invalidates your thesis. Thus, you should sell.”
This is CONFIRMATION BIAS. The brain filters all incoming info in a way that conforms to your priors. The point of this statement was that on any given day, X could arrive or Y could arrive, and if they do, you sell and don’t look back. Most people are trapped in confirmation bias and don’t operate this way – step outside yourself, view the game as the omniscient narrator.
2. “I think about something like TSLA ten years ago…smart fundamental guys short. But just watching price action, it shook off bad news over and over and over, marched higher, traded well in tough tapes. If you were to ask a PM to step outside himself, and say… “just based on newsflow, price action, reaction to newsflow…which way is this stock going?” They’d tell you “absolutely no question – this stock is going much higher.”
That’s also confirmation bias to a degree, but it’s ENDOWMENT BIAS – thinking of a position differently because you own it / P&L is attached – and that creates cognitive dissonance.
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The correct mindset is that each morning, if you wouldn’t recreate your portfolio exactly as it is (enter each position at current price), you need to cut. The pushback is “taxes” but in L/S there are no tax considerations, everything is short-term and you are expected thru portfolio turnover to overcome these tax disadvantages, hence the high fees. This was discussed in the Lee Ainslie “no holds” intvw (check my homepage https://gregoryblotnick.com)
(2/12) Return on Time / “DOES THIS MATTER?”
Return on Time is one of the most important metrics for an analyst that no one talks about – how you deal with the firehose of information each day and develop pattern recognition as to WHAT REALLY MATTERS.
Great pm I worked for asked this literally 100x a day, especially in pre-market – “DOES THIS MATTER?”
Newsflow, geopolitics, bank upgrades/downgrades, 8-Ks, 3P channel checks, domestic or global econ data…the list is endless, and the overwhelming majority of the time, the answer is “no.” Doesn’t matter.
There is an art to figuring out what matters, although I think the only true solution is years, reps, experience, staring at the damn tape forever and watching what actually moves markets.
Whatever is in WSJ/FT or on CNBC is usually yesterday’s news, or even if its from earlier today, its hours old and thus priced in, and keeps you looking backwards.
And the same goes for Twitter…
(3/12) SIGNAL VS NOISE
One man’s opinion on twtr, having been on and off here since 2012 ish…It’s noise.
There is no signal…Twitter isn’t really representative of consensus, nor is it a contra-indicator. I’ve gone back and forth over this, used it as consensus, used it as counter-consensus, and in hindsight I think those were all wasted hours.
I see many people justify the time spent on here (also known as “social media addiction”) as, well, I’m gauging sentiment…but I would be very careful if this is how you have it embedded in your mind. Be real with yourself. If you are dumping 3-6 hours into this platform each day, what is your Return on Time, not just absolute but relative (vs reading books, doing real work/primary rsch etc)
Turn on Screen Time or just go to Settings -> Battery and you can see your daily X use. Don’t make excuses…you can be dishonest with the world if you want, you can be dishonest with me, none of that is my business… all I ask is that you BE HONEST WITH YOURSELF.
There are no shortcuts…a lot of the stuff from last post, whether it be technicals or the fluffy arcana shit (sentiment etc)…the way I’d phrase it, is that people all want “cheap entry” to the game. There just isn’t any…you need to understand fundamentals and that takes 5-10 years. Otherwise, all the commentary and airy-fairy twtr “analysis” has zero spine to it.
(4/12) SIGNAL VS NOISE
You can sit around all day on here and weigh shit like “everyone on here is bullish…posting P&L snapshots” etc etc…and you can lie to yourself and say its “work.”
Can you quantify the impact that this “work” has had?…has it translated on a sustainable/repeatable basis into positive P&L? If you can’t quantify it like that, or if the impact is murky, it probably doesn’t qualify as “sound process” and is just a specious line of reasoning. Truth is that if you’re scrolling twtr, by definition, you are not doing work. You’d be better off doing fundamental work or grinding stock charts, and if your mileage varies, great, I’m just one man sounding off.
Even if you point to famous money managers making a call where they appear flippant, like Tepper with his “my hedge is I don’t care,” there’s still decades of fundamental eq experience + teams of fundamental analysts supporting that view…ditto Druck. Same for the idea of “Buffett doesn’t build models” – theyre in his head dude…the man watched AAPL trade, every day, for like 30 years, read every filing, before he bought stock. The DCF is in his head. You aren’t Buffett, you’re not built like that…do the work.
I say all of this because it’s very common to see armchair analysis and lazy thinking as a proxy for rsch or gauging consensus; I highly doubt your feed is a valid gauge of consensus. As in prior tweets, the people who actually move markets, they aren’t on here talking their book. They’re lurking. Even the guys with their real name on here who do move markets, they’re tweeting about social issues, not making mkt calls. Again, just my opinion, but the accounts on here aren’t consensus or counter, they’re just noise…study price action, study charts, that’s where the truth (or the closest thing to it) can be found.
(5/12) CRITICAL THINKING
Here is the real danger of spending too much time online…
Speaking from my perch…the two interests I have, trading markets and writing, where I have shown even a faint glimmer of promise…both require independent thought. I’m maybe a 4/10 at markets, a 3/10 at writing, but am a devoted student of the game in both and have a decent amt of experience…the one thing I know is that to reach the level I want to reach, I need to protect my CRITICAL THINKING ABILITY. This means reading deep and wide – I post recent excerpts on my Instagram page.
In markets, conviction is a function of critical/independent thought – I think back to a TMT PM I knew who had a giant position in ADBE a decade ago, when it was multi-bagging…and he always just put it straight, like, “I am so far ahead of consensus for FY2/FY3 that it’s not even funny.” Printed hundreds of m’s in P&L in that name alone. But that’s critical/independent thinking, and the skill is in recognizing how rare those opportunities are, sizing them accordingly, and pressing your winners.
For thinking critically and independently, the mind is fertile soil. If you want to change the way you think, you have to plant the right seeds. People are thoughtful about what they eat, but INCREDIBLY careless about what enters their mind.
The problem with the internet/X/TV etc, when used thoughtlessly, is that it DESTROYS independent thought, destroys your ability to think critically. Some of this is by design, study history and you see that the “ruling class,” the establishment, they don’t really want independent thinkers…they want sheep. Trillions of dollars are at work on X and elsewhere, attempting to influence public opinion, brainwash you, its a war of information, etc…cue “always has been” astronaut.
I only say this because “X = free speech” is seductive and commonplace as a party line, yet at the same time, X is far more damaging than a Fox/CNN where you KNOW there’s a bias…here, the biases are hidden from you, and so your guard is down…that’s the danger.
(6/12) PROTECTING CRITICAL THOUGHT
I’ll put it like this…
Twitter is the town square. No different than any town square in history…you have mobs, cults, evangelists, pitchforks and torches, preachers and prophets, crucifixions, merchants, performers, revolutionaries…it’s all here, just in different form.
You can walk by and peek your head in, and get a feel for the zeitgeist…see what people are talking about, get a sense of where public opinion stands.
But if you walk into the crowd, and you stay too long, you become the crowd.
For some, this is welcome and refreshing…the feeling of belonging… but if your goal is to protect your independent/critical thinking capabilities, you have to stay the FUCK out of the town square.
And so along those lines…I really try and limit my time on this app, like, 60 mins a day, tops, and follow the Rogan maxim of “post and ghost.” Log on, post some shit with substance to it, and get the fuck outta here. I mentally imagine myself putting on a hazmat suit before going to the feed. As far as the accounts on here I’m checking for, all guys on here with their real name, I can check them 1x a week and scroll their feed and see what I missed…doesn’t need to be a daily thing.
On the weekends in particular, I stay off X and try to stay off my phone in general…touch grass, God, family, reading and writing books. I’ll 100% catch heat for this next photo because it’s hilarious, but here’s what I do…sharing in case it helps anyone.
Drag X to its own folder, on a separate page, and put Kindle/Apple Books in that folder. Title the folder “READ BOOKS.”
Now, for you to get there, you’ve added so much friction that it should help break the habit…a page scroll, a folder click stating “READ BOOKS,” then you have another fork staring you in the face…”which way, western man”…books or slop…and if you STILL click X, you gotta be real with yourself, my brother. Your discipline isn’t where it needs to be.
If you can’t be disciplined on little shit like that, how can you expect to be disciplined on anything?
For part two of this, visit my Medium page.
