Competitive Advantage in Investment Markets

Featuring Daniel Want

Daniel Want, CIO of Prerequisite Capital Management, presents a practical framework for gauging tactical market risk. Daniel explains how to interpret market participant behavior, in order to understand where the true balance of risk lies at any point in time. This knowledge and tools will arm you with the ability to navigate and time markets, to make better decisions on entry and exit points. Filmed on May 16, 2017, in Sydney.

Published on
25 May, 2017
Topic
Psychology, Positioning, Sentiment
Duration
68 minutes
Asset class
Equities, Currencies, Commodities, Bonds/Rates/Credit
Rating
35

Comments

  • Sv

    Sid v.

    17 8 2017 19:11

    0       0

    Thank you, i did find it interesting and useful.

  • AH

    Alan H.

    7 8 2017 22:57

    0       0

    OK, I see from Seth L.'s comment you were referring to "Committment of Traders". Hey world, verbal rules are no different from rules of writing: never user an acronym/abbreviation without defining it first up front. In all other respects, a wonderful and useful presentation, Daniel. Hope you visit RV again before too long. ; )

  • AH

    Alan H.

    7 8 2017 22:47

    0       0

    "Cut data"??

  • SL

    Seth L.

    5 7 2017 19:11

    1       0

    Truly amazing presentation. Was wondering if you can dive a little deeper into the flaws of CoT data (without revealing too much of your process)?

  • SB

    Stewart B.

    19 6 2017 20:47

    1       0

    Thanks Daniel. Great video. I've been treading a lot of the same ground recently. Thank you for sharing your thoughts. I'd love to see you back on Real Vision!

  • RA

    Ricardo A.

    14 6 2017 11:15

    0       3

    Content was top .. but too long & too tedious.

  • HK

    H K.

    6 6 2017 10:48

    0       0

    Great presentation, really enjoyed it - and as a long time subscriber to RV, I totally agree with Enrico's view below as well.
    One question if I may, Daniel:
    Considering the speculative / patient framework, how would passive flows be classified if you apply your framework to single stocks - as passive investing does not express views on intrinsic values of single stocks but only on the broad market, if at all.
    Hence, that would probably not be a patient money flow as a result I guess. Looking at the increasing % of shares held passive and trading activity due to passive for many pockets of the market (especially Mining stocks I guess), did you see changes/complexities there in your model due to the significant increase of passive and therefore maybe (simplification) decrease in the activity you can label 'patient'? Thanks a lot if you would have a high level answer for me. And again thanks for the insight into your process!

    • DW

      Daniel W.

      7 6 2017 02:15

      2       0

      Thanks Henning. The passive investing story is a bigger topic than can be addressed here. But simplistically, the main focus in creating these tools was to measure 'motive' and participant reach more than anything, particularly of these two participant groups, for what I'm trying to achieve with these particular tools the passive/active story really doesn't come into it that much. No 'tool' is perfect, neither are these, they are just another 'useful' way to glimpse certain aspects of reality with. Context is still key. With the passive story however, I think it's kind of interesting to note that it's actually an 'active' decision to allocate to a passive strategy, and the corollary to that decision is if the passive strategy runs into drawdown, where are the pain thresholds that will cause participants to 'actively' turn off the 'passive' strategy? Kind of like Chris Cole's point that volatility is not so much 'an asset class' as such, but is rather the 'only' asset class... the passive story has a lot of funny thinking within it, in that at its core everything is active whether you realise it or not, the only differences are time horizons and the implied nature of what you're really betting on. Most of what we call the 'passive' story is just a product of a technology induced commoditisation of certain aspects of the financial services industry in combination with an implied longer term bet on certain productivity and monetary condition regimes remaining intact and supportive... if the productivity assumptions remain valid, and the particular monetary condition regime that is implied by these passive 'bets' remain the same, then maybe the 'passive' thesis/approach might work? I strongly doubt the 'passive' narrative will serve it's adherents well in the years to come, their pain thresholds most definitely will be tested. So you can see, there are many ways of looking at these things - most of which go beyond the space of a RV comment box :) but I hope this helps nonetheless.

  • KC

    Klendathu C.

    2 6 2017 11:18

    2       0

    Loved this. By understanding the limits of our opponents we know where to focus our time and energy. A better understanding leads to better allocation of time and energy.

  • ca

    cyavash a.

    31 5 2017 13:34

    2       2

    Loved the presentation, but it's also available on Prerequisite's website. I don't really appreciate that it's available publicly b/c this is paid content. But defniitely found it interesting, thoughtful, and encouraging.

    • DW

      Daniel W.

      1 6 2017 04:41

      7       1

      Hi Cyavash, glad you liked the presentation. The version of this on my website is 21mins long and quite brief (as opposed to the detailed >1hr presentation here), the reach of my blog list is laughably minuscule compared to Real Vision's reach. Real Vision were also aware that I published a summary 21min PowerPoint version on my website before the filming of this more expansive presentation (that covered much more territory) was set up. I'm aware and very respectful of RV's business model and requirements for exclusive content, they do an amazing job and I'd never want to threaten that.

    • EF

      E F.

      3 6 2017 13:19

      1       0

      Think positively, as far as I know nobody gets paid for appearing on here. To me half the value of the subscription comes from getting introduced to those interviewed. Some you would never find elsewhere and others frequently express their views on free channels, but then again you need to know who they are before you look for them... personally looking forward to the regular (and free) updates on PCM's blog

  • MM

    Michael M.

    28 5 2017 23:00

    0       0

    Really appreciate this presentation. I'm a complete amateur, but I feel I've landed on my feet here and find the openness of people like Daniel (obviously within the bounds of what he's comfortable to disclose) really inspirational and incredibly helpful. Also his (and others') presence here in the comments. Good onya cob!

  • DW

    Daniel W.

    27 5 2017 06:53

    5       0

    Thank you everyone for your kind words, glad you found it interesting.

    • FC

      Fractal C.

      27 5 2017 20:57

      0       1

      Daniel, how do you construct the momentum structural indicators and in which charting platform? Thanks

    • DW

      Daniel W.

      27 5 2017 22:38

      11       0

      The structural momentum stuff in those charts is easy to construct for yourself - for any price series, take a 3yr moving average of it, then divide the price by its 3yr moving average and you have the '3yr structural momentum' you see in most of these charts - simple yet very useful at times. By changing the moving average you use, like a 1yr or 6mth moving average, you change the frequency of the tool. I'd suggest that you go watch Michael Oliver's RV presentation from earlier in the year as he explains it all really well. Those charts were all produced using www.macrobond.com, but you can do this with most charting applications or even a spreadsheet. I like Macrobond as I can also upload my own datasets that I create from spreadsheets into it also fairly simply, like some of the other tools you see in my presentation.

    • FC

      Fractal C.

      28 5 2017 14:29

      0       0

      Thank you

    • RD

      Ryan D.

      29 5 2017 19:15

      0       0

      Daniel , great presentation! Do have a monthly newsletter or subscription service? Much thanks for sharing your methodology and insights.

    • DW

      Daniel W.

      31 5 2017 11:50

      1       0

      Check out www.prerequisite.com.au for some stuff we publish from time to time
      The subscription service to our research is not cheap unfortunately

    • RD

      Ryan D.

      16 6 2017 19:05

      0       0

      Thanks. I will check it out.

  • SN

    Sean N.

    27 5 2017 04:50

    0       0

    Brilliant!

  • jh

    john h.

    26 5 2017 20:27

    4       0

    This is tremendous conceptual work and of itself but Daniel has really outdone himself in sprinkling enough clues throughout his presentation that any reasonably intelligent and curious person should be able to figure out how to do this on their own. Bravo and thanks for teaching us to fish instead of just handing us the fish! After many, many years, I finally "get" technical analysis in a way that makes sense to me. Thanks again!

  • HS

    Hubert S.

    26 5 2017 18:41

    3       0

    Hi Daniel,
    thanks for all.
    I found several books on John Boyd. What is the one to read in your opinion?

    Thanks!

    • DW

      Daniel W.

      27 5 2017 06:33

      9       0

      Thanks Hubert. I actually have never read a book on John Boyd as such, although there are a few out there, so I wouldn't know what to recommend. Boyd himself never wrote a book but he did write some phenomenal papers/presentations. Google "Patterns of Conflict" and "Destruction & Creation" for example and you'll find PDFs easy enough. I found it was an iterative process, you read Boyd's stuff, read other strategic writers like Sun Tzu and Musashi etc, even Machiavelli as a kind of darker counter-example, think about practical applications of their principles to whatever you're stewarding and then repeat - each cycle you'll walk away with more and more insight. I must admit, the first time I read the Art of War maybe 17 years ago, I hardly appreciated the book for what it was... the more life experiences I would gain in the years to come, especially in business and leadership etc, the more I'd re-read the Art of War and the more I would get out of it - same with Boyd and Musashi for that matter. I have a mentor & friend in William Dettmer who spent years as a pilot and then as a fairly high ranking officer in the US Air Force who wrote "Strategic Navigation" which discusses the application of some of Boyd's ideas in amongst other things, we've had some fascinating conversations over the years - but ultimately if you read the basic texts, seek to apply what you learn, then re-read, etc... it's kind of hard not to internalise and expand your capacity to operate in different environments from a strategic/stewardship perspective. Like Musashi says; "think lightly about yourself and deeply about the world"

  • CY

    C Y.

    26 5 2017 18:38

    1       0

    That bang was my mind being blown. Wow - this was amazing.

  • JM

    James M.

    26 5 2017 15:37

    6       0

    Great job mate! Fascinating approach and completely logical and well delivered. Inspiring to hear that you are self educated and didn't come from an academic or financial background. As a person who didn't finish high school and having just tried to study markets over the last 8 years from literature and all other resources, while crawling through all the misinformation and BS, I can totally relate and admire what you have achieved actually managing money. I found this to be exponentially encouraging. Cheers!

    • DW

      Daniel W.

      27 5 2017 06:53

      8       0

      "Never let formal education get in the way of your learning." Mark Twain
      Formal education has a place, but ultimately there's nothing that will stop a passionate, curious and diligent mind from achieving what they set out to - most of what they learn that is useful cannot really be learned in a formal setting anyway. Great to hear you liked it.

  • JD

    Jeremy D.

    26 5 2017 15:22

    4       0

    Amazing presentation Daniel. Great balance of conceptual discussion and historical perspective with practical real life examples. Without revealing too much technical detail about your process can you provide some general detail on how you bifurcate the "Patient" and the "Speculative" crowds?

    • DW

      Daniel W.

      27 5 2017 06:40

      7       0

      Thanks Jeremy - unfortunately my business partners and some of my clients wouldn't be too impressed if I went into much detail on the construction of these things - I was in two minds as to whether I even presented these tools publicly because I wasn't really willing just now to give up some of my more proprietary stuff - so to kind of compensate I tried to make the rest of the presentation as practical and useful as possible, helping the viewers gain a bit of an understanding of the core strategic principles that have been invaluable to me over the years, and to possibly inspire/encourage others to take powerful sets of first principles to developing their own practical tools and approaches. I also hoped that people might appreciate my basic perspectives on some of the main macro markets in the world at this point in time.

    • JD

      Jeremy D.

      27 5 2017 14:00

      4       0

      That makes perfect sense, understood completely Daniel. I have listened to many presentations that are either very polished but too high-level without many practical takeaways, or too "in the weeds" and specific to one approach without much regard to the principles. I think this format did a fantastic job of striking the right balance (without revealing too much of the "special sauce"). Kudos and best of luck.

    • DW

      Daniel W.

      27 5 2017 22:51

      0       0

      Thanks Jeremy, most appreciated

  • GS

    Gordon S.

    26 5 2017 15:12

    2       0

    Thanks a lot for having taken the time to answer my last question! I have another question concerning your speculative vs patient money framework. While I am of course very keen to know what hides behind your algo, I would also be interested in what kind of data you feed it. You mentioned transaction data, so I would assume that in addition to using prices, you also use some kind of volume metric? Not sure what data stream exists out there, but I could imagine that this metric is also very difficult to measure? Since securities are traded on different exchanges / dark pools / OTC, adding arbitrageurs and HFT to the mix creates or even forces market participants to add a lot of noise to their transactions and as a result makes it very difficult or even impossible to aggregate to a useful number?

    • DW

      Daniel W.

      27 5 2017 06:41

      2       0

      Thanks Gordon. Unfortunately I'd rather not comment on this - please see my response to Jeremy D above.

  • VK

    Viresh K.

    26 5 2017 13:18

    1       0

    Thanks Daniel, appreciate when managers provide their own process.

    • VK

      Viresh K.

      26 5 2017 13:50

      2       0

      Wow, the transcript of this interview is 70 pages! Can't imagine how much work that requires! Hopefully you guys can use AI to do this for you soon.

    • VK

      Viresh K.

      26 5 2017 14:11

      0       0

      Might be a silly question, but, where do you get some of the data? Is it mostly the CoT data from CFTC?

    • DW

      Daniel W.

      27 5 2017 07:00

      1       0

      Thanks Viresh. It was my frustration with COT data in the first place that caused me to venture out to figure out another way to skin that cat - so basically I created my own tools to measure similar things to what COT essentially aims to achieve. I tried to explain this somewhat in the presentation, sorry if it was not clear enough.

    • VK

      Viresh K.

      27 5 2017 09:14

      0       0

      Just watched it again, it makes sense. Thanks for your response .

  • jm

    joeri m.

    26 5 2017 11:35

    4       0

    A different type of question: can someone tell me with which program you can make this type of wonderful charts? I've always wondered about that and would really like to know. Thank you very much.

    • DW

      Daniel W.

      27 5 2017 06:45

      4       0

      I do most of my charts using this platform... www.macrobond.com
      They're not exactly 'cheap' but they have built a fantastic solution for a macro--analyst - I often tell people that Macrobond basically was created by macro-analysts for macro-analysts.

  • GA

    Giedrius A.

    26 5 2017 09:49

    3       0

    Thank you Daniel and RV team, I would like to see more of your analysis and overview of the market in the future. Interesting and very useful concept.

  • T~

    Tshort63 ~.

    26 5 2017 04:51

    5       0

    Generous sharing of your learning and your framewaork. Thank You!

  • AC

    Andrew C.

    26 5 2017 04:27

    5       0

    Fantastic, Daniel, thanks! With brains like this out there, I am very worried about my competitive advantage, especially with the rise of passive investing. Your interview on Adventures in Finance was also amazing.

    • DW

      Daniel W.

      26 5 2017 07:56

      12       0

      Thanks - but there are 'many ways to skin a cat' - if you follow what you are passionate about, being always diligent and curious, you'll eventually evolve your own way of operating in/with markets that will contain advantages that arise from your own particular personality and interests - just got to keep working away until you have your own way of approaching things that is authentic to you and in totality tilts the odds in your favour. The Peter Brandt profile series recently released on Real Vision was an awesome example of that. Even still, being a little paranoid about finding/evolving 'competitive advantages' I think is a healthy thing, it keeps you sharp - having this concept front of mind for myself over the years has drastically helped in terms of my development as an analyst/investor.

  • GS

    Gordon S.

    25 5 2017 23:13

    3       0

    Thanks a lot Daniel for this amazing in depth presentation of your developed tools and the insight in your way of thinking, very inspiring! I know your stand on derivatives, but since many RV guests have highlighted the benefits of price informations in options, I was wondering what part those play in your more general framework to understand markets?

    • DW

      Daniel W.

      26 5 2017 07:45

      10       0

      Derivative markets and their pricing structures are kind of important at times, only because they tell us different things about dynamics in the broader system. When you are looking at the broader system and markets, one of the main aims is to try to get a sense for 'what is in the price' within different markets, which then lets you then test the reasonableness of those pricing assumptions, which really is the beginning of an investment process. Meaning is frequently defined by ‘context’ – change the context and you change the meaning. So with regards to the derivative question – basically ‘yes’, there’s lots of information content in derivatives markets and pricings of different things, but at the end of the day it’s not so much what you observe in isolation (i.e. some derivative related pricing structure or whatever), but how it all fits together in the broader context that determines what is important or not. How do you orientate or start to organise your thinking in a broader more complex environment?? There’s two Eli Goldratt books that I find I keep recommending to people – “The Goal” and “It’s Not Luck”, the first book is great and is a must read, but it’s the second book (in light of the first) that’s actually the more profound one in terms of gaining an understanding of some of the principles that need to be underpinning the way we think about a somewhat complex environment. Derivatives and their pricing structures are often important ‘symptoms’ within a broader system, and have some informational content because of that, but as always the focus needs to be more on the context and how everything fits together and is evolving (i.e. what is ‘core’ within a system rather than what is simply ‘symptomatic’).

  • YA

    Yaser A.

    25 5 2017 22:53

    1       0

    Great work. Thank you

  • PW

    Phil W.

    25 5 2017 20:44

    1       0

    Yes enjoyed it!

  • TS

    Tyler S.

    25 5 2017 20:01

    1       0

    brilliant, let me know if your looking for help with anything I'd love to work with you.

  • KP

    Kevin P.

    25 5 2017 18:53

    8       0

    Excellent! Daniel is definitely one of RV's top tier contributors.
    And as a retired Air Force guy, I have to say Daniel applying the OODA loop to finance is awesome!

  • PN

    Pedro N.

    25 5 2017 17:31

    4       0

    A lot to digest but agree 100% with his presentation. An absolute watch!

  • tW

    tgwtom W.

    25 5 2017 17:15

    6       0

    Thank you for such a generous presentation to your RV audience...as an aside, signed for your email newsletter, are you on or would you come to twitter🙏🏻

    • DW

      Daniel W.

      26 5 2017 08:26

      4       0

      Thanks. Getting active on Twitter has been on the 'to do' list for a little while now - I'm actually setup (@danieljwant) but just haven't got to using it yet. Will get there eventually

  • rr

    rlw r.

    25 5 2017 17:12

    2       0

    Daniel thank you. Really interesting approach and analysis, well articulated.

    Roc on RVTV

  • RM

    Richard M.

    25 5 2017 15:28

    3       0

    Wow - brilliant! This is what gives RVTV the absolute edge in the financial media arena - fantastic educational material unavailable anywhere else!!! Daniel Want has such an unconvential outlook and perspective that just blows me away by it's unusual threads of complexity yet underlying simplicity and evaluation. Thanks Daniel for sharing your insights and wisdom with us!

  • SJ

    Sophie J.

    25 5 2017 10:09

    15       0

    Daniel is one of my very favourite contributors. He's fantastic

    • RC

      Ryan C.

      25 5 2017 16:20

      2       0

      Sophie just loves her hometown boys! Agree, Daniel is one of my RV favorites.