Interview with Adam Robinson - The man who cracked the SAT

What technology is designed to do

When I say “technology,” I mean Google, or Facebook, or your email. All of that is designed to hijack your attention, literally hijack your attention. When you find it difficult to put your cell phone down, that’s engineered. That’s not just a random, like, “Wow, I can’t seem to put my cell phone down.” All of that’s engineered. It’s resulted in a hijacking of attention, and if there’s one thing human beings need to know how to do, it’s control their attention.

But technology has hijacked attention, and has created a world.... If you think about it, technology is monetized. Once your attention is hijacked, that attention is monetized by making you click on links, right? That’s how the Googles and the Facebooks and arguably even Netflix is designed to make you respond in a certain way. Again, it’s all engineered.

Algorithm for finding opportunities

Things that don’t make sense.

The question is, where do we get our good ideas, and one way to get good ideas is to look where no one looks, and I’ll tell you one place that no one looks: where things don’t make sense.

Because they dismiss them. They go, “Well that doesn’t make any sense,” and they shake their head and they move on. They’re all permutations of the same thing, a person in denial instead of seeing what’s actually going on in front of them.

Intrinsic value is a fraud

Fundamental premise of fundamental analysis is this: there’s a true value that human beings, because they suffer various behavioral biases, drive the price of away from that—again I’m using air quotes—”the true value.” And I believe, as the fundamental analyst:

A, that I can determine that true value;

B, that I will have good reason to know that I’ve determined that true value and it’s not a guess;

C, that everyone else is one day going to wake up and realize what the true value is in a reasonable time frame.

The problem for the technical analyst is one of confirmation bias

Since there are literally limitless parameter settings to hundreds of technical indicators, you can find an indicator and a parameter setting that will argue for pretty much any position you want to argue

“Successful investing is anticipating the anticipation of others.” - John Maynard Keynes

My approach to markets is simply this, to wait for different groups of investors to express different views of the future, and to figure out which group is right. I look for differences of opinion strongly expressed, and decide which one is right.

So I can’t predict the future, but I know what I need to see that will tell me the future is about to change.

Ray Dalio views the market and the economy as a machine--and I think he’s brilliant—but it’s a machine created by the mind of individuals. So whatever else you may think about the world, the world is the product of our thinking. So is the economy. So are our investments.

What a trend is

A trend is the spread of an idea. That’s all a trend is. It’s the spread of an idea.

A trend is merely the expression of an idea, so for example buying Tesla stock could be the expression of an idea, the future of batteries.

If you think that you can compete with professionals at that game, well, good luck

The problem with a book like One Up on Wall Street is it tells the man and woman on the street, “You can beat professionals at their game.”

Well those professionals are there 24/7 thinking about ways to take your lunch money, right? There are people who spend all their hours, all their time thinking about nothing but Starbucks stock or Facebook or Berkshire Hathaway or gold, whatever it is, and they’re professionals.

And investing is a gladiatorial pit, and if you think that you can compete with professionals at that game, well, good luck.

So I have concerns about how-to books like that, because they’re inviting the public to compete with Wall Street. And by the way, Wall Street, that’s how they make their money. They love books like that. “Good, let lots of people think that they can compete with us. Well, good luck.”

So one of the genius books written in investing—but it’s not seen as an investment book—was written in 1962 by a guy named Everett Rogers, and the book is called The Diffusion of Innovations

Investment truth.

Think about a football player who’s knocked down to the ground—American football. We expect the football player to get right back up. If he doesn’t get up, it means he’s injured, or if he gets up slowly, it means he’s injured.

Same thing is true with a stock. If it gets knocked down, we expect it to bounce back. And if it doesn’t bounce back, something’s wrong.

You need a long enough time period for people to form strong opinions about the continued direction of the trend. So, months. Maybe even years. And then all of a sudden one day, out of the blue, sharp decline. And you will always see that, always see that, followed by a retracement. Because everyone else will go, “That’s oversold. That’s a bargain. I’m going to buy that.”

I’m using air quotes, “nothing going on,” because something really strong is going on. Something really powerful. And that is, the stock is changing hands from people who get bored to people who are patient. That’s what’s going on there.

So, on the surface it looks like, again air quotes, “nothing’s happening.” The stock price was 10. It’s been 10 for the last year. Nothing’s going on. Oh, no. Plenty’s been going on. As it were, the weak hands have been shaken out. Everyone who’s bored with that stock is gone. The only people who’ve bought it are strong hands with strong conviction.

Investment is the expression of a view of the future

If you think about it, an investment is nothing more than the expression of a view of the future. So when you buy Facebook, or you short the dollar yen, or you buy gold or short US Treasuries, you are expressing a view of the future.

Your view of the future can be right or wrong, and your means of expression can be right or wrong, but that’s what you’re attempting to do. So all markets are is the means by which people express views of the future.

Stock traders will express that view by buying stocks. So the bond trader will do two things. If he or she is bullish on the economy, he will buy corporate bonds and sell Treasurys as a hedge. He’s going to buy industrial metals, right? Copper, iron, palladium. Right? But he’s simultaneously going to sell precious metals, because who needs gold, or silver really, or platinum, if the economy’s doing well? So he’s simultaneously going to sell those, right? Buy copper, sell gold. These are all different ways that different groups of investors express their view of the future, their lens on the world

It’s not to say that anyone is smarter than the others. In fact, when I tell you who the smartest group is, you’ll see that that group is the smartest because they’re the dumbest. So, these are all different ways different groups of traders express their view of the future

The most farsighted group of traders, and accurate, are the metal traders.

Why? Three reasons.

The first is, they are the Forrest Gumps of the investing world. Their view of the world is very simplistic. Are people buying copper? and if they are, thumbs up. All is good in the world’s economy. Great. I guess interest rates are going higher. That’s the way metal traders view the world. And if people are buying less copper, they go, “Oh, that’s bad. Economic slowdown.” So the first is, their view of the world is very simple.

Second, they’re actually in touch with the world. Right? People buy and sell copper. It’s used—it’s a thing. It’s not like a number on a screen, which is all currency traders look at. Right? And the third—so first, simplicity model. Second, it’s something tangible. It’s actually used in the world.

And third is time frame. Metal traders look, at least the commercial metal traders, they look months to years ahead. Because if you want to take copper out of the earth, it’s going to take years to open that mine, right? It’s going to take a while to open the mine. Whereas currency traders, they’re looking second to second.

So, metal traders are the most farsighted. They have the simplest model of the world, and they are actually in touch with the world economy.

I’m going to give you my hall-of-fame ranking of traders. In third place are equity traders. In second place, bond traders. In first place, metal traders. In fourth place, oil traders. And in fifth, currency traders. And below currency traders are economists. And below economists are central bankers who are not in touch with the environment or the economy at all, and have complex multivariate calculus models of the economy, and they can’t predict interest rates

What I do is I look for these different groups to express strongly different views of the future. And then I assess probabilistically in the past, who tends to be right when these groups disagree.

The hardest commodity to predict is oil

Now there are three ways to predict the price of oil. There’s the price of oil itself. Then there’s—you’re Canadian, Shane—the Canadian dollar is the best, the Canadian dollar versus the US dollar, is the best foreign-exchange expression of the price of oil, of crude.

You need an edge, and you need to know it’s a good edge

Steve Cohen, one of the great traders of all time, said—and that was his favorite question—”What’s your edge?”

And so if you don’t have a process, it’s not something that can be improved. Right? Our goal is always to improve ourselves. So you need a process that you can articulate, and try to formalize, and one that you can test. Test everything.

I don’t follow statistics

I’m interested in the expression of ideas because what I want to know is when are stock traders going to change their view on Facebook, or change their view on the S&P 500, or change—or metal traders are going to change their view on the price of gold? That’s what I want to know, because I can’t trade a statistic. I can trade gold. I can trade Bitcoin. I can know, there are other things I can trade. I can’t trade GDP. Good luck. So I don’t follow statistics.

Kind of like insurance, right? We didn’t know which person was going to get into a car accident, but we’d know collectively, 0.03% of them are going to get into accidents in any given calendar year

The life lesson is “I worked at something, and I changed. I improved.” - “I can do better.”

All you need to do is just change what you’re doing. Not more of it, not more of the same. Do something different. A good first step is in the opposite direction. If you don’t know how to change what you’re doing, start off in the opposite direction.

The trouble with too much information

The GMAT, for business’s a clever test, actually. It’s a clever test because the only way to do super well on the math part of it is by estimating, and not trying to calculate things exactly. So you estimate an answer. It’s often good enough to know the answer’s got to be choice D, but if you tried to solve it exactly, you’d run out of time. So, in fact, what the test measures is your facility with numbers, like do you have a good sense with numbers, because life is like that. Right?

Life, when you’re a bond trader or whatever else you’re doing in business, you want someone with a good intuitive feel for numbers. The GMAT test is, actually, pretty good at doing that. It’s a clever test because if you use your intuition about numbers, and you have a good intuition, you’ll do well on the test, but if you try to calculate things exactly, you’re going to run into trouble.

Their accuracy was only 17% with 40 pieces of information, but their confidence almost doubled to 31%. It went from 19% to 31%. So they are now almost twice as confident as they ought to be. Which is to say, they’re overconfident.

So all the extra information did was just feed their confirmation bias. They had already made a decision based on five pieces of information. All the new information did was make them more confident in a decision they already made.

So the goal is to reduce complexity to a few pieces of information that you can follow and reason with. The trouble with too much information is you can’t reason with it.

One of my favorite investment questions is, “What would I need to see to change my view?” And if you’re dealing with dozens of variables there’s no way that you can change your view on.... There’s just too much information to keep in mind, the way they all interact

And in the process of becoming a skilled driver, that all becomes automated. You don’t have to look for very much at all. You know exactly what’s relevant and what’s not. So I think that’s true with experts in all fields, is you learn what not to pay attention to, so that you can give more attention to what’s important.

If you’re consistently wrong and you have few variables then you know those aren’t the variables or at least one of them is askew or your reasoning is askew, and modify and find out what works.

Learn one thing well then you can learn anything well

So the thing is instead of doing lots of different things, get good at a couple. At Oxford and Cambridge the belief is learn one thing really well, and then you can learn anything else really well. Learn one thing well then you can learn anything well.

So the way to get good at any subject, and any domain, is to rehearse the skills that you’re actually required to do. So rehearse under varying conditions.

But the key to learning any skill.... Really, if there’s anything I said today that was super important, the key to learning any skill, rehearse it. Break it down into sub-skills and then rehearse each of those skills. If you’re doing something other than that, you’re wasting your time. Rereading your notes, waste of time. You want to get good at a job interview, have someone ask you a question. Have someone who doesn’t know you ask you questions. Don’t reread your notes. Translate them.

Because we’re all blind really, to the effect we have on people. Not totally blind. We have some idea. But it’d be good to get feedback.


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