Good Analysis Starts With Empathy

Peace. Security. Freedom. Stability.

These are things that all people around the world want. They are probably the primary motivation of most things that people do.

The definition of motivation is “the reason or reasons one has for acting or behaving in a particular way.” And it would be almost impossible to understand what trends are developing and why without being able to understand why a particular individual or a particular demographic or a particular organization acts the way they act.

So if understanding motivation is is one of the most important inputs into good analysis, both political and economic, you better be able to understand motivations. And if you want to understand motivation, perhaps there’s no more important place to start from than starting from empathy.

The definition of empathy is “the ability to understand and share the feelings of another.” Doesn’t it make sense that you’ll never understand somebody’s motivations if you can’t understand and share the feelings of others?

So if you want to be a good analyst, you have to be an empathetic person.

In other words, if you’re starting a discussion about the economy or politics without trying to empathize with every group involved, especially those groups that are clearly oppressed, then you’re not going to be able to analyze the reality and then verbalize your analysis effectively.

I’m clearly talking about George Floyd and the protests, but, because it’s my job and the reason you paying me to read my analysis, I’m also talking about geopolitics, economics, and even trading.

If you want to understand why people in China do the things they do as they live under this quasi-Communist/Capitalist autocracy, try to empathize with the people there. If you want to understand the Fed, try to empathize with the the individual people in the Federal Reserve while understanding that their real bosses who own the Fed are the giant banks so that you can understand their true motivations. If you want to understand why people on welfare always beg for more welfare (I’m still talking about the giant banks), we’re going to have to understand the real motivations of the people running the banks, working at the banks, and supposedly regulating the banks. When you buy or sell a stock, always empathize with the person/company on the other side of your trade. Why are they buying what you’re selling or vice versa? And, again, we can’t dismiss the other side as being irrational if we want to be honest, good analysts.

Side note that perhaps the best way to improve the system is to force ultimate transparency across the system, at every level. No closed door meetings, no no-bid contracts, no hidden police union contracts, no slush funds — forcing transparency makes people’s motivations more pure, no?

Meanwhile, dismissing a group as irrational is akin to dismissing the markets as irrational. People try to be rational. We have to empathize to understand the rationality of other people when we analyze racism in our country, or the inherent unfairness in centrally-manipulated markets, or why stocks are in big rally mode right now anything else that deals with money and power etc.

I want to live in a better world where all races of people, all religions, all individuals have some real semblance of Peace. Security. Freedom. Stability. I want to live in a country where anyone who puts his knee on anyone’s neck for eight minutes is motivated to be scared of his consequences. Because I want people to have Peace. Security. Freedom. Stability. I strive to be anti-racist and won’t rest until my friend’s daughters have at least almost as many opportunities as my own daughters do. In part because I know that enabling others to have Peace. Security. Freedom. Stability. is the best way to create more prosperity, more wealth, more Peace. Security. Freedom. Stability. for each and all of us.

As for trading, I raised a little more cash this week and added to my index short hedges a little bit. I remain defensively positioned partly because I’m thinking about how all of the people who are buying stocks right now must feel. And what they might feel and why they might feel it when (if?) the markets and the highflying momentum stocks do pullback.

Strive to be empathetic.

For this week’s Live Q&A Chat, tomorrow at 10am ET, we’ll use Zoom video again. Here are the details to join.

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