COVID19 & Prophylaxis Thinking

Yes I play Chess. But I am not Grandmaster level.

The word prophylaxis exists in medicine by the way. It is a treatment given or action taken to prevent disease. Prophylactic thinking is quite pronounced in the game of chess by the way. I definitely want my daughters to learn the game.

IMG_8867
FIDE TRG Syllabus Textbook Pg62 Snippet. Yes I am a FIDE Trainer.

What has this got to do with investment advisory you might think. It is interlinked with the framework, approach, and moving forward, a part of the iterative process of portfolio management!

So time stamping what has happened of recent during this COVID19 period, a recent pattern emerged. Every bad news on the economic events calendar was followed by a good positive announcement that pushes markets up.

Screenshot 2020-04-17 at 10.56.25 AM
Extracted from Investing.com

Recall that social media communities discussing capital markets keep talking about war chests, recession and investment methods like DCA etc. No one correctly pointed out central bank actions’ and other market participants’ effects on the price paths.

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Morning of 17th April 2020.

2 Points to extract in this blog post.

Optimal returns capturing, require correct anticipation of the price path and actions taken to extract that. All things otherwise, will be sub optimal. Anticipate correctly, no action taken, no use. Anticipate half correctly, action taken, sub optimal results. Anticipate wrongly, losses. No actions taken at all, you form your own opinions. End of my first point.

My second point will reaffirm why forward statistics are not stable. Suppose the simplistic following:

Price Path = A*(Fundamental analysis) + B*(Technical analysis) + C*(New Catalyst) + error term

  1. What makes you think the correlation factors (A,B,C) are constant over time?
  2. What makes you think there aren’t additional new factors other than those above?
  3. Can you accurately predict the actions of major market participants? (ECB, Trump)
Screenshot 2020-04-17 at 12.55.19 PM
My anticipation is not perfect. No I did not anticipate MAS planning to help REITs at this time of writing.
Screenshot 2020-04-17 at 12.58.27 PM
Anticipating price path in prophylactic thinking will always be a craft. Got to refrain from pitfalls of The God Complex.

This post is about demonstrating a consolidation of different posts pieced together in my website to show readers a consistency in attribution. My insights and stock proposals are reserved for my clients.

If you feel that I can be of service in your personal finance journey, do not hesitate to reach out to me.

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