Situational Awareness

Since its a lazy Friday before a 3 day weekend (many schools are closed for a Jewish holiday Monday), I guess its time to wax philosophical about the subject of precisely what it is you are supposed to be doing professionally.

I guess its just human nature. This subject keeps coming up, and is seemly ignored. I have addressed it many times over the years (see below).

When you walk into your office each morning, you probably ask yourself “What do I have to do today?” You think about the sales, meetings, reports, calls, people to be managed, etc. that have to be addressed. We have a tendency to get lost in the minutiae, caught up in the moment. Professionally, we often cannot see the forest for the trees.

Perhaps we need to start each day with a simple question: WHAT IS MY JOB? That may sound overly basic, but its oft overlooked. We can too easily get caught up in the moment, and forget what it is we are actually supposed to be doing with the working hours we have.

I know my job is: Its to look out over the world and assess where opportunity and risk lay. Look, I can critique people’s analytical errata all I want on the blog but that is merely a mental exercise — its not what I actually get paid for. Clients do not give their hard earned cash to managers who are the most acerbic critics of fill in the blank; rather, they go to money managers who know how to navigate around whatever it is that is driving asset prices. And these days, that is the FOMC. “Critique the Fed but manage your assets” is the modern equivalent of “Praise the Lord and Pass the Ammo.”

I see this unfortunate tendency to go full on wonkasaurus too often amongst equity traders, bond managers, prop desks. They seem to forget that their job is to manage risk and seek opportunity. Long digressions into why the Fed is misguided or Congress has failed are beside the point. That should be the starting point of their analysis, not the end point.

The rest of the analysis must be: If the Fed is misguided, how shall we position ourselves?

Lately, there has been an uptick in Wannabe Wonks. These tend to be under-invested pros who seem to think their job is to criticize “Helicopter Ben.” Perhaps there is some degree of rationalization going on, as the Fed has made it exceedingly difficult to use the normal tools of investing — earnings, economic data, valuation, trend, price action, etc. — to run money. Perhaps there is a touch of selective perception going on. After all, we all have a natural tendency to be biased towards our existing positions.

Even economists occasionally forget that their clients pay them for Intel in order to adjust their positioning, not merely go off into the weeds about what the Fed should be doing. (That’s what academics are for).

The military calls this ability to understand unfolding events Situational Awareness. It is a 360 degree view of the battle field around you. You need to know what is happening in real time. What assets are deployed where, what vectors are driving energy into what region of the conflict, what reserves can be called upon, how will current chess board play out over time.

Perhaps most important of all is not having that glaring blind spot which leaves you vulnerable to a fatal assault.

For too many people, QE has been that blind spot . . .

Previously:
Your Fault, Reader: Take Responsibility for Your Stock Losses (2005)

Do You Wanna Be Right, or Do You Wanna Make Money? (October 6th, 2010)

Trading as a “Massive Multiplayer Experience” (May 18th, 2011)

Where Sea Monsters Live (May 1st, 2012)

QE Wheeeeeee! (September 13, 2012)