19. June 2016
Do you know your own analysis DNA?
A self-test and a bit of Chippendales strip
What you are doing is likely really good. But you are unpolished if you don't know yourself, and if you don't reflect on what you do and how you do it. So you need to understand your strengths and weaknesses - where you are now and where you should be heading. If you are in the mood for evaluating yourself, then I have a self-test for you here.
This is the fourth and final post in a series where I describe three different types of analysts:
There’s a good reason these three analyst looks like they do (see the picture on the right). It’s not by accident. If you are curious you will get the full explanation if you click on the three links above. If not, then I can summarize it in a sentence. The Historian is the macro economy analyst and he is a Hercules of raw power - just look at him. The Clockmaker is the fundamental analyst and he’s clever and smart like a detective, hence the smart hat. Finally we got the Gunslinger. He is the Technical analyst with amazing gunslinger skills of timing and accuracy.
So, finally, in this last episode you get to test yourself and get your own DNA code based on these three characters!
How sweet are you?
We start out with an understanding of you as if you were a tennis player. I want you to work like a tennis player and act as your own coach, simultaneously. A good tennis player basically needs three qualities:
1. He needs a good physique (speed, endurance etc.)
2. He needs good skills (a good backhand etc.)
3. He needs a good tactical understanding of the game in action.
The intersection of these three qualities is called "The sweet spot". That is the game that he is uniquely suited for with his physique, skills and tactical understanding. You can be a fine tennis player if you have only one or two of these qualities, but in order to be playing at the top, you need a solid combination of all three. But you cannot be equally good at all three of them, so there are areas you need to work more on than others.
Every tennis player has his own strengths and weaknesses, and this creates his own, unique "sweet spot DNA". And the coach uses this as a roadmap for improvements. If his endurance is lacking, then there are good ways to work on that. If his tactical understanding is lacking, then the coach needs to introduce quite other measures. So where are your strengths and weaknesses? This is what you can assess with the model so you get your own sweet spot DNA, written down as a sequence code. But a clarification first. This is a test of your analysis DNA, and not a test of your psychological profile. There are tests for your trader psychology (and I hope we can get into that some other time because that is also very fascinating), but this post is about your DNA profile. And DNA points to something more physical or tangible. So here goes your own sweet spot...
Do you have the guts? Start your self-test here.
Have a look at the grid on the right. You must define your own level in three areas: M (macroeconomics) and F (fundamental analysis) and T (technical analysis). What type of analysis do you use, and to what degree? The scale goes from 1 to 4 where your skills progress from being technical capabilities to process oriented to personal to visionary. I know that your skills are not strictly confined to one level, but after looking at yourself you will find where the majority of your "weight" is. Have a quick look at the model and try to define yourself before we go on to more details.
You might ask: Why these three areas M+F+T? Here's the short and simple explanation of why I think you absolutely need a combination of all three areas: Fundamental analysis is a wonderful basis, but it is notorious for being terrible with timing. Technical analysis works beautifully with timing, but is weak on the understanding of the Why and the causality. And both types are incomplete without the birds eye view of the macro economy that is having a very big impact. So fight as you may, you cannot disregard any of them. I strongly believe in this. But to get you "off the hook" you have the luxury of defining what level you deem necessary for each category. You don't need level 4 in all.
Chippendales strip is starting here...
OK, here I start to strip. Not because I'm Chippendales, but because it is necessary for you to see how to evaluate yourself, using me as a guide. Well, my story started out being a pure T1 and I quickly progressed to being a H1T2. That was my beginning. You can map your own journey through the grid. Maybe you'll even write a book about it some day (My Journey Through the Grid). The journey is never finished, but ongoing, and today I would recon that I'm a M3F2T4. That is a Chippendales strip. Standing naked with only my DNA code written on a plate as cover.
The idea is that you can't jump to level 3 without having a solid foundation in level 1 and 2. It's sort of a scale of development. That is the rule of thumb. But my own M3 is based on a rather weak foundation in M1 and M2. The majority of my weight and research is placed in M3, but I have skipped some parts of M1 and M2 and I know that I need to go back and catch up on this to build stronger pillars to support my interest in M3. So by being honest with myself I know I have to go back and catch up on that. On the other hand I have sniffed quite a lot into the territory of M4, but only as a scout. I'm not really proficient in M4, whereas M3 is where I live and have solid maps. In F2 I'm supported by a strong foundation in F1 and I'm currently in the process of straying more and more into F3. In T4 I'm supported by strong foundations all the way, as T1-T4 has been my traditional playground. But there are some critical aspects I still need to work on in T3, so I need to go back to that. See the way it works? This is the way you can evaluate yourself.
This model is quite useful, but of course it's not complete. Perhaps I can revise some of it in the future, but already today it will give you a good overview and a model for evaluating yourself.
Put some sweat on that body!
You need to train and put some sweat on that body. From my own example you see that you get to understand what you need to work on. You understand where your weight is, and what you still need to work on. All of this is based on your own introspection. You shed your role as tennis player and put on the coach cap and evaluate yourself as objectively as you can. Like the tennis player you can now evaluate every sequence in the game. "I bought this stock at that time, and it gave me such and such result. What was the reason? What areas in my sweet spot should I work on to improve?
Your aim is not to be H4F4T4. Not at all. That depends on what you are trying to achieve, on your game. If you are a tennis player then physique and endurance is definitely a must, and you need to get as high a level as possible. But if your game is chess, then physique is perhaps not an issue to train very much. A tactical understanding is more important. If you are a Marathon runner then the tactical understanding is not as important as for a tennis player. See? But generally speaking we need a certain combination of all three, regardless whether we are marathon runners, chess masters or football players. Your level just has to suit your particular game. But if your game is to analyze the stock market, I would not recommend you to disregard any of the three areas. Your level might not necessarily have to be high in all three of them, so it's up to you to define what is necessary in your game. Just don't fall into the "lazy trap" of defining the ideal level as being coincidentally where you are located right now. For example, I usually recommend heavy F4's to get at least a T1. Likewise I advise heavy T4's to get at least a F1. And if you don't have any M, then I'd rather not watch the match because it can get ugly. But in the end you decide what is needed. You are the coach.
You need a lightsaber
Now we need to add some fun. The problem with a DNA code like M3F2T4 is that it is technical, and we cannot easily relate to a series of numbers and letters. So I recommend that you personify your own DNA code by choosing a fictional character that fits. My DNA code M3F2T4 translates into the character "Obi Wan Kenobi" that you see in the picture. Why does an awesome character like him fit a DNA code like M3F2T4? That is because Obi Wan is quite strong, but not with the same raw power as the pure Historian. Obi Wan is quite clever, but not brainy as the Clockmaker - perhaps clever in a more benign, ethical way. He is, though, quite the Gunslinger. But in a more subtle and peaceful way. He is brave like a true Gunslinger, but less ruthless. All of this more or less sums up the character of Obi Wan Kenobi, and the lightsaber is his tool to cut through to the truth. So that is my character. What is your character? Give it a thought.
Obi Wan Kenobi with a lightsaber. That's my DNA profile and character. Convert your DNA sequence to a fictional character and let me know. Your DNA code is kind of personal, like your social security number or bank account number and you don't have to tell me either of these. But the character that you choose is more fun and can be freely shared. So what is it? I can’t wait to know.