Welcome to the latest edition of “Weekend Reading For Traders”. We kick things off this week with a paper that examines where market recoveries have tended to occur in relation to the recoveries in earnings, GDP, and payrolls in past bear markets.
From there, we highlight an article on how to become a better quitter and then move on to a pair of articles that share suggestions on how we can minimize distractions throughout the day. We then wrap things up with a primer on the upcoming World Cup and who the key players and teams are.
And with that, we hope you enjoy this latest installment of Weekend Reading For Traders.
(Michael Cembalest | J.P. Morgan)
Over the past several weeks, we’ve shared a number of articles from market technicians looking at the market’s tendency to have rough starts to midterm election years but see strong upside reversals late into the year and then see solid follow-through into the third year of the presidential cycle, how October has seen more bear market bottoms than any other month, and that equities tend to perform best when Washington is gridlocked. That, in turn, prompted speculation that the intraday reversal following the big gap lower after the September CPI data may have been a capitulatory event. Since then, the S&P 500 has bounced over 10% despite data indicating that the economy is weakening, an alarmingly inverted yield curve, a perpetually hawkish Fed, continued upward pressure on consumer and producer prices, and a primary trend that remains down. In other words, it’s difficult (to say the least) for investors to get comfortable with the notion that it may be time to vacate their bunkers. However, JP Morgan’s Michael Cembalest points out that, with the exception of the Dot Com Bear, the past six major bear markets have all bottomed out while corporate earnings, GDP, and payrolls were still declining. Ultimately, the key point here is that, while we won’t know if the bear really did end this past October for a long while and there’s still plenty of work to do before the primary trend changes, investors should at least be mentally prepared to take advantage of the long-term opportunities that bear markets create.
(Annie Duke | Behavioral Scientist)
Every active investor knows that they won’t be right all of the time, but that if they “keep losses contained and let their winners run”, then they’ll exponentially increase the odds that they’ll be able to build real long-term wealth. As it turns out, however, following that advice is a lot harder than it sounds. It’s easy to talk ourselves out of jettisoning an underperforming stock in hopes that “it will come back”, and we end up watching as it continues to drift lower. In this article, Duke examines the repeatable method that the CEO of X, a subsidiary of Alphabet, whose mission is to “build and launch technologies to “improve the lives of millions, even billions of people.” With only limited resources, X has to identify projects with the best potential while ruthlessly cutting the cord when projects don’t live up to expectations (i.e. letting winners run and cutting losers). Accordingly, they use the mental model of “monkeys and pedestals” to decide if a project is worth taking on (or not), while deciding ahead of time what their “kill criteria” is in order to make sure they’re cutting their losses when they should. And while it’s unrealistic to expect flawless execution, the simple exercise of trying to become a better quitter by having a clear line in the sand means that we’ll be much further ahead than we’d be without setting the kill criteria in advance.
(Eric Soda | Spilled Coffee)
It’s no mystery that we’re living in a world where we’re beset by a seemingly endless parade of things that distract us from the things that we “should” be doing throughout the day. Yet, on the bright side, the worse things have become, the more aware we’ve become of the importance of actively working against distractions. In this article, Soda offers some pointers on ways we can proactively prevent potential distractors from being a temptation in the first place, including moving your phone out of sight and putting it in airplane mode, sending all numbers that aren’t in your contact list straight to voicemail, turning off all computer and phone notifications, use time blocking techniques, staying off social media, and generally make yourself unavailable, among others. Fending off distraction is a never-ending struggle, but the key point is that, if there are tasks that need to happen and goals that need accomplishing and it seems like there’s simply never enough time, then it’s possible that implementing some of Soda’s advice could be a first step towards creating better habits and creating an environment more conducive to deep work.
(Justin Pot | Zapier)
For those who might need some extra help beyond the strategies that Soda recommends above… there’s an app for that. In this article, Pot offers a list of apps that can take your distracion-blocking game to a whole new level, including Freedom, which allows you to block websites and applications across multiple devices, Cold Turkey Blocker, which makes it annoyingly difficult to circumvent your own blockade, RescueTime, which is primarily a time tracking app, but also allows you to set up focus sessions and block distractions, Forest, which gamifies the act of remaining focused, among others. Ultimately, the key point is that trying to avoid distractions isn’t easy, especially when there are some very bright and well-paid folks out there whose sole job it is to “increase engagement”, and there’s no point in trying to go it alone… especially when there are tools out there that can actively prevent us from being tempted in the first place.
(Joshua Robinson, Andrew Beaton, and Jonathan Clegg | The Wall Street Journal)
As Danny Rojas famously said, “Football is life!”. In just a few days, the biggest sporting event in the world gets under way, and not only is this the United States’ first appearance in eight years, viewers will be treated to a veritable smorgasbord of football, I mean soccer, I mean football superstars. In this article, the authors take a look at each of the 32 teams, which countries are expected to make it deep into the tournament (all of the usual suspects), and the top players to watch, including Lionel Messi in what’s probably his last World Cup, Kylian Mbappe, Cristiano Ronaldo, Neymar, and Karim Benzema. The key point here is that we’ve got several weeks of outstanding football, I mean soccer, I mean football on tap, and while it’s not likely that the sport will ever gain the sort of popularity that is has around the world, curious fans can at least make a point to don some USMNT gear and root for Pulisic and the boys as they fight for a spot in the knockout round.