Tired, not working… mind wanders… models, in trading and life in general

Today I failed to get up and read the news. And yesterday, I didn’t either, and I didn’t read my usual selection of economics blogs at lunch time (opting for the lighter version of a book on statistics). “So what?”, I hear you ask. But this is not good enough. You have to get up and read all the relevant news, every day, because 1) that is the only way to catch the details of what is going on and 2) it is the only reliable (solo) way of getting your brain working on the problem of what is presently going on. It is an amazing fact, but just reading the news every day puts you ahead of most people who are employed in financial services; on the other hand, it is a depressing fact that if you don’t read the news you become ordinary very quickly.

Why the lapses? Because a) I have a cold and b) I didn’t sleep very well last night. Such things will happen. What to do about them? First, you have to catch up. I did read a good lot of the news today, and I spent some time catching up on my other reading as well. You won’t be very productive on cold-days anyway, so it’s best to spend the time covering the basics rather than rushing to do as much as usual. Second, it is a good idea to use the time differently. When I am tired or otherwise feeling low, I find I am much more creative (and this idea is not without scientific support e.g. http://bit.ly/yco64Q). So I tend to spend days like this trying, at least, to come up with something new.

Last time I was unusually tired, for example, I was thinking about the importance of making explicit the model one is using in order to decide on a plan of action or make a prediction about the future. Often, the model you make explicit is very simple — for example, “it will be the same this time as it was last time” — but just stating it forces you to consider whether the model is actually sensible. I bought Microsoft Access and made two databases: one of problems and one of models. Then I applied the models to the problems in the course of writing my piece on the likelihood of Greek exit from the Eurozone. The system seemed to work very well, but I regret to say that I have not added any models or problems to the database since then, despite, of course, having made some predictions. I must really try to stick to this framework. Part of the problem, of course, is that one forms opinions in the course of reading, and they form slowly — there is often not a natural point to sit down and think: “OK, what was the problem, and what model am I using to solve it?” But I will keep at it.

Incidentally, I think making your model explicit is a useful thing to do in life in general, not just in trading. For example, a lot of people work too hard and burn themselves out. Let us assume that they do this because, for some reason, they have a large amount of intellectual work to do (perhaps because of circumstance, or because they are being deliberately exploited by their employers). Faced with a large amount of work, they try to do more of it regardless of how tired they are. What is the mistake? In some cases, at least, it is because they have a rationalist account of human nature: they think we are fundamentally rational creatures, conveyed around in fleshy transport machines. If that is so, then the response to having more intellectual work to do is to work the intellect harder, assume that the transport machine will be able to keep up, and put any failure down to “weakness” rather than “physical limit”. Of course, making the model explicit shows us how daft it is. It is 200 years out of date. Human beings are animals, and animals get tired from both physical and intellectual work. If there is too much work to do and we wish our jobs to be sustainable, then we must do less than all of the work, and prioritise.

I wonder how much strange behaviour this “wrong model” account can explain. I will keep it in mind as I walk around.

Italian Politics

Wolfgang Munchau, in the FT, highlights some recent comments from Silvio Berlusconi (that’s right, he hasn’t gone away) to the effect that a departure from the euro would not be “blasphemy” and that either Italy will get bailed out, or Italy will leave the euro, or Germany will leave the euro. Munchau argues that Berlusconi has an eye on his right flank, to which the Five Star movement (http://bit.ly/MQcwKg) may be a threat. It would be a negative development for the markets if a mainstream Italian party were to turn against the euro.


  • US new home sales 369k b.e. and rose. Highest since the new-homebuyer tax credit expired.
  • US Case-Shiller house price index -1.9% YOY b.e. April (average of Feb-Apr).
  • US Conference Board consumer confidence 62 d.e. and fell for a third month.

Coming Up

  • US durable goods orders
  • US pending home sales
  • US crude oil inventories