The Wolf Den #837 - The Circle Of Competence
The Wolf Den #837 - The Circle Of Competence
How big is yours?
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In This Issue:
The Circle Of Competence
Trading Alpha
Bitcoin Consolidates
ETH Bottoming?
Stocks Break Down On Poor Earnings
The Periphery
BlockFi Begins Wind-Down
SBF Will Take The Stand
Withdrawals Briefly Halted On Binance
WSJ And Warren Spread Terrorist Funding FUD
We Have Proof That Institutions Are Buying Bitcoin l Bull Market Confirmed
The Circle Of Competence
Warren Buffett's annual letters to shareholders are widely anticipated and highly regarded documents that he has been writing for many decades. Nearly 3 decades ago, in the 1996 letter to shareholders, Buffet outlined one of his most crucial investment philosophies:
You don’t have to be an expert on every company or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital. What counts for most people in investing is not how much they know, but rather how realistically they define what they don’t know.
If there’s one thing to live and die by, it’s your circle of competence.
If I were to inquire about the contents of your circle of competence, would you have a clear answer? For investors who find it challenging to respond to this question despite considering themselves intelligent, it's possible that overconfidence may be a factor. It's likely that our individual circles of competence are narrower than we perceive, and that's perfectly fine. Our goal is to outperform the market where we can.
Defining our circle of competence also involves understanding how much time we can allocate to our investment strategies. For instance, a doctor with expertise in the medical field may not have the time to explore how that specific knowledge set can be leveraged for investment returns, that’s where hiring a professional or taking a passive strategy makes the most sense.
For investors who do have the time to commit to investing and have a proper temperament, a circle of competence can best be defined by: specialized knowledge, forward predictability, and personal comfort.
Specialized Knowledge: This is the most straightforward piece of the puzzle. Knowing the history of a domain and where the mainstream’s blind spots are is critical for gaining a strategic advantage and making informed decisions within that field. But just because you have a good grasp on a particular industry or asset class does NOT mean it is automatically where your capital should go.
Predicting the Future: Certain business models and markets are inherently more predictable than others. While the tech sector draws many optimistic investors, forecasting developments in fields like AI, fintech, space, ESG, and the cloud remains a steep challenge. Even tech industry leaders grapple with uncertainty about the future. It's essential to remember that the future is inherently unknown, and some industries offer slightly more predictability than others.
Personal Comfort: Initiating an investment is just the first step; there's no ‘set and forget’ in the world of active investing. Even well-behaved investments demand occasional babysitting from time to time. An investor's circle of competence is constrained by what they can maintain a robust, long-term relationship with, even when facing challenging times.
Up to this point, I've provided a brief overview of what the circle of competence represents. Now, let's delve into how you can expand and optimize this circle for better returns. Firstly, it's important to emphasize that there's nothing wrong with having a small, well-defined circle. As I often mention, if you're an expert in a particular area that yields success, sticking to it is perfectly acceptable. Greed is commonly the silent downfall of investors who've found success but can't resist the allure of more.
For those still in search of an honest way to expand their circle of competence, the solution lies in striking a balanced harmony between confidence and humility. An investor's confidence stems from recognizing their strengths, while humility involves acknowledging limitations. While it's honorable to be drawn to intellectual challenges, in the realm of investing, there are not many accolades for daring heroes.
Ninety-nine percent of the investment greats earned their status through unwavering confidence in their chosen investments and the wisdom to recognize what to avoid. These masters refined their skills, allowed exceptional opportunities to enter their circle of competence, and exercised patience when market conditions demanded discipline. While legendary investors may have larger circles of competence, we can emulate their tactics to turn our own, more modest circles into well-oiled machines.
At the end of the day, Warren Buffet would agree that it isn't about the size of your circle of competence; rather what truly matters is the accuracy of your self-assessment within it. Some investors will successfully cast wide nets while others will tactfully craft precise shots, the choice is ultimately yours. Determine what suits you best and stick to that like glue. Just remember, “Everybody's got a different circle of competence. The important thing is not how big the circle is. The important thing is to stay inside the circle.”
TRADING ALPHA
BITCOIN
Now that our green Dots have kept us on the move, we need to look out for any signs of weakness. This way we can protect any profits on the bullish swing move.
First, we see is bearish RSI divergence, one of Scott’s favorite signals to look out for. This could give credence to a potential double top that could be forming here on the 4hr chart.
As long as we watch the Dots we can stay ahead of any major weakness this may or may not cause in the trend. If the green Dots disappear or turn red, then we know the trend is starting to be affected.
For now, there is no reason to panic as we still have green. Dots intact!
If you like this analysis and want more like it, use the link HERE, to sign up for Trading Alpha.
RIOT
Riot had a nice gap up from its stage 1 basing level, & has finally put in a higher high.
It also has consecutive green Dots now above our track line, making this an official stage 2 breakout! I also like the volume that came in on the breakout.
RSI is in bullish territory.
These setups used with tight stop losses create a high probability with the risk/reward ratio also highly in your favor.
If you like this analysis and want more like it, use the link HERE, to sign up for Trading Alpha.
Bitcoin Consolidates
We have a very clear line in the sand for Bitcoin bulls to attempt to clear. Both tries at a push up have stalled at $35,157, almost to the penny. This gives a potential double top if price breaks below $33,000, the lowest point between the two tops. Until then, chatter about a double top is nonsense and irrelevant. But now that we have that clear resistance, we don’t want to touch Bitcoin until price is above. Otherwise, dips are likely for buying after a move this strong.
You can see that volume is decreasing, a good sign that this is simply consolidation. There has been no meaningful selling.
I would love to see Bitcoin go sideways here for quite a while between ~$33,000 and $35,000 to give altcoins a real chance to prosper.
Altcoin Charts
For those who are new here, I share SETUPS and not SIGNALS. These are ideas that I am watching - if a certain thing happens, then the trade triggers. I am not telling you what to buy or when. I am showing you how I am watching certain charts and what has to happen for me to take a trade.
All of the ideas shared this week are looking good still. Keep an eye on LINK, INJ, SHIB, MATIC etc.
ETH has been in a sustained downtrend against Bitcoin all year, and basically since 2021. This is standard in the middle to end of the 4-year cycle, so I am not concerned at all.
At the moment, it appears to be attempting to form a bottom, although that can take a long time.
As you can see, price has pierced demand and is pushing towards the last meaningful support in this area at .04908. The current candle is showing some demand, with a nice wick down. I would love to see this week close higher, with a longer wick. Also, RSI is finally oversold on the weekly chart, a rare occurrence.
I am not sure when, but this is going to blast off and outperform Bitcoin for a while at some point in the future, and I am going to start taking a few more nibbles soon.
Stocks Break Down On Poor Earnings
Nasdaq futures dropped by 1% due to disappointing earnings from major companies. Key tech giants like Meta Inc. declined 4% in pre-market trading, Alphabet Inc. went down 2.3% following poor cloud revenue, and Amazon.com Inc. decreased 1.5%. These losses influenced global markets, leading to downturns in European and Asian stocks. The dollar saw a boost, gold increased by 0.5%, and the yen experienced a decline. Paul de La Baume from BNP Paribas Suisse SA commented that traders are selling in anticipation of worsening sentiments. The missteps in earnings have raised concerns about the high valuations of US tech firms, especially with rising Treasury yields. Despite the Nasdaq 100 still being up by 31% this year, there's apprehension about its potential downturn in a broader market selloff. Additionally, upcoming US economic data includes jobless claims and GDP figures. The European Central Bank is likely to maintain interest rates. Notable corporate performance includes Unilever's sales slightly missing targets, WPP Plc cutting its revenue growth outlook, Mercedes-Benz Group AG experiencing reduced margins, and Standard Chartered Plc's profit falling short of expectations due to charges in China.
Key events this week:
European Central Bank interest rate decision; President Christine Lagarde holds news conference, Thursday
US wholesale inventories, GDP, US durable goods, initial jobless claims, pending home sales, Thursday
Intel, Amazon earnings, Thursday
China industrial profits, Friday
Japan Tokyo CPI, Friday
US PCE deflator, personal spending and income, University of Michigan consumer sentiment, Friday
Exxon Mobil earnings, Friday
Some of the main moves in markets:
Stocks
The Stoxx Europe 600 fell 0.9% as of 10:07 a.m. London time
S&P 500 futures fell 0.6%
Nasdaq 100 futures fell 0.9%
Futures on the Dow Jones Industrial Average fell 0.4%
The MSCI Asia Pacific Index fell 1.4%
The MSCI Emerging Markets Index fell 1.2%
Currencies
The Bloomberg Dollar Spot Index rose 0.2%
The euro fell 0.2% to $1.0543
The Japanese yen fell 0.1% to 150.40 per dollar
The offshore yuan was little changed at 7.3292 per dollar
The British pound fell 0.3% to $1.2080
Cryptocurrencies
Bitcoin fell 0.3% to $34,578.1
Ether rose 3.8% to $1,855.02
Bonds
The yield on 10-year Treasuries was little changed at 4.95%
Germany’s 10-year yield was little changed at 2.89%
Britain’s 10-year yield was little changed at 4.61%
Commodities
Brent crude fell 0.6% to $89.62 a barrel
Spot gold rose 0.6% to $1,991.56 an ounce
The Periphery
Arthur Hayes delivers yet another brilliant blog in which he delves into "The Periphery," a concept referring to waging a war on the fringes or outer boundaries. Hayes explores the profound implications of Israel's engagement in a local war in the Middle East and America's broader conflict with China or Russia, dissecting their impact on the human experience and market. Notably, Hayes steps back from the prevailing notion that Bitcoin's surge is solely fueled by ETF rumors, and though I may not completely concur due to timing, I find merit in his argument. Spoilers ahead!
But now, directly after the Biden speech, Bitcoin – along with gold – is rallying against a backdrop of an aggressive selloff in long-end US Treasuries. This isn’t speculation as to an ETF being approved – this is Bitcoin discounting a future, very inflationary global world war situation.
And the end game, when yields get too high, is for the Fed to end all pretence that the US Treasury market is a free market. Rather, it will become what it truly is: a Potemkin village where the Fed fixes the level of interest at politically expedient levels. Once everyone realises the game we are playing, the Bitcoin and crypto bull market will be in full swing.
This is the trigger, and it’s time to start rotating out of short-term US Treasury bills and into crypto. The first stop is always Bitcoin, then Ether, and finally my beloved shitcoins. I’ll start small in case I’m wrong, but you can’t sit on the sidelines forever waiting for the perfect setup. The perfect setup is usually staring you right in the face, and you are just too preoccupied with the past to notice.
BlockFi Begins Wind-Down
BlockFi creditors have reason to celebrate, as withdrawals are now available to Wallet customers, and creditors holding BlockFi Interest Accounts and Loans will begin to see some withdrawal options in early 2024. What's even more encouraging about BlockFi's 'Plan' announcement is that they are initiating the recovery process from FTX, 3AC, and other companies, which will ultimately increase what clients can reclaim. I firmly believe that a significant piece of the bull market is our industry's commitment to rectifying past mistakes and enhancing its public perception. While there will always be newcomers, reestablishing trustworthiness is crucial, and this journey begins with creditors reclaiming what rightfully belongs to them.
SBF Will Take The Stand
Sam Bankman-Fried is slated to testify today, with his direct testimony taking up most of the day, as confirmed by his attorneys in a telephone conference with Judge Lewis Kaplan and the prosecution. In addition to his testimony, the defense anticipates that SBF’s cross-examination might commence on Friday, while the government hints at a potentially lengthy cross-examination and the possibility of presenting a rebuttal case, depending on the nature of Bankman-Fried's testimony. Unfortunately, we won't be able to watch this, but we can use our imagination. Considering what we witnessed from SBF post-FTX collapse, I can’t imagine anything he says will do him justice, so we can hope.
Withdrawals Briefly Halted On Binance
Remove your long-term investments from exchanges ASAP. Apparently, Binance just had a ‘technical’ issue but we will never know for sure. Ideally, concerns about funds held on exchanges will fade into history, and major exchanges remain secure indefinitely. However, this is a lofty aspiration, and we recognize the reality. While I understand that traders may need to maintain funds on an exchange, it's crucial to factor this into the overall risk assessment.
WSJ And Warren Spread Terrorist Funding FUD
Elliptic, a blockchain surveillance firm, has responded to the Wall Street Journal's (WSJ) claims that cryptocurrency is a significant source of financing for terrorist organizations, specifically Hamas. The WSJ had previously reported that Hamas and the Palestinian Islamic Jihad (PIJ) raised a collective $130 million through blockchain channels, citing Elliptic as their source.
However, Elliptic clarified in a recent blog post that the claims are exaggerated. The firm stated that there is no solid evidence to suggest Hamas has received substantial crypto donations. While Hamas has experimented with cryptocurrencies for crowdfunding through social media, the traceability of these assets means that the amounts raised are minuscule compared to other sources. Notably, Hamas's Al-Qassam Brigades had to shut down its crypto fundraising initiative due to authorities' successful actions against its donors.
Elliptic further emphasized the limited use of crypto for terrorism financing by highlighting that since the October 7 attack by Hamas on Israeli civilians, the largest fundraising effort, by a pro-Hamas news organization named Gaza Now, raised only $21,000 in crypto. Moreover, these funds have largely been frozen by compliant crypto exchanges and Tether.
The possible reason for the inflated $130 million figure might be due to a previous Elliptic analysis which showed that crypto wallets linked to PIJ, frozen by the NBCTF in July, had received transactions totaling $93 million from 2020 to 2023. But Elliptic indicated that it's unclear if these funds were actually associated with the terrorist group. They suggested that some of the wallets might have belonged to small service providers used by PIJ.
Lastly, Elliptic noted that U.S. senators, led by Elizabeth Warren, cited the WSJ's report to urge the White House for more stringent measures against crypto-related terrorist financing. Warren has been a known critic of cryptocurrencies in Congress.
We Have Proof That Institutions Are Buying Bitcoin l Bull Market Confirmed
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The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this e-mail constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.