A confession

I have experienced clinical depression before. Real medical depression that descended upon me out of the blue like a matte glass tomb insulating me from the world.

If you have not had this experience allow me to describe what it felt like for me.

The first change was a sense of distance from the world around me. Smells didn’t smell, tastes didn’t taste, funny little things gradually weren’t funny at all. Everything was dull and heavy.

Then there were the physical sensations. An anxious pit in my stomach like that dreaded feeling on the Sunday night after a long vacation as a kid. Only deeper and grittier and more uncomfortable.

There was a loss of coordination and dexterity. Simple tasks made hard.

And sadness. Always sadness. About nothing and for no reason. But real and crippling sadness. My chest felt constricted and heavy all the time. Like that split second feeling right before you burst into tears, only suspended over weeks and months.

My cheeks and mouth were weighed down by gravity into a permanent grimace. My eyes were dull, glassy and lifeless.

And mentally it was only the feeling of hopelessness. Because every perception was filtered through the lens of my illness, there was no apparent way out. No hope. (Even though in reality there was.)

This was years ago now, and there was plenty of hope all around me. Although I was too sick and too insensitive to see it, I had an amazing support structure from my family, particularly my wife.

I sought professional help. I went on a med. And slowly the ice thawed and the old me emerged from the neurological cocoon. Almost as good as new. Perhaps better?

Flashback.

And though this was years ago, I can remember precisely how being depressed felt now, because I felt that way again for the first time on Nov 9th night when it dawned on me that the unthinkable had happened. That Trump had won.

It wasn’t depression but a nasty cocktail of despair, fear, anger and anxiety which formed a damned accurate facsimile of major depression for a day or two.

America had voted to elect a would-be fascist. A narcissist with no shame. An admitted (and corroborated) sexual predator, and a long term con man/snake oil salesman who had sold his gullible voters a phony bill of goods by pushing their dark little buttons of racism, xenophobia, and sexism.

It was not simply an emotional reaction to losing an election, as when Bush beat Gore and Kerry, it was also a realization that the probability of really dark things happening to our country had suddenly become much more likely.

I do not really believe in intrinsic good and evil. I don’t believe that the Germans of Nazi Germany, or the Turks or Rwandans or Serbs or who committed genocide before and after them were special in any way at all, though they were all accomplices to unspeakable and unforgivable acts of evil.

I believe that this horrible tendency for infinite cruelty lies within all of us. None of us are immune.

Sure, we Americans are protected by our relative wealth, our constitution, our rule of law, and our societal norms. These are all blessings.

But people are above all social animals, who are all too easily manipulated by mass movements, and propaganda, and charismatic leaders. And in the end everything is open to interpretation. Even the bill of rights.

And with Trump’s unique appeal, and his complete lack of shame and lack of fidelity to the truth, fascism just became that much more probable right here, right now.

How probable? I don’t honestly know. But I am confident that the best that we can hope for as a nation for the next 4 years is corruption, bluster, and incompetence. Maybe a bit of deficit spending to temporarily boost the economy.

The worst? There are no limits. It is all on the table, with a narcissistic leader such as Trump. A complete loss of personal Liberties? Check. Cruel victimization of minority groups? Check. Needless war?  Check?

What I do know is that we must all start working our hardest to make sure that we do everything in our power to put a check on the possibility of real darkness, and work hard to undo the damage that Trump will likely try to inflict.

But before we get there, what the hell happened?

Autopsy

Here are the facts.

Donald Trump won the election.

Donald Trump will likely end up with 306 electoral votes compared to 232 for Hillary Clinton.

Hillary Clinton received far more popular votes than Donald Trump (she has an unprecidented lead (for an electoral loser) of nearly 2.6 million votes at the time of this writing.

Trump is now our president elect.

How it happened

According to exit polls, in addition to losing the national popular vote by over 2.5 million votes Trump also lost women, every race other than whites, and voters with a college education or higher.

So how did Trump win? He inspired an impressive increase in turnout among his base of non college educated white voters and a there was a small under-performance of Clinton’s  base of diverse urban voters.

Despite an increasingly diverse electorate in the country as a whole, Clinton was less successful than Obama in turning out Latino and African-American voters.

Overall relative turnout was flat to down when compared to 2012 despite a larger population.

The demographics that really pushed Trump to win were college educated white men, and non-college educated white men and women.

But I think it is safe to say that none of that would’ve mattered had core Democratic voters turned out as they did in 2008 and 2012.

There are many reasons why Clinton may have failed to turn out her coalition (poor political persuasion, the negative campaign effect, the Comey intervention, Wikileaks, unbalanced press coverage, etc.) but i believe it is undeniable that if she had simply turned out her coalition, as Obama did twice, she would’ve won. And it wouldn’t have been particularly close.

Why it happened

A dominant story-line in the aftermath of the election is that Trump won because of the economic anxiety, and the anti-elitism of the working class.

I don’t buy it.

Although it is clear that Trump’s chief appeal was that he represented himself as a crowbar to be thrown through the windshield of the establishment, it is worth noting that his appeal was not all that convincing to the working class as a whole.

Why do I say this?

According to exit polls Trump lost those with incomes under $50,000 a year by nine points.

He lost those with incomes under $30,000 a year by 11 points.

He lost nonwhite non-college graduates by 55 points.

There was of course one economically challenged group that he did do very well with.

He won with white non-college educated voters by 39%.

Now why would that be?

It is tough to argue that poor white voters have more “economic insecurity” then poor non-white voters. So why did poor non white voters not want to throw a metaphorical crowbar through the windshield of the establishment?

Could it have something to do with the fact that Trump was caught on tape bragging about sexually assaulting women?

Or that he referred to Mexican immigrants as “criminals and rapists?”

Or that he implied that a Muslim gold star mother did not speak about her son’s death because she was not allowed to as a Muslim woman?

Or that he explicitly said that a Mexican American judge was unable to do his job because of his Mexican heritage?

Or that he employed a self proclaimed “alt right” propagandist as his campaign CEO, and was literally endorsed by the KKK?

Isn’t it fairly clear that Trump’s unique appeal to non-college educated white voters was his implicit racism?

If not, to what is one to attribute this disparity of voter preference among white and  non white working class voters?

NB: There is plenty of research supporting this hypothesis that white racial resentment predicted Trump support too.

As an example this article found that racial resentment was as strong a predictor of Trump support as Republican Party ID. (Not true of Romney/McCain supporters.

(It also cites another study which found that racist google searches were one of the strongest predictors of Trump support.)

Why am I angry?

In short, the explicit racism, misogyny, Islamophobia, and and scapegoating nationalism, of Trump’s campaign is why I am angry at Trump voters.

I certainly do not believe that all Trump voters are explicitly racist, but I do believe that each and every Trump voter, at a minimum, saw that that Trump’s campaign was explicitly racist, misogynist, and Xenophobic. It was a campaign straight out of a fascist’s handbook. And at a minimum every single Trump voter saw that Trump had actively and intentionally insulted every demographic other than white men. And then each and every one of his voters decided that frank racism was not disqualifying for the job of president.

In my view, they were simply wrong.

Why anger is not constructive.

But anger at Trump’s voters will get me nowhere. So I’m trying to get beyond my anger and to focus on my next concrete steps. As much as I childishly want to (and do) vent my anger, it would certainly be more strategic for me to choose to be constructive instead.

I know better than to think that I will get anywhere by convincing Trump voters that they were condoning racism by voting for Trump. People don’t respond well to that sort of thing. That would be counterproductive.

Going forward I must choose not to blame Trump voters for Trump’s election, but to blame myself instead.

I did not do enough to get out the voters who share my values of inclusion and fairness.

If the Democrats had simply done as well as in the previous two elections at turning out sympathetic voters, Trump would’ve lost in a landslide.

More to the point, the country is only getting more diverse, and more urban. Embracing diversity and turning away from racist impulses is not only ethically right, it is strategically correct.

So that must be one place where we focus our energy going forward.

So where do we go from here?

There are two goals that I believe we must have pursue for the next four years.

1. Protect our republic from the real and present danger of fascism, scapegoating, minority victimization, eroded civil liberties, and the loss of cultural norms/rule of law.

And

2. Work to minimize the damage of Trump’s presidency by both working tirelessly against him politically, and making sure that he never wins again.

So what concrete things can do we do next?

1. We can put pressure on our elected representatives to act as a consistent and fierce roadblock to Trump’s agenda.

To start with,

Call your both of our Senators (find their phone number here) and ask them to actively oppose any Supreme Court appointments until Obama’s appointee Merrick Garland is seated on the Supreme Court. Tell them that you support a filibuster if necessary.

Demand that your senators oppose Jeff Sessions for Attorney General. He was not confirmed as a federal Judge by a republican senate because of his history of racism and voter suppression. He would surely not defend minority voting rights or criminal justice reform.

Call them the next day and demand that they oppose Scott Pruitt, a vicious climate change denier, to head the EPA.  This is the ultimate fox guarding the hen house scenario.

Demand that your elected representative look into Trump’s business conflicts of interest, and the potential for corruption caused by his decision to not place his company in a blind trust.

Demand too, that they pursue a thorough investigation into the Russian interference with our election.

Most of all tell your representatives that we will continue to support them as long as they stand in firm opposition to Trump’s unmandated fringe right agenda, and any attempts of  his to abuse power.

Obstruction by any means necessary is what we want from our representatives.

Now is not the time for squishy, apologetic progressivism.

2. We can give our money to good causes.

Now is the time to give as much as we can afford to civil society organizations like the ACLU, the Southern Poverty Law Center, the NAACP, and the anti-defamation league. These organizations are the foot soldiers in the battle against government abuse and racial victimization.

Planned parenthood will surely come under attack under this unified Republican government, so if women’s health/reproductive rights are a priority for you, as they are to me, please give time or money to them too.

3. We can get more involved politically. (This is really important.)

If you live in Louisiana, call up your local DNC office and volunteer to get out the vote for current candidate Foster Campbell. Winning that race in the Deep South would send an important message to the Republicans that they have an active opposition and should not overstep.  Even if we don’t win, it will set the stage for future wins on GOP turf.

If you don’t live in Louisiana, you can first give money to Foster Campbell’s campaign, then see if there is a contested House of Representatives race near you in 2018 and volunteer to turnout voters for that.

You can call your state representatives and advocate for a vote by mail system, (as we have in Oregon) which has been shown to increase voter turnout.

You can tell your state reps that you support the National Popular Vote Interstate Compact which would effectively give the presidential race to the popular vote winner.

4. You can support good journalism.

Buy a subscription to a real newspaper like The New York Times and the Washington Post (or both) and your local newspaper. The best guard against corruption is a free press.

5. You can protest.

Although I did not participate in protesting the democratic collection of Donald Trump, peaceful protest is going to be a very valuable tool for us going forward.  The counter balanced to authoritarianism is the peaceful expression of free speech at the drop of a hat. Over the next 4 years it will be absolutely crucial that we take to the streets to shine a light on Trump’s inevitable over steps.  A Muslim Registry?  Take to the streets.  Repeal of healthcare coverage for low-income Americans?  Take to the streets. Trump pulls us out of global climate change agreements?  Take to the streets.

6. You can not give up.

Make no mistake, the next four years will be a test for all of us. They will be draining and dispiriting and depressing.

We must not become lazy or cynical. We must not look away and distract ourselves with escapism. Such laziness plays directly into Trump’s hands, (as did our laziness in not getting out the vote in the first place.)

We must patiently chip away at his legitimacy and in so doing take away his power to hurt our fellow Americans, and our political system as a whole.

The above list is merely a starting point. Please add to it with further ideas on how we can actively resist Trumpism.

I will happily amend the article to include your ideas.

What I am sure of is that we must start working together to build a solution to Trump right now.

There are hazards galore. Self-pity, hypochondria, grumpy old man-ism.

Furthermore there is no redemptive story yet. I have not overcome but am only in the early stages of trying to overcome a minor and rather undramatic challenge. The ending is but a guess at this point.

So let’s get into it.

The saga of this old milk fed cardiologist trying to run continues.

As you may recall I started the year with an ambitious goal to run every single day.

Within two months my ambition was exposed as foolish when I developed a stress fracture in my midfoot and was sidelined for a couple of months.

60 days later, chastened, and eager to restart, I began a new plan which involved running every other day and hill walking on off days.

Once again I settled into the rhythm of daily exercise and begin to think of myself as “a runner.” But within two weeks I began to develop shinsplints in my left ankle.

My kind of self help book…

Having learned nothing from my prior experience with my stress fracture, the obvious solution was to just push through the pain and keep on running. And within a few days of this approach my left ankle blew up like a balloon making it incredibly difficult to walk even short distances in my daily life.

Once again I was sidelined.

Three weeks later my ankle is just starting to recover.

So let me delve into the lessons that I am just starting to learn from this latest chapter of the world’s most uninspiring athletic journey.

Lesson 1: “no pain no gain” doesn’t work anymore.

I seem to have crossed some invisible barrier where my body has become less resilient.

When I was younger the only thing that stopped me from becoming more fit was my own laziness.

But now, as I’ve become more patient and more willing to accept small doses of pain doled out over long periods of time, I am finding that pain now means something else entirely.

Whereas pain used to be my body’s way of telling me, “you are lazy.” Now pain seems to be my body’s way of telling me, “you’re doing it wrong, and you are damaging me.”

Lesson 2: Youth is wasted on the young.

When I was younger that old saw just sounded so lame.

What I heard when older people would gripe about youth being wasted on the young people was basically just “wah, wah, waaaah.”

But now I realize the truth of that statement, and it has to do with time, and the perception of time.

When I was younger I had no patience. I didn’t really believe in the possibility of people changing, because I was completely insensitive to the potential of slow incremental changes over long periods.

What did not happen in a day or two did not seem real, possibly because I hadn’t yet experienced enough fleeting triumphs, or shortlived tragedies.

But now I’ve seen some really bad days that have turned good, and vice versa, so I am more attuned to the idea that what I am experiencing now is fleeting. This realization  has opened me up to the possibility that small changes repeated overtime can have big effects.

Compound interest, as an example, makes sense to me in a way that it never did in my 20’s. Even though I still can’t experience compound interest in my daily life, I have enough faith in the exponential power of small gains over time that I am now open to the possibility of its power despite it’s seeming invisibility.

How cruel then that in this moment in my life when I am becoming more sensitive to the power of small changes over time, my body begins to reject repeated small bits of pounding over time!

Lesson 3: Shit! I’m Mortal!

This one has to sound overblown at first glance.

After all this reflection comes from nothing more than a soft tissue injury of my ankle.

We’re not talking pancreatic cancer.

But hear me out anyway.

The fact is that something has changed in my body. I’ve experienced two hobbling injuries within a couple months as a result of some pretty minor exercise.

I didn’t attempt to run a marathon. I didn’t try to hike the Pacific Coast Trail. There was certainly no Ironman attempt on my part.

But there I was hobbling around on a swollen left “cankle,” and it wasn’t (literally or figuratively) pretty.

I felt as if I was on the down slope of my life for the first time. The accuracy of this observation is open for debate, but the feeling was a real one.

My body had acted in an unexpected and disappointing way to a minor challenge. And on a deep and existential level it felt as if I had been given the first small taste of my own inevitable decay. It felt like a betrayal.

Lesson 4: The canary in the coal mine.

There is another side to the coin of this whole decay angle however.

Much like a canary in the coal mine, this minor pesky injury has the potential to ward off bigger dangers, more serious injuries, and immobility as an old man.

To extend the metaphor if you are a coalminer and your canary falls over dead, it’s time to get back to ground level. And if you are a 41-year-old cardiologist who injures yourself twice with recreational running,  the lesson is clear: it’s time to start working on your own mobility.

Perhaps I should stop heel striking you say?

The only thing I can assume, and I may be wrong, is that I’ve been running with really poor mechanics.

When I was younger I didn’t injure myself running simply because my tissues were more resilient to injury. But the “benefit” of aging is that I am now able to feel the slow grinding that my poor technique has been subjecting my joints too.

So now I will start working every day to learn how to run right.

At the suggestion of my friend Brad Barrett I picked up the book “Ready To Run” by Kelly Starrett.

And I am now starting to work 10 minutes every day on things like hip mobility, ankle range of motion, posture, hydration, and flexibility.

The lesson that I have learned, (and I which can only hope that is it is the right one at this point) is not that I should stop running. It is that I should work on my running technique to make it more sustainable and less destructive to my body.

For now I am once again hill walking every night and working diligently on my own mobility. But at some point when I feel I have made significant progress, I will start running again in order to see where I am in the process.  Running has changed from a goal in and of itself, to a tool that I can use to measure my own progress.

I hope that the byproduct of this will change in focus will be greater health, mobility, and vitality going forward as I age.

And this is really all that I can hope for. Trying to avoid getting old is never a smart strategy. But trying to learn how to age better is not a story of decay at all.

It has the potential to be a story of growth.

Which is not to say that I am in any way more rational than the next guy. Not at all. My lack of piety simply reflects my own particular (and somewhat random) cultural heritage.

Both of my parents, and three out of four of my grandparents were secular Jews. (The fourth was my German Catholic grandmother who converted to Judaism to marry my grandfather in Nazi Germany and then fled with him to Palestine where my mother was born. And she was the most unreligious of them all.)

So my skeptical agnosticism is in no way an original thought on my part, it’s just my cultural heritage. It’s how I was raised to see the world. Much as a born-again, or a Shiite, or a Mormon or a Hassid has inherited his own specific cultural perspective.

But one of my best friends in college and my roommate was the son of a Lutheran pastor who went on to become a pastor himself. And I found that there was very little difference in the way that he saw the world and the way that I saw the world. We had an almost indistinguishable sense of what was right and what was wrong, and what was decent and what was perverse. We simply used different metaphors to describe our perspectives.

So in my experience religion is neither good nor bad. It’s just a broad category of cultural frameworks that use extra-human authority as a metaphor. In this way my own secular agnosticism is almost another religion (minus the extra human authority.)

So religion’s no problem, per se.

It’s religiosity that can be counter-productive.

And what do I mean by religiosity?

Religiosity, as I am using the term, has nothing to do with religion or God.

It has to do with fundamentalism.

It has to do with dualistic “either/or” thinking.

But most of all it has to do with certainty.

To my way of seeing things the world is a mysterious and beautiful affair born of randomness and probability and chaos.

Although we humans constantly attempt to chip away at the fabric of our reality with scientific inquiry and abstract thought experiments, the fact remains that the universe is an inscrutable mystery with an ever unknowable future.

This is an unsettling state of affairs, even to secular types like me.

My usual approach to dealing with this great unknown is pretty standard. I simply pretend that it doesn’t exist.

I go about my life focussing on its reassuring and routine patterns and repetitions, and generally ignore the enormous precariousness of my own existence and future.

But there are areas of life where it is almost impossible to escape the discomfort of how little I know.

Mortality and finances come to mind.

When a friend or an acquaintance unexpectedly dies the take-home message is unavoidable and clear.

We are all headed for death, and none of us knows what happens after our last breath passes through our lips.

And that’s about as uncomfortable a message as I can imagine.

And this discomfort makes us do interesting things when we are confronted with death.

As an example when an unusual and life threatening illness befalls a young person unexpectedly in the hospital, I generally find myself trying to search for a reason for the bad outcome like “patient X was a smoker” (and I’m not.) or “patient Y did not have his medical needs attended to by society,” (whereas I have.)

In this way I pretend as if death were an avoidable consequence of a moral failing, or the unfortunate sequela of inadequate access to resources. (As opposed to say the final destination for all of us.)

Which is odd, no?

Similarly (though perhaps to a lesser extent) I am very concerned about the unknown when it comes to investing my hard earned money for the future.

It’s uncomfortable to remind myself that the Great Depression was merely our worst economic downturn to date, and certainly won’t be the worst in the future. Stockmarkets do go to zero (Just ask the Russians). And empires do eventually collapse, (Just ask the Greeks.)

The best that we can hope to do is to play the probabilities based on past history, and to take the best odds available to us. It all amounts to little more than an educated guess.

But what we all crave, of course, is a guarantee. A cause and effect world where if we do “A,” “B” must necessarily follow.

Which is where religiosity comes in.

My feeling is that fundamentalism is an overreaction to life’s uncertainties, and particularly the great unknown of our own mortality. Religiosity is the building of a rigid and unbending conceptual framework to buffer ourselves psychologically against all that we can’t know.

It is comforting to imagine a world of simple laws and a unified source of authority. But what is comforting is not necessarily true.

Furthermore religion is certainly not the sole domain of religiosity. Fundamentalism is everywhere that there are people believing in things.

There are fundamentalist Bogleheads, and fundamentalist mustachians, and fundamentalist trend followers, and fundamentalist value investors, and fundamentalist vegans, and fundamentalist tango dancers, and fundamentalist cross fitters etc. (you name it.)

These fundamentalists can be recognized a few key attributes.

• An inflexibility of thought.
• An extreme inability to process data that conflicts with their own assumptions. (we are all guilty of this one to some extent. It’s a matter of degree.)
• An impulse to evangelize.

And as you may have gathered I’m very suspicious of fundamentalism of all sorts. This impulse to simplify the world around us with little more than pretty stories seems to me analogous to little kids who close their eyes and imagine that they can not be seen.

Why should reality conform to our own specific and ridiculously insignificant perspective?

But I do realize my potential for hypocrisy here. After all my complaints about fundamentalism could very well be a simple reflection of my own tribalism.

In other words, who’s to say that I am not simply a fundamentalist secular humanist?

Surely I should put some checks on my own inherited beliefs in order to avoid this hypocritical fate.

Here then are some rules of thumb that I Have cobbled together on the fly to try to follow in the future in order to mitigate my own subconscious need for certainty.

The 8 Commandments Of Un-Religiosity. (Irony Intended.)

1. Be very suspicious of my own generalizations about other people’s beliefs.
2. Remember, that at all times, I am probably making some very faulty assumptions.
3. Strive for empathy. And remember that human disagreements are often about random differences of personal history.
4. Give others the benefit of the doubt and assume that the people with whom I disagree are sincere, and every bit  as human as I believe myself to be.
5. Be open to admitting that I am wrong, especially when I realize that I am.
6. Resist trying to make other people more like me. (After all, I’m no great shakes.)
7. If I am convinced that I’m right, then I should try harder to prove myself wrong. (Because I probably am.)
8. Be very suspicious of data that confirms my own beliefs.

That’s it. Those are my first 8 commandments for avoiding false certainty.

They aren’t complete* and they certainly aren’t written in stone, (only in blog.)

And while I’m certainly going to try to adhere to them, it won’t be easy for me. After all they were only published by a random guy on the Internet…

* this is intended as an open source list. Feel free to add more Commandments in the comments section below. That way the comandments will be written by a collection of random people on the Internet. It may just lend legitimacy to the project!

Topic number one is the miles game. Simply put, this is the set of skills that allows you to harness the generosity of credit card company signing bonuses and loyalty currency perks for your own benefit. And to surprising effect.

Topic number two is investment. The idea here is to set aside the savings from your miles game exploits to turbo charge your path towards financial independence.

Together these topics have a lot to commend them. Fantastic vacations for pennies on the dollar, access to premium travel experiences for a pittance (I am flying my family of five to Japan on Japan Airlines business class for $450 this summer as an example), and the comfort of knowing that you’re setting aside enough money so that in the not-too-distant future, employment will become a choice, not an ongoing requirement.

But you may have noticed that I’m not publishing so much about the miles game here on Miles Dividend MD anymore. Which is not to say that I have not been writing about this pursuit at all.

As of February I have moved my travel hacking posts over to travelmiles101.com.

Travel miles 101 is a free course that I have been running with Brad Barrett over at richmondsavers.com since February.

Our goals for this course are simple,

1. To systematically teach our students everything they need to know to begin play the miles game efficiently and with minimum effort in one short month.

2. To provide a real-time responsive community for our students so that they can share their exploits, have their questions answered in real time, and share their growing knowledge base with others in a private and safe forum.

3. To provide an up-to-date repository of the latest travel hacking wisdom from around the blogosphere for everyone’s continued reference.

And to date the course has been an unmitigated success well beyond our initial projections.

We now have a thriving community of travel hackers reaching their travel goals on a daily basis.

We are enrolling 100 to 150 new students every month.

And our curriculum and platforms continue to evolve each month in order to provide an ever improving learning experience for each of our community members.

So if you are even mildly interested in learning how to travel for next to nothing, then you should absolutely sign up for our upcoming course which starts in less than a month.

If you like to travel then it’s truly like giving yourself a $10,000 a year raise, after-tax and for free.

Follow the link below if you’re at all curious and leave a comment below, if you have any questions.

http://www.travelmiles101.com/travel-rewards-course-registration

The course tends to fill up by mid month, so if you want to start June 1, now is certainly the time to jump.

I’ve told this story in bits and pieces before, but it’s high time that I gave you my full explanation for why I think that dual momentum works, uninterrupted and in excruciating detail.

The good news is that I’m going to give you that story right here and right now.

The bad news is that I am also going to argue that you should probably just ignore my story, because it doesn’t mean much. Oh and you should also probably ignore the story that you use to justify whatever investment philosophy that you are using right now. That doesn’t mean much either, in my opinion.

But enough prologue, let’s get into the meat of the matter.

Why dual momentum works

Dual momentum is actually not a single story. As the name implies, it is two separate stories told simultaneously and blended together into one. Those two stories Are those of “relative momentum” and “absolute momentum.”

Relative momentum

When people talk about momentum they are usually talking about relative momentum. This market anomaly stems from an empirical observation that assets that have performed well in the recent past (between 2 and 15 months) will tend to continue to perform well in the near future (the coming 1 to 2 months.) This simple observation has proven to be very robust, in that this tendency has been demonstrated in all market types , in all time periods studied, and has persisted unabated long since it was first described by Jagadeesh and Titman in 1993.

But we’re not discussing empirical observations today. We’re talking about stories. In other words forget that the sun has risen every day for millions of years, what we want to talk about now is why the sun rises every day.

In my view, relative momentum is primarily a behavioral story. Efficient market types will of course try to squeeze the momentum anomaly “toothpaste” into the risk story “toothpaste tube,” and will continue to sound foolish in doing so.

Not to put too fine a point on it, but in my view momentum is simply quantitative evidence of human beings’ inexorable tendency to chase performance.

Think about the first time you had to make an investment decision. Perhaps you were selecting a fund for your first 401(k)? And maybe you didn’t know very much about investing. But there they were; a long list of funds, and a bunch of columns of data. What did you look at first? I’m guessing that one of the first things that you were drawn to, like a moth to flame, was the past performance for the various funds listed. I know that was the case for me.

But eventually you probably figured that your first instinct wasn’t the smartest way to choose a fund, and that there were bound to be smart people out there who had written books to help you learn how to invest.

So you probably picked up some books to read, or maybe you read some blogs, or talked to a financial advisor (you didn’t know any better at the time.)

And there were a lot of different stories to choose from. You could’ve attached yourself to a value approach, a technical trading approach, a growth approach a dividend growth approach,or a momentum approach, to name but a few.

And whoever delivered the argument for the approach that you eventually adopted was probably a smart guy with a good story.

For me the most compelling story was that of index investing. It was a story of an efficient market that continually grew. There were lots of smart people trying to beat the market, but the smart people generally canceled each other out, for each time someone sold something, someone else was buying. In other words it was a zero sum game. And since so many smart people were playing it, it was very hard to be consistently above average. So in the end the best you could reasonably hope to do was to match the market minus fees. (Which meant that keeping fees low was of paramount importance.)

It was a compelling story. And it was a story well told in my case by authors like Larry Swedroe, William Bernstein, Jack Bogle, and others.

But the most convincing part of the story itself, was the proof that was in the pudding.

Over long time horizons (say 10 years or longer) the broad market (and its surrogate, low cost passive index funds) consistently beat the active traders participating in it to the tune of a whopping 80 percent of the time. And most of the 20% of investors who had beaten the market had an outperformance that could be entirely explained by simple luck.

Worst of all for the active crowd, The traders who did beat the market did not deliver their investors enough of a return over the market to justify the risk that the investors had taken (to the tune of an 80% probability) of underperforming the market.

To be sure there were some truly skilled investors. The Warren Buffett’s and Paul Tudor Jones of the world who outperformed the market in a manner that was very difficult to explain by randomness or luck. But these savants were only recognizable in retrospect, so searching for the next one was a sucker’s play.

So all in all it was a good story, and one that I still believe in, even though I’m not much of a passive indexer anymore.

But in all honesty I think the story was largely irrelevant. What had really convinced me was the data itself.

Put another way, if active investors had consistently beaten the market 8 times out of 10, and if Vanguard funds had consistently underperformed their active counterpoints, would I have cared what story Jack Bogle had to tell me about the market? Would I even have known who Jack Bogle was, or Larry Swedroe, or William Bernstein?

Obviously not.

Because it wasn’t just these guys who had convincing stories. Everyone had a story. About risk premia, or human behavioral biases, or about pathognomonic shapes in stock charts, or about intrinsic value, or company specific growth potential.

But in the end the proof was in the pudding.

(Proof lies herein)

We only listen to stories that are validated by empirical observation. (And we are wise to engage in this selectivity of survivorship bias: Who in their right mind would ever listen to a homeless man telling them how to become rich?)

Put another way, even if you are a true blue believer in the efficient market hypothesis and passive investing, the main engine for your belief was probably driven by performance chasing.

Still not convinced? Do you still think that is the underlying logic of your chosen investment strategy that informed your decision to choose it in the first place?

Then please answer this question….

John Bogle started the first passive investment trust in 1975.  Since that point he has basically been telling the same story over and over again. His logic has been sound and unchanging. But if it was the Eureka realization of his logic that informed his future success, then shouldn’t the world have been convinced upfront?

Shouldn’t there have been a massive conversion towards passive investment once a passive investment vehicle was offered to the market at a fair price? After all humans are almost certainly no more intelligent now than they were in 1975.

But let’s look at how this dramatic movement of dollars towards passive investment actually occurred.

(It took almost 20 years  for passive investing to get to a 3% market share!)

 It was a gradual conversion, not a mass conversion (to say the least!) And I don’t claim to know why that was, but my best guess is that over time Bogle’s hypothesis was born out by the data and this slowly convinced people and institutions to move their money towards his winning manner of investing.

The winning story of passive investment spread because passive investment just kept on winning.

All of which makes the inexorable performance chasing tendencies of human beings a good enough foundation upon which to rest an investment strategy, if you ask me. (Not that you should.)

In my conception of relative momentum each trade or investment decision made by a person is subtly affected by the inescapably human tendency to chase performance. So perhaps we are a little bit quicker to buy recent winners and a little bit slower to sell them. And perhaps we are a little bit slower to buy recent losers, and a little bit faster to sell them.

And on an institutional level transactions occur much slower as funds move away from losing funds and towards winners. This latency is caused by the inherent cost of moving large sums of money, and the constraints on moving large amounts in and out of funds (Agency effects, contractual obligation’s etc.) These constraints at least partially account the unchanging timeframe of price momentum (3 to 15 months.) (This observation about institutional agency effects perpetuating momentum was originally put forth by a group from the London school of economics.)

So the take-home message is here that, at least to me, performance chasing and human irrationality form a coherent story about why price momentum exists.

But this coherent story is probably irrelevant, since the only reason I’m telling it is because momentum exists it has been proven to persistently increase returns over the broad market in a robust and convincing manner.

So that is one half of the (irrelevant) dual momentum story. A story about how human beings have a basic tendency to chase performance, and how this creates reproducible price momentum.

But what about the other half of the story. What about the absolute momentum story?

Absolute momentum

Absolute momentum (or time series momentum) is really not a momentum story at all. It is a trend following story.

Trend following, is a form of technical analysis (a dirty word in academic circles) that posits that we can get valuable information about future returns based on past returns. It ignores fundamental information about value and simply focuses on the simple patterns of price movement.

It’s justification is largely behavioral, namely that humans partially base buying and selling decisions on illogical determinations of relative value.

And while such a justification might sound pie in the sky or soft at first blush, there is a wealth of data to suggest that such behavioral tendencies have existed and continue to exist in us humans to this day.

(Again if you haven’t read Thinking Fast And Slow yet, shame on you! It’s a hugely important book that sheds light on the strange ways in which we humans actually make decisions.)

A couple of the key heuristics that support the philosophy of trend following:

1. Anchoring: our human tendency to irrationally judge value based on the known value of statistically unrelated items.

2. Recency: our tendency to over emphasize the importance of events or information (eg prices) in the recent past, and to under emphasize the significance of more distant events.

Trend following can take many forms. But the overlap with momentum is fairly obvious. If you follow trend you will generally buy winners and sell losers, since doing the opposite would run counter to both momentum and the trend.

I would group both absolute momentum and long-term moving average rules under the same umbrella since they both attempt to do the same thing.

When a stock’s (or index fund’s ) price falls below the 200 day moving average or when a stock’s (or index fund’s) returns fall below cash returns for a preset look back period of 3-12 months then the message is basically the same: The stock, (or index fund) that is being followed, is in a bear market, and it would be wise to liquidate your position into a safe asset until it starts growing again.  In other words both of these approaches are just ways recognizing and exiting bear markets in a timely manner, once they have started.

And obviously both approaches have worked in the past or we wouldn’t be talking about them now.

Test these approaches in any market for any lengthy time period and you will get remarkably similar results: markedly diminished drawdowns.

So the question is obvious: Why should these approaches work? In other words what guarantee is there that just because bear markets have looked a certain way in the past, they will continue to look that way in the future?

There are no guarantees. And there is an example in the past where these approaches have not protected its practitioners from feeling the full brunt of a market downturn (The flash crash of 1987.) and there is no reason why whipsaws cannot randomly happen in the future.

But there is reason to believe that future bear markets will continue to look enough like past bear markets that trendfollowing approaches will continue to almost always work at mitigating draw downs.

Why do I say this? Because when we are talking about large scale expansion and recession, we are talking about the business cycle. And when we are talking about the business cycle we’re talking about the movements of a large economies. And large economies are like battleships, not Jet Ski’s. They cannot turn on a dime.

It takes time for bubbles to inflate. And it takes time for risks to work their way through a system. And when an economy begins shrinking, it takes time to for those in power to recognize that it is in fact shrinking. And when second order actions occur, and interest rates are dropped by central banks, and stimulus bills are passed by governments, it takes time for the pain to work its way through the system, and for the corrective actions to have any effect at all.

And past a point, no matter how long the bear market lasts, for the remainder of the draw down, the trend follower will outperform the broad stock market which will continue losing value even as the trend follower’s portfolio is sitting in safe assets.

So a bear market really cannot be too long. It can only be too short for a trend follower.

And how short is too short? A draw down is too short if only short-term treasuries do not outperform the risky assets for the lookback period in a dual momentum portfolio prior to the beginning of the next market recovery.

And note that in this instance the trend following approach does not underperform, it merely fails to outperform.

The only real problem arises when there is a very rapid drawdown followed by an immediate and slow recovery, as was the case with the Flash crash and recovery following Black Monday in 1987. Such an occurrence is a scary prospect for this approach, but it’s also been a very rare occurrence historically.

So when you combine the business cycle scale effects that make it very unlikely for future bear markets not to last for similar time frames as in the past (or longer,) with a strategy that is very good at recognizing bear markets as long as they do not occur too quickly, you have a compelling argument for why trend following should remain robust in its ability to diminish drawdowns long into an unknowable future.

(One could even argue that this form of trend following is “anti-fragile” since it thrives in comparison to other strategies when market conditions become random and negative. )

But in the end this too is only a story, and like most stories it is only being told because it describes past successes.

In the end none of us knows what will happen in the future. Not Jack Bogle, not Warren Buffet, and certainly not you or me.

It all ends up being a probability play in an inscrutable world of randomness and unpredictability.

And all we have to help us as we choose where to put our pennies down, are the recordings of past events, and pretty stories to make us feel better about our decisions after the fact.

And as pat as it is to compare investing to war, it is also apt. For every investment is a transaction between a buyer and a seller, which means that every trade, on some level, is dualistic. You either win or you lose.

In my last post in this series I looked at the broad philosophical justification for dual momentum investing. Namely the empirical observation that momentum is everywhere, and the hypothesis that as long as humans are involved in markets, momentum is likely to persist. Performance chasing is just that essential to our make up.

So in this post I want to make like Sun Tzu and to consider my own chosen strategy’s weaknesses before entering into battle. For in battle there is no time for doubt. And since there is no strategy that does not contain weakness, it stands to reason that it is better to ponder any strategy’s faults in order to see trouble coming, and to react to it with calm rather than panic.

And so to begin this exercise let me lay out my fundamental assumptions about dual momentum. For without a doubt it is what I am sure of that is not in fact true that has the most potential for my own destruction.

Here then are my honest assumptions about the nature of capital markets and dual momentum investing that have informed my decision to adopt this strategy for my own tax exempt portfolio.

1. Since relative price momentum has existed everywhere that it has been studied, and has persisted long after it was first described, it is likely to persist into the future.

2. Absolute momentum (or timeseries momentum) is a form of trend following. As such by its very nature it must provide persistent and predictable downside protection.

3. Short-term treasuries are a risk-free asset.

So let’s come up with some counter arguments or hypothetical scenarios which would weaken my underlying assumptions and cause the persistent underperformance a dual momentum portfolio.

Hypothesis 1: Momentum Is Pervasive And Persistent in all markets.

Counter argument: The make up of the market is changing.

Although dual momentum has been present everywhere it has been looked for to date, markets are rapidly changing. Each year passive index funds claim a larger proportion of invested dollars (though at this point they’re still the vast minority.)

And if the performance chasing active investor is apt to perpetuate momentum by buying recent winners, shouldn’t the rebalancing of passive investors perpetuate the exact opposite? (Rebalancing should move in opposition to performance chasing, because by it’s very nature rebalancing means selling recent winners and buying recent losers. )

Furthermore the last few years have seen the rise of the Roboadvisers. If future decisions are to be made more and more by perfectly rational computer algorithms, and if momentum is an expression of human irrationality, then isn’t there a decent chance that the momentum effect will become ever more dilute with automation?

I have not been programmed to chase performance…

Takeaway: At this point the market is still very much driven by human decision-making, and active management. Given this, my feeling is that momentum continues to be a very good bet. But it’s worth always keeping an eye on the evolution of the market because the forces that drive market moves may change and at that point relative price momentum may become a bad bet.

Hypothesis 2: Absolute Momentum Protects Investors Against Big Drawdowns.

Counter argument: There are at least two exceptions to this rule.

For the most part bear markets are all similar versions of each other. There is a fundamental change in the marketplace that shocks the market, traders panic, volatility goes through the roof, and the stock market stairsteps downwards over the course of months and years. It reaches bottom, and then begins a gradual recovery in fits and starts.

And it is this classical version of a bear market that packs most of the returns beating punch in the dual momentum strategy. For although relative price momentum allows the investor to gain incrementally more during bull market periods, absolute momentum allows the investor to lose dramatically less during Bear market periods. Why? Because once the market starts stair stepping down, and the returns of the invested asset class over short-term treasuries during the look back period have been erased, then the investor switches fully into the safe asset of short-term treasures. In this way the dual momentum investor is safely on the sideline for most of the bear market (and a brief time at the beginning of the recovery.)

But when would such an approach not work? The answer is obvious:

In A Flash Crash.

A flash crash such as what occured on black Monday in 1987 is the worst case scenario for a dual momentum investor. Why? Because it causes big problems in 2 separate phases.

Phase 1: the crash.

The crash itself will almost definitely hurt your dual momentum portfolio.

Unless the crash occurs in the midst of a bear market at a time when you have already divested of stocks or other high risk assets,you will feel the full weight of the flash crash’s destruction.

It will be difficult to tell your portfolio from that of a 100% “risk on” stock portfolio on the day of the crash.

But if you are anything like me, it will be worse than that. After all, dual momentum’s primary attraction  is it’s a promise of diminished drawdowns with unfettered returns. But here is an instance when “temporal diversification,” offers none of the benefits of plain old asset class diversification.  In this instance, the dual momentum investor’s portfolio is indistinguishable from that of a 20 year old stock trader who wants big rewards for taking big risks.  In other words the concentration of stocks within the portfolio at the time of the crash creates a bad mismatch between investor risk tolerance and portfolio risk.

But don’t worry, it gets worse…

Phase 2: the recovery.

If the flash crash is a plain old panic such as what was seen on Black Monday in 1987, then the market will react rationally afterwards, and prices will bounce back relatively quickly. Equities will soon recover to reflect their true value in the market.

So what would be expected is a very rapid drop, followed by a pretty rapid recovery.

This is the truly the worst case scenario for the dual momentum investor. For as soon as the month of the flash crash ends, the strategy will dictate the selling of high risk assets and the buying of safe assets. So just as the market begins its recovery from its hick-up, the dual momentum investor will be on the sidelines, losses locked in.

This nasty scenario really poses the same problem for any tactical asset allocation strategy including the 200 day moving average approach. (And frankly I lack the back testing tools to display an isolated look at this time period with dual momentum) so let’s look at the  years surrounding Black Monday using a 10 month moving average strategy with the S&P 500.

(Tough coupla years for trend following…)

Take home: flash Crashes are kryptonite to trend following strategies like dual momentum.

One could come up with strategies to avoid this doomsday scenario, such as filtering out large single day drops in bull markets, but since there’s only been one black Monday in our history, it would be impossible to test such a strategy in any meaningful way. So my feeling is that it is wiser to take the bad with the good and stay true to dual momentum even should such an event occur again in the future.

I comfort myself with the rarity of such events in the past in contrast to the pervasive outperformance of dual momentum in long term backtesting.

So flash crashes are absolutely a risk to be aware of and to prepare oneself for psychologically.

But they by no means the only risk….

There Is Also The Risk Of Whipsaws.

Imagine you’re a dual momentum investor who uses 12 months as your look back period.

Now imagine the market slowly trends down over 12 months erasing the prior year’s gains. On the 12th month in keeping with the strategy you convert to a risk-free asset such as short term treasuries which have just begun to outperform the alternatives in your portfolio. As luck would have it the market starts to rally shortly after you move to the sidelines.

And several months later, when prices recover enough for you to become fully invested in stocks once again, the stock market once again takes a turn for the worse.

In this scenario you are “risk on” when the market goes down and “risk off” when the market goes up. Your timing is perfectly out of sync with the market. Never a good place to be.

This turn of events is termed a “whipsaw”.  And it can be a random but destructive turn of events for a tactical strategy such as dual momentum.

Take-home message: market whipsaws when perfectly out of sync with the momentum look back period can be very disruptive for the dual momentum practitioner.

One way to avoid this risk would be to use multiple look back periods when implementing your dual momentum strategy. For instance you could manage one third of your portfolio with a three-month look back, one third of your portfolio with a six-month look back, and one third of your portfolio with a 12 month look back.

This is probably something worth considering.  The main downsides to such an approach would be the increased complexity, and the increased trading costs (both in terms of commissions and bid ask spreads.)

Hypothesis 3: Short-Term Treasuries Are A Risk-Free Asset.

Counter argument: risk-free assets are only risk free until they are not.

I’m fairly certain that during the time of Alexander the Great, Greek government debt must have been considered “risk-free.”‘ The same must certainly have been true of Rome under Julius Caesar. Since Greek and Italian debt is no longer considered “risk-free,” the lesson is clear.  There is no such thing as a risk-free asset.  With time every asset is risky.

But the day that US short-term treasuries become a risky investment will be bad news for almost every investment class and approach, not just the dual momentum strategy. So while this is a real risk, it’s a tough one to hedge against regardless of your investment approach.

So those are some the risks that I can perceive lying out there waiting for me as a dual momentum investor. But I’m quite certain these are not the only risks. They are simply the ones that I can conceive of at this point in time.

Since I’ve chosen to go down this avenue, it is fairly obvious that I like the rewards of this approach enough to knowingly take on these risks. But if there are other risks to dual momentum that concern you, by all means share them below.

Because as Sun Tzu points out the more we know about our own weaknesses and strengths and as well as those of our competitors, the less we have to fear.

Simply put, we are all too collectively consumed with moving the ball of scientific progress forward.

In practice this desire ends up meaning that a result such as “treatment A works better than the current standard of care,” is much more likely to be published in a prestigious journal than a result such as “treatment A does not work as well as the current standard of care.”

If we were only concerned with figuring out how our world worked, a.k.a. seeking the truth, then negative results would be every bit as valued as positive results.

Objective reality simply exists, and ideally it is science’s job to uncover truth with the honest reporting the facts as they are revealed by a carefully executed scientific method.

But the existence of publication bias proves that our primary concern is not always with the truth. Like any other animal what we really care about is success! Reproductive success. Material success. Nutritional success, and temporal success, (longevity.)

And I am as guilty of this success bias as the next guy.

Take last years New Year’s resolution. My experiment with VB6 was a resounding success. I lost 12 to 14 pounds, dramatically increased my intake of vegetables and whole foods, and decreased my intake of refined starches and animal products. My health got better. I made a real lifestyle change.  And it was all surprisingly easy.

So I wrote about that experiment again and again.

Which raises the obvious question: what about this year’s New Year’s resolution? Remember that one? The one about me running every single day for a year and increasing my time running each day by a minute each week?

Whatever happened to that experiment? There was the announcement… And then there was radio silence.

Why? Well because it was not a life-changing success.

The results of my grand experiment are in…

I should’ve known that there would be a problem when on my post announcing my intention to pursue this plan, experienced runner and reader Robert K commented,

I laud your enthusiasm for running, but I fear that your ambitious plan has set you up for likely failure. I have been running for 27 years, since my third year of med school, recreationally, road and trail, and competitively, all distances up to 26.2.  Running daily is a sure-fire recipe for both injury and burnout, not to mention time constraints that knock you off course, and it is really not a great way to get in shape, assuming that is your goal.

This warning came from an experienced source and echoed almost everything that I had read about beginning a running program on the Internet.

Unsurprisingly Robert was right. And the way it played out was…

• I started out running eight minutes a day and didn’t miss a day for the first seven weeks. Each week I added a minute until I was up to 15 minutes a day except for one day when I fell asleep on the couch and didn’t wake up until the next morning. On the day following that I ran 30 minutes instead.
• Around week 5 I began to experience a pain in my lateral left midfoot which was severely worsened after running and mildly improved after rest.
• I actually found that I enjoyed running everyday, and that keeping it simple (as in running every day no matter what) really helped to form a habit. And so I pressed on running every day.
• At some point I started limping around while walking and the top of my foot became swollen and tender.
• I got an X-Ray of the foot and was given a preliminary diagnosis a third metatarsal stress fracture.
• I stopped running. (That was 3 weeks ago. ). The last week or so my foot just started feeling better, but it is still sore and I’m not running or even planning on running for another month or so.

So there you have it. my goal was to run every day without pause and to be running one hour every day by the end of the year. By any objective measure: my goal was not achieved. But I would not go so far as to say that the resolution was a failure. After all I learned plenty of lessons during my brief experiment.

Lesson 1: Do Your Research.

Part of the reason why the VB6 experiment was a such success was because it was based on solid research and expertise.

Contrast that to this year’s resolution to run every day. It kind of came out of nowhere.

It was certainly a contrarian move on my part in that most experts told me not to run every day. They warned that I would injure myself, or burn out. And they were right! I broke a bone.

The conclusion could not be more obvious. Betting against the conventional wisdom of experienced experts is a great way to think outside the box. And it’s also a great way to be wrong most of the time.

Lesson Number 2: Everyday Is Powerful.

Although I would give myself a failing grade when it comes to the entire New Year’s resolution, One aspect of it’s design worked exactly as I had intended.

When I introduced my idea for running every day on the blog I wrote this:

What I wanted to do was run every day for a year. I would start off slow, running only eight minutes every day. But each week I would add one minute to my daily running time, so that by the end of the year I was running one hour every day.  I wanted to run every day because I find it is easier to do something every day, (rather) than to choose to do it sporadically.

And I found that this every day approach worked exactly as intended.

Doing something every day is a completely different experience from doing something every other day or even most days. And I think there is a good reason for this.

When there is no chance of you not doing something, excuses become meaningless, and the action simply gets done. I found that the bargaining voice of my subconscience was largely silenced because no matter how good the excuse I came up with not to run, I knew deep down that I would run anyway.

As an example of this “power of the every day” I think back to a time when I went golfing with friends and started playing at eight in the morning walked 36 holes (walking somewhere between 10 and 15 miles) and finishing at sunset. My foursome then grabbed some dinner and three or four cocktails before heading back to our rooms at the resort. At that point I remembered that I had not run that day, so I went out, tipsy, in the unlit darkness of the Oregon coast and ran my 13 minutes. Why? Because I ran every day.

(Which is not to argue that this was a particularly smart decision. I ended up stepping in a pothole and falling forward and scraping my elbow ((coulda been worse)). The point is simply that the “every day” rule created a powerful compulsion to actually run regardless of the wisdom of running.)

Lesson 3: The Persuasiveness Of Repetition.

Although the repetitive slapping of my soles against the pavement did eventually cause me to fracture a bone in my foot, it had some other more beneficial consequences.

By starting slowly and running every day, my body gradually changed without much trauma. My muscles were never severely sore only pleasantly achy. I never felt like I was breathing fire, and my respiratory capacity simply grew slowly to keep up with my growing demands. I didn’t even get blisters.

Lesson 4: The Surprising Effect Of A Mantra.

When I started running every day, I joked to my wife… “I’m going running now… Because I’m a runner.” It was a ridiculous statement for someone to make who was running for the first time in years. But to a sarcastic type like me it was also damned funny. So I began repeating the phrase over and over again, day after day, to anyone who would listen.

So an offhanded comment became a recurring joke, and after a few weeks the recurring joke became a mantra.

And I may be wrong, but I’m pretty sure that this mantra affected me on a deeply subconscious level. Within five or six weeks I truly begin to think of myself as a runner. It was as if the repeated voicing of a ridiculous statement imprinted the statement (scrubbed clean of any sarcasm) deep within my brain until it became an actual part of my self-identity and not so ridiculous at all.

By the time my injury forced me to stop running, the idea of not running felt like a betrayal of myself. I even began to feel a little bit depressed, as if I were missing a limb or something. Why? Because I was a runner who was not running!

So even though I’m kind of allergic to the whole idea of self-help, I believe at this point that repeatedly saying something had a transformative effect on how I saw myself , which, in turn, effected how I behaved, and eventually even who I was. And even though the statement “Because I’m a runner” was originally uttered as a joke, it’s effect became indelible.

Which all sounds a little bit ridiculous, I know. Frankly it makes me feel like a real life Stuart Smalley staring into the mirror and proclaiming “Doggone it people like me.”

But there you have it. At the risk of sounding Pollyanna-ish, I do feel reflecting upon my failure has taught me some valuable lessons. And these are lessons that I can certainly put to use in the future.

So pushing my failure into a closet and not talking about it would’ve been counterproductive, much like failing to publish a well executed medical study with a negative result.

But as with any approach there are real negatives to dual momentum investing, both considered and unconsidered, so it would seem to be wise to ponder these downsides closely, and to open my favored approach up to real honest criticism. Which is what I will start to to do in this post.

Let’s start then with my favorite skeptical take on dual momentum investing which came from reader Ming;

As a Boglehead believer and a subscriber to general life rule of thumb that…anything that looks too good to be true most likely is. And so when I looked at the chart of the dual momentum strategy and that insane gain WITH lower volatility, I was both very excited and also very skeptical….
…But my question is this. And during my brief research into momentum strategies, I saw a video by a Columbia professor discuss this in 2010…so this has been known for a while. Why then, if this is so obvious and relatively easy to implement and seems to have almost guaranteed higher returns AND lower risk…why then are not all the professional managers and active mutual funds on Wall St making a killing from this strategy? Is this something new that has been discovered? Why should we lay people then just invest in a “dual momentum mutual fund” pay a management fee, but then get rewarded with much higher returns and lower risk without having to do the monthly calculations?
So in other words, if this active management/market timing strategy works so well, then why isn’t everybody in on this already?

I respect this criticism (probably because I share a lot of the same beliefs as the author.)

I am still a a huge believer in low-cost passive indexing.

I believe that risk and reward are necessarily related when it comes to investing. (I.e. there are no free rides.)

I too am suspicious of approaches that look too good to be true. And dual momentum’s increased annualized return in the setting of markedly decreased drawdowns admittedly can feel illusory.

I agree dual momentum is incredibly easy to implement, which makes me wonder how this momentum anomaly can possibly persist?

So let me try then to answer these questions in turn.

Why don’t more individual investors use momentum?

I think there are at many reasons why dual momentum is not more widely adopted among individual investors.

The first is that the momentum story is unintuitive. If prices move up-and-down based on rational decisions that the cumulative market and its individual players make about value (The dominant hypothesis of active management), or even if price movement is simply a random walk with no logic to it (The hypothesis behind passive management), then momentum simply should not exist.

So whether you are a true boglehead or a dedicated trader, the momentum story simply doesn’t resonate with your view of the market at first blush.

Momentum cannot be convincingly attributed to a risk story, nor can it be convincingly be used as evidence of the existence an efficient market. (it can be attributed to the inefficiencies of institutional investment structures, and to the pervasive irrational performance chasing tendencies of human beings, but who really wants to bet on that?)

Simply put, almost no matter what your investing bias is, momentum probably does not fit neatly into your organizing picture of how the market works.

In Daniel Kahneman’s excellent book Thinking Fast And Slow, he describes several heuristics, which are mental shortcuts that we take in order to rapidly and efficiently make sense of our worlds. Many of these heuristics fall under the umbrella of “representativeness.”

Representativeness describes how we tend to quickly and unconsciously bend incoming data to fit into our own working preconceptions and (quite often inaccurate) perceptions of how the world works.

By this quality of representativeness, momentum, although it is all around us and it’s evidence is pervasive, becomes invisible to us, and thus very difficult to commit to.

In my mind this blindness to human irrationality is the major hurdle that prevents investors from embracing momentum investing to the exclusion of all other approaches. But it is not the only hurdle.

The second reason that dual momentum investing is difficult to adopt, is that it is uncomfortable in practice.

As with any active approach there is tracking error which means that there will be times when your chosen approach gets creamed by the market. This is always uncomfortable, but it is particularly uncomfortable when the justification for your approach is hard to put your finger on. Simply put; betting on human irrationality will seem twice a awkward when the market is behaving rationally and kicking your butt.

Furthermore, on any given day a dual momentum investor will have a much less diversified portfolio then a “buy and holder.” Whereas a boglehead will generally hold international stocks and domestic stocks, a momentum investor will probably hold one or the other. More to the point a boglehead will generally hold some bonds and some stocks, whereas a dual momentum investor will often own either all stocks or all bonds.

All of this means that the day-to-day ride of the dual momentum investor will be much bumpier and more uncomfortable on average than the experience of a well diversified passive investor, even though, if past is prologue, the dual momentum investors bear market drawdowns will generally be much less severe.

And do not discount the importance of this discomfort on a day-to-day basis. I will admit that I personally experience the stock market as a series of days, not a series of years or decades. And losses always feel much worse to me than gains feel good.

Another  issue that likely prevents many individuals from pursuing the dual momentum strategy is that it is both more work than a passive approach, and less personally satisfying than an active approach.

Many people simply do not want to think about or fiddle with their investments on a monthly basis. A yearly rebalancing is about all they’re interested in and I get that. Not everyone plays with stock charts during their free time for fun.

On the other side of the coin there are the active stock pickers. They don’t mind expending a lot of energy thinking about tactical moves,  so why don’t they switch to a pure momentum-based approach?

My guess is that for this type of investor it is much more intellectually satisfying to analyze the balance sheets of companies in order to find hidden value, or to read the tea leaf like messages hidden in the technical analysis of stock charts, and to be proven right, than it is to put all of your money into long-term treasuries simply because they have outperformed everything else over the past six to twelve months.

When you invest dual momentum you will (sadly) not feel remotely like this guy.

When you do well with an active approach it must feel like a real affirmation of your own intelligence (no personal experience here, sadly,) but when you do well with momentum, you just feel kind of randomly lucky (at least that’s how I feel.)

Finally the mere small size of the community that advocates for this approach is a deterrent for employing the dual momentum strategy.  If you are trying to figure out how to invest your money there are large communities of advice givers who will advocate for passive boglehead type strategies, Graham Dodd style value approaches, Dividend growth investing or even trend following, to name a few.  The Dual momentum movement is basically Gary Antonacci and a few amateur acolyte’s (like me.)  Turning your back on a community of like minded investors feels awkward and cultish (which I alluded to in this post entitled “jumping off of a cliff.“)  We humans are social animals, first and foremost, after all.

So why aren’t the pros using this strategy already?

In short…they are.

Momentum is everywhere and it is used by almost every professional money manager.

As an example, this recent article reported Goldman Sachs research found that last years hedge fund performances were highly influenced by individual fund exposure to Apple, and that hedge fund managers were more likely than the broad market to overweight Apple positions.

And it’s easy on the structural level to understand why this is the case. As a money manager what you get paid is determined to both by your performance and by the amount of money that you have under management. This means that taking a contrarian position and an unpopular stance on an investor favorite (like underweighting Apple) which loses to the market can be a very destructive thing for your bottom line.

This means that big institutional investors are incentivized to participate in positive momentum which only strengthens the momentum effect.

More to the point, many of the greatest traders around are primarily momentum (or trend following) traders.

Whether it be in equities, currencies, managed futures, using momentum has been a persistent and powerful way successfully play the market.  In fact a recent book,  by Greyserman and Kaminski reportedly found that trend following has signifiantly outperformed buy and hold with significantly lower draw downs when compared back to the 17th century!

As a more specific anecdote in support of this observation that successful traders use trend following take this quote from legendary trader Paul Tudor Jones…

I teach an undergrad class at the University of Virginia, and I tell my students, “I’m going to save you from going to business school. Here, you’re getting a $100k class, and I’m going to give it to you in two thoughts, okay? You don’t need to go to business school; you’ve only got to remember two things. The first is, you always want to be with whatever the predominant trend is. My metric for everything I look at is the 200-day moving average** of closing prices. I’ve seen too many things go to zero, stocks and commodities. The whole trick in investing is: “How do I keep from losing everything?” If you use the 200-day moving average rule, then you get out. You play defense, and you get out.

How can we be sure that the momentum anomaly will persist?

Obviously we cannot. Nobody knows what will continue to work or not work in the future.

But this is kind of an empty criticism since the same criticism is valid when used against any style of investment, including traditional buy and hold.

As an example the average boglehead is making an explicit assumption that the equity risk premium (i.e.The observation that stocks will be more lucrative investments than bonds, cash, commodities etc, and that bonds will be less volatile) will persist into the future. This assumption is based on nothing more than a model that posits that risk and reward are linked, and back testing.

Which is not to say that all bets are equally smart. But if you want to determine the intelligence of a bet a priori, one could do a lot worse than to bet on momentum.

Gary Antonacci makes a very convincing argument in his book Dual Momentum about the pervasiveness of the momentum anomaly. Everywhere it is been looked for (US equities, foreign equities, emerging market equity’s, currencies, commodities, bonds, futures… ) it has been present. And the power of the momentum anomaly has persisted long after its initial description in US stocks in 1993, which suggests that the anomaly is extremely difficult (If not impossible) to arbitrage away.

Furthermore I personally find the underlying behavioral story about momentum to be exceedingly convincing. There are a few things that I have a more firm belief in than the persistence of human irrationality, and our tendency to chase performance.

So for me at least this combination of a convincing underlying story and the almost unrivaled quality of the data supporting the validity of the momentum observation was enough for me to change my approach from passive diversification to a duel momentum approach in my tax sheltered accounts.

And at the end of the day since any asset allocation strategy or trading decision is little more than a bet on the future, we investors can rarely do better than to simply decide where to put their pennies down and to stick with our (well considered) approaches through thick and thin.

**As I have previously described, trend following using a 200 day moving average, and an absolute momentum screen are almost identical in their effect. (Read: lower drawdowns.) An 12 month absolute momentum screen simply trades a little bit less frequently.

Pete (MMM himself) does an incredible job of reframing societal assumptions.

If our dominant modern hypothesis is that consuming things brings us happiness, Pete stands this theory on its head, and points out (correctly I think) that we would be wise to focus on things that actually deliver happiness instead. Things like freedom (financial and otherwise), the sense that what we do matters, autonomy, and health.

But in the end Mr. Money Mustache is a counter narrative, and like all counter narrative as it has its own small holes.

Take the concept of luxury. In the mustachian worldview, luxury (or “fanciness”) is something to be suspicious of. It is a coddling force that leads to atrophied muscles, a susceptibility to advertising (and thus the inevitable and counterproductive impulse towards consumption.)

But what if luxury, or the feeling of luxury, is happiness inducing in and of itself?

Take this famous experiment where subjects were given two glasses of The exact same Cabernet Sauvignon and were imaged in an fMRI after having taken a sip of each. The only wrinkle is that they were told that one glass contained a $10 a bottle wine in the other contained a $90 a bottle wine.

The objective finding of the study was that the subjects’ pleasure centers (the medial orbital frontal cortices) of their brain were much more active after having sips of wine that they thought was more expensive.

I think the most intuitive reading of the study is as sort of an “emperor has no clothes” story.

“The larger the sceptor the smaller the..”

People are fakes and easily manipulated.  That’s the obvious lesson here.

This lines up very nicely indeed with the Mustachian view of luxury. Luxury is a sucker’s play, a thin veneer papered over experiences and commodities cynically by marketers, in order to make them more expensive and profitable.

But there’s another interpretation of this finding. And that comes from the recognition that the subjects experienced more pleasure from drinking the exact same wine simply by being told that it was more expensive. What a bargain!

Being tricked costs nothing, and delivers extra happiness.  Sign me up.

This is similar to the placebo effect whereby study subjects who are given a inert substance like sugar water and told that it is medicine, experience relief from their illness.

My feeling is; who cares if we are not perfectly rational? We are human beings after all, not gas chromatograph machines. Isn’t the smart move to figure out how to manipulate our environment in order to experience more pleasure (and happiness) from the exact same inputs?

Isn’t happiness the name of the game, after all?

Which brings me to my latest obsession: clear ice.

Although I’ve been known to enjoy a glass of wine or beer with dinner, my wife finds the taste of alcohol unpleasant.

But sometimes when we go out to dinner she will partake in a sweet cocktail like a Mojito or a Pimm’s cup and quite enjoy it.

This, motivated me to learn how to make cocktails, so we could enjoy a drink together from time to time in the evening.

And as I am want to do I got pretty into cocktail making pretty quickly.

And soon I realized drinks were far less appetizing when served over cloudy ice cubes. Which prompted a quick Internet search which taught me about the concept of “unidirectional freezing” to make clear Ice. *

And the clear ice was an absolute revelation. The drinks poured over clear ice blocks were far more beautiful, and actually tasted better. (My frontal medial orbital cortex was undoubtedly stimulated by the jewel like brilliance of the clear ice blocks.)

And although there is a lot of information out there about dilution rates, and ice impurities affecting the taste of cocktails, I’m pretty sure the major player here is the old placebo effect rearing its (attractive) head.

After all, which of these drinks would you rather take a sip of?

They contain the exact same ingredients in the exact same proportions, but one actually tastes better, brings far more pleasure, and delivers the stimulating experience of “luxury.”

Plus, the luxurious drink doesn’t cost a penny more, and comes with the enjoyable bonus of being able to learn how to carve your own clear ice cubes. (Trust me, this is a lot of fun.)

All in all making your own home made clear ice is a true value proposition. And it is luxury in the best sense of the word.

And if you are a tea totaller, no loss.  Pour your iced tea over a clear ice cube.  Trust me, it’s worth the bother.

*If you’re interested in making your own clear ice here is how you do it.

Step 1: procure an insulated container that will fit in your freezer. I like using a six pack cooler like this one, but an even cheaper option is to use Tupperware wrapped on five of six sides with two layers of duct insulation.

(The reason why the insulation is so important is that it allows the ice to freeze from the top down unidirectionally. All of the impurities and bubbles get pushed by the growing mass of ice towards the bottom of the cooler leaving the top sections crystal clear and beautiful.)

Step 2: fill the cooler 80 to 90% full with water. And put it in the freezer.

Step 3: 24 to 36 hours later remove the cooler from the freezer. and let it sit out for 15 to 30 minutes.

Remove the ice block. There should be a little area of unfrozen water or cloudy ice near the bottom, encased in clear ice. It will look like this.

Step 4: After letting the ice warm for 20 minutes or so, using a hefty knife and a hammer cleave away all of the cloudy and/or unfrozen parts of the ice block.

Step 5: score and then Cleave the clear ice into six equal cubes by tapping your knife with multiple little taps of the hammer.

Check out this dude: he is the sine qua none of ice cleaving.

Step 6: using a sharp pairing knife. Even out the cubes and create any designs (such as a jewel cut or sphere) that you desire.

As a parting shot here is probably my favorite ice carving bartender video. Look and learn.  I love this guy’s approach.  So japanese.