#writing --- **March 14, 2022** I have talked a lot in this space about how we shouldn't try to [[Prediction|forecast or predict]] and how we should [[CHG Issue 54 Surrender|surrender]] so that we can be mindful and present to the reality unfolding around us. All great stuff that you can find in lots of poetry, philosophy, self-help, and other books of that nature. The harder part is how do you live this? I've been thinking about professional athletes a lot lately and their training routines and game preparation. Aaron Rodgers was on the Peyton and Eli show a while back and when asked about his weekly routine the first thing he said was that he had to "put yesterday away." I thought that was a great idea, especially after a big loss like he had just suffered the most important thing is to recognize your emotional state, work out your feelings, and then move forward. That doesn't mean stuff them down and forget about them, it means to recognize them and shine a light on them so that you know they are there, and they don't linger in the darkness messing you up. Think about all the work and preparation that Tom Brady put in over the years from all the TB12 diet stuff and year-round training with teammates. [Phil Mickelson hits 1500 balls a month](https://www.youtube.com/watch?v=nAeHaOIIx6Y) When these guys are getting ready for a game or a tournament they aren't spending time predicting what plays their opponent is going to run or estimating what Tiger is going to shoot on the first day, no, they are preparing themselves for all the different situations they might face out there and practice what they might do in those scenarios, how to make adjustments on the fly, and honing their intuition. I came across this quote from Heraclitus last week that I think is relevant to this discussion: >No man ever steps in the same river twice, for it's not the same river and he's not the same man This is what preparation is all about. We are constantly changing along with the world around us. We might face a similar situation today that we have experienced before but as Mark Twain says, >History doesn't repeat itself, but it often rhymes When Brady watches game film he isn't doing it to predict what the Chiefs might do, he is doing it to learn and understand his opponent's tendencies. He is doing it so that he can subconsciously recognize what the defense is doing after the ball is snapped and he doesn't have time to think and analyze. He only has time to react, and to do so with consistent success it requires an immense amount of training. What has occurred to me is that all of us smart financial people could learn a thing or two from the dumb jocks. In fact, I read in the Inner Voice of Trading that "People with average IQs financially outperform those with high IQs a whopping 70% of the time". This was cited from Emotional Intelligence 2.0, a book by Dr. Travis Bradberry and Dr. Jean Greaves, co-founders of Talent Smart EQ. Economists, Strategists, Analysts....pretty much anyone on CNBC is always offering their smart and well-informed opinion or forecast. It's like Brady going on ESPN and predicting the first ten scripted plays that Andy Reid is going to call. It's a waste of time! We should be spending out time preparing for what may happen and honing our intuition so that when the markets change in an instant our subconscious mind can recognize what is really happening and we can react in a more balanced and efficient manner. Denise Shull points out that we cannot make a decision without our emotions however many traders and investors are trained to shut off their emotions when making decisions. It is true that emotional decisions tend not to be good ones, however it is also true that all decisions contain some element of emotions and "An emotion never lost a dime on its own" (Harness Emotions, Modern Trader, June 2017) This is much harder than it seems because we are inclined to go with the easy answer, ie. the narrative fallacy. It is also unnatural for us to think in terms of probabilities partly because we have been educated that there is a right and wrong answer our whole lives. However, the reality is that we need train and prepare for what the markets may throw at us and how we may react emotionally and understand the emotional state of our competition. This looks more and more like what professional athletes do when they prepare for a big game than it looks like doing CFA-type financial analysis. This is also really hard work, and most people are looking for the easy answers. We are not doing anything different than what has been done throughout history. This is why the study of history can be so instructive. But our simple minds like to organize and label it and have it fit in a neat and tidy model that will tell us what will happen tomorrow. This doesn’t work. Jeff Bezos says: >The smartest people are constantly revising their understanding, reconsidering a problem they thought they'd already solved. They're open to new points of view, new information, new ideas, contradictions, and challenges to their own way of thinking. This is preparation, not trying to figure out what the spoos are going to do tomorrow, but keeping ourselves open to different points of view. Preparing ourselves mentally for the range of possibilities that tomorrow may bring. Developing mental flexibility to be able to hold all the contradictory signs the world is sending us in our minds and make sense out of the chaos. Identifying our emotional state and the emotional state of our competition. Then you can put up the sail and let the wind take you where it may. But make sure you pack for wherever it may take you! I covered my hedges on Wednesday and it felt like crap. I was talking with a client/friend about this and advised him to cover his hedges but also told him that we could retest the lows. You never know, but what I said was that the risk of being short was too high. Everyone is long commodities and short stocks because that is the trend. Nickel hitting $100,000 on Wednesday may have been the short-term emotional peak for commodities. People are increasingly negative and very worried about what Putin, or the Fed may do. We have moved to price in 25bps on Wednesday and there are still a lot of FOMC who are arguing for 50bps so that could be a downside surprise, but at the same time the market is getting used to escalating conflict in Ukraine to the point where and real signs of a movement towards peace are likely to have a larger impact than escalating hostilities. I was thinking this week about how aggressive the economic sanctions that we are leveling at Russia are and started to think about how it might impact our economy. $6 gasoline is gonna suck and it's not good for the Democrats. Biden owns this. His response is commendable but (generalizing here) Democrats care more about principles than economics (take ESG for example) so Biden is going to put our economic interest second to responding to Russia. I'm not saying this is wrong, I'm saying it is going to impact us economically and politically. What will that mean for inflation, Fed policy, Fiscal policy, mid-term elections? More Bayes' Theorem required. This is why we can't predict any of this. But what we can do is prepare. We can prepare for the trend lower to continue and we can prepare for a vicious short-covering rally on any sign of the conflict in Ukraine easing. I think the risk of being short is high which is part of the reason I took my hedges off. I may very well be wrong and that's okay because I'm not calling a bottom, I'm only preparing for what the probabilities are telling me.