The Pomp Podcast - #806 Fear In The Markets - How To Control Emotions

Episode Date: January 30, 2022

This episode is a little different than the usual podcast format. There is no guest. Instead, I will share a couple of thoughts I have around a specific topic. Today I discuss controlling emotions and how to be intellectually honest and humble when evaluating a difficult market environment. ======================= Exodus is leading the world out of the traditional financial system by building beautiful and user-friendly blockchain products. With its focus on design and user experience, Exodus has become one of the most popular and loved cryptocurrency apps. It’s supported on both desktop and mobile, allowing you to sync your wallet across multiple devices so you can have access to your funds anywhere. You can instantly exchange around 100 different cryptocurrencies straight from your wallet. Interactive charts let you view an asset’s price history and your portfolio’s performance over time. And maybe the best part, Exodus is integrated with the Trezor hardware wallet - making advanced security easy for everyone. Visit exodus.com/pomp for your free download or search Exodus on the App Store or Playstore. ======================= The fastest way to double your Bitcoin is at MyBookie. Instead of taking an altcoin gamble, invest in your sports knowledge. Set yourself up for success by doubling your first Bitcoin deposit when using promo code POMP at MyBookie. Deposit with Bitcoin and double your initial deposit up to $1000. Crypto is the best way to play at MyBookie because there are no fees, faster payouts and bigger bonuses. Playing with crypto also gets you access to exclusive crypto contests – NFL Crypto Survivor, NCAA March Madness Crypto Bracket Contest and more! Click here to get started. MyBookie accepts; Bitcoin, Ethereum, Litecoin, Bitcoin Cash and Ripple. The deals don’t stop after your initial deposit. Take advantage of our industry leading Crypto Re-up bonus and receive a 15% cash bonus on all crypto deposits made AFTER your initial deposit!

What's up, everyone? This is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Now let's kick this thing off. Today's episode is an overview of how to control your emotions and how to be intellectually honest and humble when looking at markets. I hope that you enjoy these episodes where it's just me talking and sharing some of my personal thoughts. But before we start the episode, I want to first talk about our sponsors. First up is LMAX Digital, the number one institutional crypto exchange they offer clients the deepest pool of crypto liquidity on the planet underscored by a hundred percent uptime track record through volatility spikes they leverage lmax groups

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All right, let's get in this episode. I hope you guys enjoy this one. along with tapering the flow of cheap capital that has flooded the market over the last two years. This revelation sent risk assets in a freefall. Whether we are talking about growth stocks, tech companies, or Bitcoin, they have all lost significant percentages of their market cap over the last eight weeks or so. Whenever we see price drawdowns in these sectors, there's a rise in noise from the peanut gallery. These pseudo-intellectuals begin to post a collection of hot takes and analysis that can be best described as wishful thinking. The best example that I have seen over the last few days is a chart comparing Berkshire Hathaway to ARK's Innovation Fund ETF.

There are plenty of people who posted this because it is interesting or visually surprising. But the bear market enthusiasts took it one step further and have argued that it is proof that value investing is superior or investing in technology and innovation is merely speculating. Now, it is obvious that Berkshire Hathaway and ARK's Innovation Fund are both the quintessential meme stocks for their respective approaches. Berkshire Hathaway and Warren Buffett, Charlie Munger have built an army of disciples that believe the best way to invest in is to own cash flowing assets that compound over long periods of time. ARK and Cathie Wood have built an army of followers that believe innovation leads to outsized returns, also known as cash flow

falls disruption. There are two distinct ways to invest. You can see it in the difference between their top holdings. Berkshire Hathaway's top 10 holdings include Apple, Bank of America, American Express, Coca-Cola, Kraft Heinz, Moody's, U.S. Bancorp, Verizon, BYD, and DaVita. ARK's innovation fund top 10 holdings include Tesla, Zoom, Teladoc Health, Roku, Coinbase, ExactScience, Unity Software, Spotify, Twilio, and Block, which is formerly known as Square. The innovation-focused investor is unlikely to purchase any of Berkshire's holdings. The cashflow-focused investor is unlikely to purchase any of ARK's holdings. But this begs the question, which approach has proven more effective over the last few years? The pseudo

intellectuals would like to draw attention to the last two years, which shows a significant outperformance by ARK followed by a staggering drop in the last few months. Even though ARK is still outperforming Berkshire during that timeframe, this visual that is being shared on the internet is used to illustrate a narrative of the slow and steady approach of value investing will eventually outperform the speculative tech investors. Not only is that narrative provably false over the two-year time period, but it gets even crazier if you zoom out, no pun intended. Here is a look at the last five years comparing these two investment approaches. The ARK Innovation ETF is up 222% over the last five years, while Berkshire Hathaway is up only

85% in that same time period. Despite the recent drop in ARK's innovation fund, the innovation focused approach has still more than doubled the return of the cash flow focused investment approach. If you extend the timeframe to the inception of ARK's innovation fund in 2014 until present day, Berkshire Hathaway is up about the same 85% and ARK is up about 250%. This doesn't mean that innovation focused investing will dominate the next five, 10, or even 20 years. It doesn't mean that Berkshire Hathaway and their legions of value investing disciples will be better or worse than the tech investment crowd. It simply means that for the last five plus years, ignoring the value investing approach has been an intelligent investment

decision if you pursued tech, innovation, and risk assets. It also should go without saying, but I'll state it to be abundantly clear, that the market is the ultimate referee. What is the best investment strategy moving forward? If I knew that, I would go invest all of my capital in that strategy. Maybe the innovation-focused folks will generate outsized returns. Maybe the value investors will be the ones to stand atop the return rankings. No one actually knows. My point in writing this today is that emotions run high at the extremes of markets, both in the upside and the downside. The winners get too excited at the top and those who have been losing get too excited when they see their competitors stumble. The truth is somewhere

in between. It is important to remain level-headed during these severe price movements and continue to focus on the future while understanding the past. You may get social media points for going viral with flawed analysis or intellectually dishonest commentary, but it doesn't produce alpha in your portfolio. In fact, those who end up pursuing the infamous pseudo-intellectual path are usually the people who get distracted and fail to deliver outperformance. Markets can be humbling. Anyone and everyone can be subjected

to the brutal nature of assets and volatility. It is impossible to predict the future. Global pandemics, geopolitics, monetary policy, and much, much more are inputs into the complex system we call an economy. Sometimes it is best to simply say, I don't know exactly what is going to happen, but I think X strategy has a high probability of working.

I'm gonna put skin in the game and allocate capital towards X strategy. If I see data points Y and Z change, then I will reevaluate my perspective. No one is perfect at this, myself included. We are all human, but it sure pays to chase truth with intellectual humility. Hope each of you has a great start to your day, and I will talk to all of you tomorrow. Thanks so much for listening to today's episode. I really hope you guys enjoyed this one.

Make sure you're subscribed on Apple, Spotify, or your favorite podcast player. And if you're looking to try to transition to get a new job in the Bitcoin or crypto industry, we've got you covered. head over to palmscryptocourse.com we've developed a curriculum with the top teams across the industry it's a three-week intensive training program with over 50 events packed into that three-week time period go to palmscryptocourse.com to learn more and i'll meet you guys for the next episode