What I currently think of markets (July 8)

I’ve taken a while, I’ve been slow, to digest everything that’s happening. I wrote a note around November (I think) saying the best thing to do is to have 3 years’ cash on hand.

Then…I didn’t even take my own advice! 

That should show you how much of markets is about psychology.

I want to say that I’ve learned a TON in the last 6 months about trading and psychology. At least, I think that’s the case.

But it’s really what I do next that will show whether or not I’ve truly picked up any lessons or not. As you’ll see in a moment, I think that includes making 3-5 year time horizon investments sometime over the next 12 months.

One statement I have heard in the past that continues to get more true over time, is that 

“The stock market is a device for transferring money from the impatient to the patient”

Stock markets transfer money, on the end of stocks which are selling are buyers on the other side, when interest rates rise or fall, money flows like a liquid between participants in the economy.

Understanding this process of money flowing between participants is, in part, what you need to master.

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Current state of markets.

I don’t think I need to recap what has happened or where we are today, as there is ample people discussing these topics. 

I do however want to share one or two points; mostly that…It’s all about the FED.

We’re at a fork in the road, and the FED decision will LAG after the future plays out down one of those paths.

So we’re beholden to what the FED does with old data. This means they will react too late, and sadly the public will continue to pay the price – in the form of either loss to the market or to inflation. 

Since not taking my own advice in November, I personally have trimmed back into cash over the course of multiple trades since January. I have taken losses, and I am holding my most speculative bags to zero, including NFT’s.

What I have been saved by is entry price. If there’s one thing I’ve done well it’s enter well. If there’s one thing I’ve done poorly it’s exit well.

I’m patient, and patience means not responding to clear and present changes to the market conditions. 

I think that the market conditions deteriorated quickly, but honestly not THAT quickly. Meaning, with a dispassionate view, it was probably fairly obvious the winds were changing. Easy to say in retrospect but, again, I don’t think we weren’t warned.

When the ship started turning last year, my strength of patience became a weakness. It’s hard to wake up to the fact that the lessons I had learned were from a particular environment and backdrop, and that backdrop is changing. 

I believe that we are fundamentally in a new era. 

My belief is that the 2010’s decade was an era, which ended in March 2020 with COVID.

Then we entered a 2 year “era” of “The transition.”

Now we are heading into a new world, from 2022-2030. This is because the world changed with COVID, but the results of that change are just now beginning to take hold for the long term. 

This era is (probably)…

• Volatile –This is a traders market vs. a long-only environment. Meaning, the general trend could be sideways, even though you can expect lots of major swings ups and downs.

• Violent – ouch, but I think volatile is reflected in the culture. 

• Inflationary – I buy the Lyn Alden perspective of persistent inflation over the next decade, with deflationary shocks along the way.

• Continual Shortages/Supply chain issues – I think the shortages we see in foodstuffs, gasoline etc. will probably continue until we rebuild our infrastructure. Things need to break down so we can repair them anew. 

That’s the pessimistic side. 

I’m a believer in The Sovereign Individual and Fourth Turning Theses which I think has been a great primer on the world today. I also believe that new technological adoption will at some point kick in and continue to rapidly change our economy.

Actually one more pessimistic side.

I believe you have to, due to the current fork in the road, give a 50/50 probability to the pain/recession/market decline is only about halfway over. That is both in duration and in total $ decline. That means we could still have a long road ahead, and much lower prices.

So, I’m mentally prepared for $10k BTC. And I’m mentally prepared for a capitulation event in markets across the board. This is what would happen when the economy and markets catch up with one another. My simple reasoning is that we haven’t yet felt the full shock of a slowing economy. I’m about 50% sure that’s the case, which is pretty heavily weighted.

Because I have mostly been writing about crypto lately, I’ll share a few thoughts on my own sentiments for where we’re at on the crypto side.

This is actually the optimistic side of things.

Despite the leverage wash out and bankruptcies, I think this is a healthy pruning process for the industry. It helps us reset to the real, and hopefully, hopefully, the industry seeks out real use cases. One thing I’m optimistic about is how many “web 2” founders and operators seem to have now moved into or are integrating crypto. I think they will produce the next “hits” that lead to adoption.

Do I still believe in the future of crypto?  (Ask yourself this question, yes or no?)

Yes – I think it’s low probability that crypto goes away for good. Therefore, I believe we will see another massive bull run-up at some point in the future. When that is, is hard to determine, but I would ballpark it after the next BTC halving event.

Do I know which cryptos will succeed? (Ask yourself this question, yes or no?)

No – I think you want to allocate across the industry, weighted appropriately towards quality, probably with dollar cost averaging in. (NFA).

Is this a buying opportunity, yes or no?

Obviously, this is a very nuanced and difficult question. 

I do, however, have a feeling that the best firms are currently hunting opportunities. SBF and FTX certainly are. They are buying cheap, and I think they will be rewarded for this. 

I think we’ll look back in a few years and see the next year or two as PRIME moments to allocate. Even if you’re not perfectly timing things, this is probably leaning more into the buying and opportunity zone than the panic zone.

So, what I’ll leave you with is that, despite what I believe which is that we may see another large drawdown and difficulty in the economy, and despite the pain that’s already occurred, I think we’re entering the opportunity zone.

The opportunity zone is a buying territory for old or new assets. It’s when the market fear peaks and you get to lay the groundwork of investing in what’s going to emerge in the next 3-5 years. 

On a 3-5+ year horizon, I think some assets will, or already are, super cheap. So, for those who are able to pay attention and spot opportunity, now, or in the event of capitulation, I think it’s no longer the time to blink.

The time to panic was last November before the panic. And given the way things are heading, don’t be surprised if we see another big capitulation.

But in that capitulation, there is value to be had.

Because there will always be new opportunities, and new zeitgeists to emerge in markets. 

Now it’s time to conserve your capital, and seek out the opportunity for what’s next…

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XX I’m David Sherry, I coach early-stage founders, and type up thoughts on what I’m learning along the way.

You can join my Telegram chat for more real-time notes on what I’m thinking.