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Trump Delivers






​Clarity

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"Steve challenges you to not only think differently, but to approach the process of thinking in a different way, enhancing productivity and creativity."

Managing Director, Portfolio Manager
Private Wealth Management
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Donald Trump Delivers Clarity
​by Stephen Duneier

This week, I received an email titled, “Waiting for Clarity”. It’s an amusing title, because the reality is, clarity is like a mirage. Always off in the distance, forever promising what it is you most desire, but never delivered. Until now. The sender responded to my musing by saying that the “Trump era is very foggy” and his opinion is not unique. Every reporter, as well as the majority of Americans seem utterly shocked by every action taken by the Trump administration, and yet every single one has been telegraphed for years. In this edition, I attempt to explain why it is that we are actually experiencing a rare moment of clarity. I’ll begin by explaining why it’s your own fault if the current environment appears foggy, and what you can do to lift it.

Descriptive decision theory, the study of how decisions should be made, is concerned with rational decisions, as opposed to right. To refresh your memory, decisions are deemed right solely because the result was successful, and by successful I mean, the outcome was at least as good as every other possible outcome. Therefore, we require the benefit of hindsight before we can make that call. Since we don’t have that benefit when we make decisions, we must endeavor to make rational decisions. Again, rational decisions are those that provide the best odds of achieving the outcome desired given the information available at the time the decision was made. In other words, the decision maximizes the expected return (monetary or utility).

Here’s the part that we tend to gloss over when analyzing the decisions of others, and at times, even ourselves. Terms like “good” and “successful” must be defined by the decision maker in order for us to assess whether a decision is rational or right. As a decision strategist, my job is to help my clients make better decisions. That means I am tasked with making their decisions more rational, which by definition, improves the odds that their decisions will be right. In order to do so, they must very specifically define their objective. In other words, what it is that they want to achieve.

Philosophers have a term that I, as a descriptive decision strategist and coach, have adopted, and it affects every aspect of my job as it relates to helping them achieve their goals. The term is, Instrumental Rationality. For simplicity sake, it means there is no irrational goal. To say it plainly, it is not my job to question or judge what is a good, rational or even just aim. That is for the decision maker to decide.  My job is to help them achieve that goal, regardless of how I may feel about it. In other words, my job is to help them achieve instrumental rationality, i.e. to do whatever delivers the greatest probability of achieving their aim.

Where many investors, analysts, and reporters fail is in not making the effort to truly understand the objectives of the decision makers whose actions will affect the outcomes they are attempting to predict. When they don’t know or understand the values that inform the decision makers objectives, the only option is to fill the void in the algorithm with their own. Perhaps an example from a recent student decision log will help.

Jane said she was trying to decide whether or not she should allow her parakeet out of its cage when leaving her apartment during the day. According to her definition, the problem she was attempting to solve was how to make her bird happy, while keeping it alive. As it relates to this decision, just two factors mattered - happy bird (defined as flying without being confined to a cage) and alive bird. She mentioned just one factor that affected her ability to achieve that goal, her three-legged cat. Naturally, it is a factor because cats are known to eat birds and an eaten bird is not an alive bird. If you were helping Jane make this decision, what would you suggest?

Given that she had just the two objectives, happy bird and alive bird, and being out of the confines of its cage represented happiness for the bird, there were three obvious actions that would guarantee both a rational and right decision. 1) Kill the cat and leave the cage open. 2) Give the cat away and leave the cage open. 3) Donate the bird to a sanctuary.

Now, you might be inclined to argue that option 1 is inhumane and even illegal, therefore it isn’t a viable option, but to do so would be to replace the decision maker’s aims, which are informed by her values, with your own. You wouldn’t be helping her make a rational decision, which means it isn't likely to be deemed right either. If you opted to suggest that she keep the bird caged, you would have guaranteed an unsuccessful decision as it relates to her criteria, but a successful one given your own aims, values and norms.

If instead of helping Jane optimize her decision, my objective were simply to predict her behavior based solely on how she defined her objectives, would I be better off heavily weighting the factors she defined or those that I think she failed to include? If I choose the latter, it effectively means I am weighting my own factors, including my own personal values, morals and experience more heavily than hers. Given that it is Jane making the decision without any influence from me, shouldn’t I weight her factors and do my best to exclude my own? 

I know what you’re thinking. Maybe Jane wasn’t being very diligent or thought it goes without saying that she also wanted her cat to remain alive. After all, that would be a reasonable assumption given the societal norms in our country. Fine. So the societal norms (especially those you choose to adhere to), can be argued to serve as a reasonable base rate. What if Jane likes to watch slasher movies? Would that alter the odds that she might perhaps favor killing her cat? What if she told you stories about how she used to use a magnifying glass to fry ants when she was a kid? How she liked to pull the legs off spiders or was an activist for euthanizing stray dogs? Still no adjustment to your expectations re: Jane’s decision? What if she told you the cat was her ex-boyfriend’s and the reason it has three legs is that she likes to torture it because it reminds her of her ex? No matter how vile or insane you might believe that option to be, if your objective is to accurately predict her actions, you must alter your expectations.
​

The same goes for predicting the actions of politicians and other policymakers, and this is why so many analysts have failed to accurately predict Chinese policy, and even more are unable to make predictions related to Donald Trump’s actions. Rather than listening to what he says and using that to inform their predictions, they are choosing to weight their own beliefs, societal norms and especially historical political norms in the algorithm. As a result, every step along the way, many seem to be surprised by the actions of perhaps one of the most incredibly consistent leaders the world has ever known. If you are experiencing uncertainty, this could be why, and it isn’t rational.

Reframing Policy

Donald Trump is not a complicated man. He says what he thinks, and now that he is President of the United States, he does what he thinks. In order to dissipate that “Trump fog” and gain clarity surrounding policy expectations and market impact, stop informing your expectations with societal and political norms, and instead inform them with his words and actions, as well as those of his key advisors.  Honestly, the fog will lift and everything will become clearer than at any point since Ronald Reagan was in office. As I proceed, please keep in mind the previous section. As an investor, coach and advisor, my job is not to judge a decision maker’s objectives, but to predict the actions that will likely be taken in order to achieve them. Whether I like his objectives or not, is completely irrelevant as it relates to the goal of prediction.

Donald Trump believes in the principles of capitalism. It forms the basis of all that he is as a human being. His values, norms, and morals all stem from an unwavering belief in a winner-takes-all system. The objective is to amass as much money and power as possible. Everything else comes in at a very, very distant second. He is unabashed in this belief, so I have no reason to question it. Above all other qualities in people, he values loyalty to him, his cause and those on his side. Again, this is according to his own words. He will do whatever it takes to achieve these very simple, straightforward objectives. 
​

So, what should we expect from a Trump White House? Policies that directly and indirectly, immediately benefit him and those on his side. Policies that favor the short-term, capital accumulation and a consolidation of power. As it relates to every decision you are attempting to predict, and every residual affect, be sure to reframe it using these very simple guiding principles in mind. From a short to medium term perspective, investors will rarely experience a moment of clarity like this. Enjoy it while it lasts! ​

"While everyone else is scrambling to answer who, what, where and when, Duneier is focused on explaining the 'why'."

European Pension Fund Manager
London, England
Meet Our CEO
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About the Author
For nearly thirty years, Stephen Duneier has applied cognitive science to investment and business management. The result has been the turnaround of numerous institutional trading businesses, career best returns for experienced portfolio managers who have adopted his methods, the development of a $1.25 billion dollar hedge fund and 20.3% average annualized returns as a global macro portfolio manager.

Mr. Duneier teaches graduate courses on Decision Analysis and Behavioral Investing in the College of Engineering at the University of California. His book, AlphaBrain, is due to be published in early 2017 (Wiley & Sons).

Through Bija Advisors' coaching, workshops and publications, he helps the world's most successful and experienced investment managers improve performance by applying proven, proprietary decision-making methods to their own processes.

Stephen Duneier was formerly Global Head of Currency Option Trading at Bank of America, Managing Director in charge of Emerging Markets at AIG International and founding partner of award winning hedge funds, Grant Capital Partners and Bija Capital Management.
​
As a speaker, Stephen has delivered informative and inspirational talks to audiences around the world for more than 20 years on topics including global macro economic themes, how cognitive science can improve performance and the keys to living a more deliberate life. Each is delivered via highly entertaining stories that inevitably lead to further conversation, and ultimately, better results.

His artwork has been featured in international publications and on television programs around the world, is represented by the renowned gallery, Sullivan Goss and earned him more than 60,000 followers across social media. As Commissioner of the League of Professional Educators, Duneier is using cognitive science to alter the landscape of American K-12 education. He received his master's degree in finance and economics from New York University's Stern School of Business. 


Bija Advisors LLC
In publishing research, Bija Advisors LLC is not soliciting any action based upon it. Bija Advisors LLC’s publications contain material based upon publicly available information, obtained from sources that we consider reliable. However, Bija Advisors LLC does not represent that it is accurate and it should not be relied on as such. Opinions expressed are current opinions as of the date appearing on Bija Advisors LLC’s publications only. All forecasts and statements about the future, even if presented as fact, should be treated as judgments, and neither Bija Advisors LLC nor its partners can be held responsible for any failure of those judgments to prove accurate. It should be assumed that, from time to time, Bija Advisors LLC and its partners will hold investments in securities and other positions, in equity, bond, currency and commodities markets, from which they will benefit if the forecasts and judgments about the future presented in this document do prove to be accurate. Bija Advisors LLC is not liable for any loss or damage resulting from the use of its product.

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