Relevant Randomness
“We are far too willing to reject the belief that much of what we see in life is random.”- Daniel Kahneman.
Highlights
Slow down mentally to think through fast-moving problems.
The majority of daily and intra-day price movement within markets is just randomness. Not every “stock/ market move” has to be “fundamental”.
Writing about selective topics and feeling passionate about relevant subjects.
Happy Friday!
This past week marks the one-year anniversary of the inception of, “Take A Breath.....Annnnnd Think, Friday Reading” series. I am happy to say that I have made it this far and have continued to write out my thoughts for almost all weeks over the last year. There has been a total of 46 publications (26 on this Substack and another 20 that were sent before I created this page). Writing can be therapeutic and a way to gather one’s ideas. It is becoming a lost art of mine and younger generations. The name that I created for the series, “ Take a Breath and Think”, was directed toward many people that I have witnessed throughout my life acting hastily or easily overwhelmed by external stimuli. As I began trading and investing more frequently, this behavior became more observable amongst the general population of market participants with whom we all compete against. Markets move quickly, so most importantly, this was a message to myself to slow down and think.
I drew some of my inspiration from Daniel Kahneman who wrote, “Thinking, Fast and Slow”. One quote that always stands out in parallel of life and markets is, “We are far too willing to reject the belief that much of what we see in life is random.”- Daniel Kahneman. In market terms, this can be connected to Mandelbrot’s theory of Brownian Motion, which stems from the random movement of particles that are suspended in a medium such as a fluid. Mandelbrot’s theory essentially states that the majority of daily and intra-day price movement within markets is just randomness. It is just Brownian Motion. This leads me to one of the greatest lessons that I have learned over the last year while writing this series, which is not every “stock/ market move” has to be “fundamental”. There are tons of incredibly smart people out there in this world who get tripped up and act hastily upon random movements within time and space. However, those hasty actions of others create opportunities for those who are able to at the moment slow down time to think through the problem and execute their investment/ trading process. These are some of the core principles upon which this series of publications was founded.
My Goals with Friday Reading
Slow down to actually think through complex problems/ situations.
Challenge myself.
Generate ideas.
Write about relevant topics in which I find passion.
Timestamp my work.
Continue learning and help others learn along the way.
As I continue this series going forward, it is important to me that I publish pieces that I find interesting and feel passionate about. This is another important lesson that I learned from a mentor this year. Do not just write for the interests of other people and create useless content in a sea of oversaturated noise. Back in June around my birthday, I wrote a reflective publication named, “Being Myself”. At this moment, I chose to be more selective about what I release into the world and I am sticking with that principle. For this reason, I have not published anything over the last few weeks because I did not have anything interesting to discuss and I did not want to waste the reader’s time.
During that period of time from when I wrote, “Party on Wayne” (July 28th, 2023), the SPX went down -8%, QQQ down -8.36%, RUT down -13.78%, and HYG -4.25% (which is a large movement for credit). Another reason that I started this series was that I witnessed too many people lose a tremendous amount of money following “false prophets”, and I never want to see that happen again. Being short HYG has been reiterated multiple times as a preferred method to hedge the long side of a portfolio for various reasons. Recently, the overall indexes have bounced off their local lows. I continue to see the last week of strength as an opportunity to raise cash that is yielding +5% and hedge accordingly. Remember that timing matters, so keep that in mind.
A few weeks ago, I wrote about Macro-Optics. My team and I have been working to build out this research platform and this is where I publish my daily high-frequency research and actionable ideas. We host a weekly discussion called, “Macro Madness”, on Tuesday nights at 7:30pm to talk strategy and relevant ideas. Please feel free to check out the platform by clicking the following link https://macro-optics.com/.
Going forward, I will continue writing about relevant and important topics that generate my interest however, I will be selective. I cannot promise that I will be writing every single week, but when I do it will be meaningful to me. What I can promise is that I will be transparent and any mistakes that I make will be publicly timestamped. I look forward to learning and challenging myself. Friday Reading will continue to be a free resource for those who are interested and I appreciate the support.
Happy Friday,
Aaron David Garfinkel
I think you’re on to something here. I taught college Stats for 10 years, and when you swim in that pond daily, over time it reshapes how you look at things. One takeaway: we tend to see patterns where patterns don’t actually exist, and/or infer things that the data don’t support. In that vein: It’s a common human tendency, when expending energy on a task, to view a positive result as due something we did whereas a failure is due to outside influence - not my fault.