Friday, June 12, 2020

Simple Investment Lessons from Seven Deadly Sins

The Seven Deadly Sins: Grand Cross — Best tips and tricks ...

One of the most entertaining things I did for this lockdown is to follow the fantasy anime series The Seven Deadly Sins, an animation that is about 6 years old. If you are to free to follow this, you can find Season 1 of this anime on Netflix.

I thought I wanted to write a homage to the series by discussing some useful investing lessons we can pick up by channelling a few key characters in the series since I know quite a few BBFA fans of this blog are also serious anime fans.

So for fans of the anime series in the investing world, which are the ones you should be drawing inspiration from?

a) You should be as logical and unemotional as Gowther, Goat Sin of Lust

Gowther - Nanatsu no Taizai by Puuripoo on DeviantArt

Gowther is androgynous because he/she is a doll. His face was that of the lover of the creator but he has a male body... just because. Because Gowther is very much an android of the team, he exhibits an eerie calm in the battlefield and constantly has a read on his probability of victory.

We can learn from Gowther by being unemotional about markets. Markets have finally trended down after a V-shaped recovery and we should be able to exploit a bargain if jittery investors begin to exit the market at this time. While the economy is bad, we're closer to a vaccine than in March and governments have been expanding their medical resources to cope with the virus.

The special power we want to develop is Bayesian Inference. Like Gowther, we can build an internal assessment of markets so that we can act coldly and in a calculated manner when the rest of the markets make a serious mistake.

b) You should exercise creativity and imagination like Merlin, Boar Sin of Gluttony

The Seven Deadly Sins Patch #1 – Great Mage Merlin | Kongbakpao

While Merlin is not exactly the most powerful of 7 Sins members, but to me, she is the most dangerous. Merlin was some Messianic child born to a society of wizards who was so powerful, the God and Satan of the cosmology wanted her to align with them. But Merlin milked them of all their knowledge and wisdom, she spurned both factions, pissing them off.

As an archmage without peer, Merlin does not cast her spells with wild abandon, often using her magic to gather more information in subtle ways when facing her enemies. She hedges her bets and has even been able to sequester her soul into her orb before being cursed by the Demon King.

We can channel Merlin with Data Science because financial data in it's purest form is Chaos Magic - A tensor with a number of rows equal to fundamental data, columns equal to the number of stocks over a time dimension. To tame this Chaos, Merlin uses a number of different spells to do her bidding. I have used NLP, K-means clustering to attempt to pick up some insights on local markets.

Hopefully, I can move to my next spell involving perceptrons and backpropagation next.

c) When the time is right, you have to go all out like Escanor, Lion Sin of Pride

Escanor | All Worlds Alliance Wiki | Fandom

Interestingly, the protagonist is not the most powerful member of the Seven Sins. That title goes to Escanor. Escanor is invested with the Power of Grace, previously owned by the most powerful of Arch-Angels. A night, Escanor is a mild-mannered barkeeper but during the day, his power grows until he is totally invincible during noon. At high noon, he becomes the One and can go toe to toe with the Demon King.

Analysis and emotional control can only take you so far. In the end, we either buy, do nothing or short. 

We can channel Escanor with the deadly power of Leverage. Leveraged investors will always be weaker when markets decline and stronger when markets reach their peak. The trick is to know when to be meek, and when to be loud and boisterous. When the sun rises on the market no amount on intellectual analysis can beat a highly leveraged account. When the sun sets, only by being defensive can you avoid a margin-call and certain death.

Markets ebb and flow. Escanor leaves an impression on me because even though he was the most powerful character who can defeat the Demon King, he eventually dies after burning out.

This is possibly the most important lesson an investor can learn about leverage.

Seven Sins is still a work in progress. I hope that the next season will be out by 2020.

Find a way to catch this anime if you can.

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