on investing

thoughts on investing
investing my own money

The following article is intended to give you a better idea of who we are, what we aim to do and - perhaps most importantly - what our core beliefs are. Feel free to skip to parts that interest you as it covers a bit of everything...

Although I don't have much money, and certainly no money I can afford to lose, I've been investing small amounts since around 2005. I invest mostly in things I know and understand (good advice from Warren Buffett), which happens to be technology as I've been playing, working, and coding with computers since I was 4 years old (and, consequently, have a Ph.D in Computer Science).

Whether I'm pretty good at it or pretty lucky I wouldn't know but I've never lost a penny. As an anecdote: I was experimenting with the "breakout" system and bought Lehman stock. Since it didn't pan out, I decided to sell it at a tiny profit. That happened to be the day before their shares (and company) went down a cliff and the financial crisis started to really hit home. That was either luck or simply following a system and sticking with it (which is a must) but I also decided to close out all my positions right before the collapse. Don't ask me why... Although I barely made any money, I've learnt a lot about financial markets. A crisis, as painful as it is, is an invaluable opportunity (in many ways) or an investor: unless you've lived through one you don't know what it is like when the s**t hits the fan.

Since then I've been invested on and off - whenever I've had a little money to spare - very conservatively (and never expecting to get rich quick). Did I miss a lot of opportunities? Certainly... are the better investors? Abssolutely. Do you have to invest like I do? Absolutely not. The point being, that I've started from nothing, and spent countless hours watching tickers while trying to learn how financial markets work. If I can do it, and make at least some money, you can too - as long as you learn from your mistakes and have realistic expectations.

I'll tell you a little about my investing methodology and some of my core beliefs but, if you're not interested, simply skip to the next paragraph. While I agree in all major points with "the father of Value Investing" - Benjamin Graham - I am not inclined to pick a diversified portfolio and wait a couple of years for those stocks to pay off. I try to make ~ around 10% as quickly as I can. This often leaves money on the table, but it also eliminates risk - which has a well-defined cost that can be calculated. I simply cannot resist buying amazing companies when they are being sold at ridiculously low prices. Innovation would be the key-word: as long as a company innovates, you can ignore the daily noise and wait until it reaches a determined target price (which, obviously, must be realistic). In practice that mostly means semiconductors but, lately, also Pharmaceuticals and other areas driven by innovation.

Fortunately I've always been an avid learner - except in school which, on a personal note, I've found offensive to my intelligence and suited solely to dumbing down the masses. Apart from reading books (of all sorts and genres - most of which aren't worth the dead trees or the money), I've learnt a lot from "simply" watching one or two tickers day after day (I still do that, time permitting) in order to understand how stocks move. If memory serves, it was W. D. Gann who said that people always ask the wrong questions: instead of asking when stocks move (up or down), they should ask how stocks move (restated in my own words). I couldn't agree more.

It's also important to completely ignore the financial news. The 'experts' don't know more than you or me, but they influence your thinking (in the end markets are all about psychology - something else I've studied for a long time). It is simply flabbergasting to realize that the so-called experts almost never understand the industry they are "experts" in. I've seen it again and again: with very few exceptions people have, at best, a cursory knowledge of how a business, or industry, operates and yet they make bold claims. Innovation + Complexity + Understanding equals profits while following experts equals ruin. The same applies to the bombardment of financial 'information' (now reported in the milliseconds): forget about it, or, even better, better don't read or listen to it - ignore it completely. The market will have good days/weeks/years and bad ones - but good companies are good companies regardless.

The core lessons I've learnt in those years are the underlying principles of elfetica finance & engineering.

  1. Markets, with a few exceptions, anticipate external events and not the opposite! There IS an explanation but this isn't the place to discuss it. Let's just say that people are driven to search for meaning: if a stock drops 10% in a day there must be a reason, right? Yes... but not necessarily in the past.
  2. There are patterns in the market. Fundamental patterns that are inherent to the nature of the universe itself. Legends like Elliott and Gann, along with a handful of others, realized this early on (which in the eyes of some makes them charlatans). Their methods still need work but I have no doubts that the idea is indeed correct.
  3. Like history, patterns rhyme but don't repeat. I would recommend - to anyone - the book 'A New Kind of Science' by physicist, and author of 'Mathematica' Stephen Wolfram. It shaped the way I think about pretty much everything. Hey it's free (Hi-Res PDF on his website, you just need to take a year off in order to actually read it). Mathematics, schools and traditional science have reached an impasse... Seemingly esoteric things like Astrology - which, taken literally, is ridicolous as far as I'm concerned - might actually be one of many ways to discern such patterns, but more on that another time. Do yourself a favor: even if you don't want (or can't) read the entire book, read the introduction and first two chapters... wild stuff!
  4. Markets, and their patterns, are driven by human psychology. Understand thyself and thou shalt understand the market. Markets are (almost) exclusively driven by psychology (there is ample evidence to support this claim). How you feel on a given day will determine your actions and the same is true for everyone else. It is almost impossible, since money is involved, to distance oneself enough to see things as they are. Since I happen to be a Jungian analyst, I am trying to use this to my (our) advantage but, alas, the human psyche is anything but simple. As an example: it boggles the mind why people will sell prime stocks (with a wide moat and huge barrier to entry) at a loss of 50% or more instead of just waiting until prices get back to where they used to be. Even better: double down on your position when the price is low enough for this approach to make sense. Doing that, against all my instincts, saved the day more than once but it was very, very hard to do.
  5. Investing has very little to do with intelligence: my IQ of 176 is more a hindrance than a help! Take your time to develop your own method
  6. and stick with it (if it works). Before you change anything, make sure to do your due diligence - chances are it won't be an improvement. Once you've decided on a course of action - including when to exit the trade - stick with it! (Unless the fundamentals change). You must find something that agrees with you, which is why we want to offer something for everyone!
  7. Financial news (whatever the form) often have ulterior motives. My nemesis Jim Cramer is an excellent example of that (I won't go into details because I don't want to get sued). In other words: someone is ready to profit once you follow the "savy expert's" advice. Put differently: you are being used, and not to your advantage!
  8. Smart money isn't always right, but they get it right more often than the average guy (or gal). They have much more resources and better infrastructure. With our software roadmap we plan to give you, roughly, 80% of the same capabilities - if you want them. I believe you can be a great trader without any form of technology or resource other than time but let's be honest with ourselves: it's not a level playing field out there!
  9. Many stocks, especially those with small volume or low capitalization are manipulated in one way or the other - and the SEC couldn't care less. For what it's worth I agree with Elon Musk's re-defining the SEC as "Short-seller Enrichment Commission. Trust me: me myself and many others have
    tried to get the SEC to look at specific things - they didn't even bother to reply.
  10. Always learn, and keep learning, from everything you do. Failures and crisis-situations can be extremely valuable!
  11. I didn't want to dignify this with a number but, apparently, it needs stating: there are no magic formulas or systems, nor should you expect (though it could happen) to make a LOT of money QUICKLY. Slow and steady is much more reasonable...
  12. Whether up or down: trends are self-sustaining virtous (or vicious) circles. Sales will generate more sales and buys will generate more buys... until there are no buyers/sellers left. W. D. Gann recommended to closely observe volume: until the entire stock of a company has changed hands, you can expect the trend to continue. To what extent this is still true today is debatable, however the fundamental idea behind this concept time- and price-less. Think about it... for every seller there must be a buyer.

If you've bothered to read up to here, I'm sure you've noticed how this article became more abstract (or 'meta') as I went along. Being meta, that is above and beyond the tick-to-tick analysis offered elsewhere, is at the core of our vision at elfetica. Imagine having the tools to make informed decision with as little exposure (and thus emotion) to the markets as possible! What we need are tools that allow us to get the information we want in an efficient way and little to no exposure to the actual market. We make an informed decision but we don't get invested emotionally in any way. Not to mention it also saves a ton of time.

More complex stuff will follow in due time, but it seems nobody is covering the simple stuff in an adequate manner - at least not for my purposes - and that's my priority for the time being. I want to focus on the big picture. I'm tired of doing basic calculations over and over before I can make an informed decision. That is far from efficient and leaves no time to try new things or contemplate the big(ger) picture. This is the first of many problems we intend to solve... step-by-step.

Keep in mind that some of the most successful investors of all time have earned their money the 'old-fashioned' way: by studying fundamentals. Warren Buffett famously spent countless hours going through financial statements and so did Benjamin Graham and many others. Although I believe Artificial Intelligence and the like can be used to give yourself an edge (and yes, that is also part of our roadmap), it stands to reason that one should tackle the basics first. In other words, let's save the next Warren Buffett 30 years or so AND make him a better (more informed) investor. Our aim is to empower people and level the playing field. (I'll go into more detail another time.) Unlike the "competition", the last thing we want (or need) is a software package that takes decision-making out of your hands. There's plenty we can't control already... no need to make it even more complicated.

Whether you agree with my philosophy and ideas or not is irrelevant. We will create (mostly) applications that are suitable for any investment style. In the foreseeable future, we will "only" provide the means to get as much information as quickly as possible, just the way you need it. There's plenty of time for the more sophisticated stuff we have in mind, but the simpler things needed a solution yesterday. In other words, we will provide tools that will provide you with information. How you decide to use it is completely up to you. Remember: we provide provide tools, not platforms or systems and that will never change. You, and only you, are in control.

On a sidenote, resources allowing, we will also offer our own market research - but that has a very low priority compared to the dozens of tools we've already planned. So this will be a story for another day... I kindly remind you that a lot of our success or eventual failure depends on your support: the more people engange, whether through donations, buying our products, spreading the word, or offering their know-how (we will let you know when we're ready for the latter) the more great stuff we can accomplish together. Having your support also makes it possible to offer our products at a fair price (unlike the competition), so give it a thought.

To recap our vision, during "Phase 1" we aim to provide relatively simple, and very affordable, tools that I (as founder, and current leader of this venture) need - daily - to save valuable time and become a better investor. We'll keep iterating on these projects as long as it makes sense (and maybe cap it off with something special).

During "Phase 2" we'll provide increasingly complex software and, if it makes sense, bundle some things into a coherent product. Although I started out as an Assembly programmer, I can appreciate how oject-oriented programming makes code reausability relatively easy. Once the foundation ("Phase 1") is built, we'll build on top of it. At least ideally - since things often don't work out the way you planned -  you'll always have the option to pick a single application instead of a more complex (and expensive) product. If you only need one piece, you won't have to buy the whole pie. Although it does make sense to offer more integrated solutions in "Phase 2", we'll never push a huge and expensive application on you that you don't want or need. (Just to be clear: I can't make this a definitive pledge at this point in time, but it's what we want.)

For now, "Phase 3" is just a dream and there's plenty of time to update you as the vision becomes more solid. All I can say at this time: it will be terribly exciting and it cannot happen without your support!

To wrap it up: please always keep in mind that, when I'm writing to you, I'm not coding, and if I have to chose I'd rather do the latter. After all, that (code) is the heart of this project and, alas, there have already been several mundane incidents, ultimately delaying the release of our first application. E.g. I realize this website isn't much, but "someone" still had to make it (after carefully considering all the options) as well as everything you see on it. Long story short: forgive me if posts take a (long) while to materialize. I prefer to underpromise and overdeliver than the opposite.

Last but not least: elfetica is currently a collaboration of like-minded individuals. Although we are a group of people, at the moment I'm doing almost everything myself. Things should change as we turn our vision into reality. Since elfetica is my brainchild, I have (and want to) lay the groundwork myself before others can really contribute: before there is something on the table, and specific work to assign, it doesn't feel right (and in my experience only leads to chaos and bitterness on all sides). But this is a temporary state of affairs: I have complete confidence in this project and I will deliver on my promises and I trust you will reward that with your support.

If you have any questions, please don't hesitate to get in touch (click on the 'contact' section for my email) and if you REALLY want to speed up development and boost morale (or have a kind heart) consider making a small donation... it really helps! 

Thank you for your time and, may the tradewinds be with you!