E34: Erik Townsend: Macro Economics – What Makes the World Work (Part 1/2)

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Erik Townsend is a retired software entrepreneur turned hedge fund manager and host of Macrovoices Podcast. Throughout his career, Erik has capitalized on his ability to understand complex systems and anticipate paradigm shifts far in advance of the mainstream. A teenage computer protégé, he spent most of his high school years at MIT’s Artificial Intelligence laboratory, where he taught himself several computer programming languages. Erik became an independent software development and design consultant to Digital Corporation’s manufacturing systems technology group at age 17. By age 20 he owned his first private aircraft.

Episode Summary:


Listen to the full episode on iTunes (and please leave a rating to help the podcast reach more people): E34: Erik Townsend: Macro Economics – What Makes the World Work

A rewarding life consists of constant learning.

Pursue something that’s personally interesting to you.

On investing: You want to find your best opportunities based on your own asset size.

Don’t copy Warren Buffet’s tactics because he’s limited to making high volume trades in places like the foreign exchange which can absorb the kind of capital he’s pushing around.

As a smaller investor you have a lot more choices for investing, therefore you can look for completely different investing opportunities.

Hedge funds usually don’t bother with capacity limited trades.

You can look for trades that are a little too sophisticated for the average retail trader to understand but not big enough for the big hedge fund guy.

Understanding macroeconomics is the puzzle of how the world works because politics fit into a financial narrative.

By looking at macroeconomics, you can predict what drives society and what the future trends are.

Here are 2 extreme examples of investor personality types:

  • Top down overview people: Look at the macroeconomy as a whole then make your trading decisions based on that.
  • Numbers people (math geeks who rely on complex formulas): E.g. find some insufficiency in bond trading then use some complex math formulas and models to make consistent money from that.

To gain an understanding of what investor type fits you best, Erik Townsend recommends you read the Market Wizards book.

This book is a compendium of long form interviews with the worlds best traders.

By listening to the interviews, you can find the investor personality type you resonate with.

In addition to this, Mikael Syding recommends that you read the book: More Money Than God.

It’s an updated version of market wizards which shows all loopholes hedge fund managers have found in the financial markets.

Why Erik Townsend dislikes investing into tech companies despite having a successful tech background: Culturally it’s challenging to invest into tech companies because software entrepreneurs are secretive of their idea.

They don’t want to listen to feedback – even when the feedback comes from Erik Townsend who sold his software company in his early 30s and had enough money for the rest of his life.

Erik and crypto currency: “Governments have never allowed people to coin money therefore I don’t see this lasting for a long time.”

Also, bitcoin has no exchangeable value. It cannot be redeemed for anything.

The bitcoin went from 10 cents to +19,000 USD without any increase in intrinsic value.

In a speculative mania like this, novice investors misinterpret an increase in price as an increase in value.

Oskar Faarkrog

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