“To me reciting pi’s digits has the same meaning as chanting the Buddhist mantra and meditating”
- Akira Haraguchi, who recited pi to 110,700 digits
How many things can you keep in your head at one time? I was surprised to see that studies show that a person can only keep track of a handful of items at any given time.
The rule of thumb based on a paper from the 1950s concludes the number of items is "7 plus or minus 2." When I decided to put my memory to the test I came in at the low end of the range, but what was more interesting was how I reacted to the test itself. While tests of 2 and 4 letters felt mindlessly easy, 6 felt substantially harder.
As the sequences grew in length, I became flustered and my process broke down. The sequences I wrote down were completely out of order. I was adapting though, and finally on the last and longest test sequence, I managed my best result. You can test yourself with the link here.
Short term memory has its limits. In fact, you're forgetting the vast majority of what's coming at you every minute of every day. Putting that information to use and storing it away in long term memory has its roots in patterns and practice.
According to Pi World Ranking List, the World Record for reciting the endless sequence of random pi digits is 70,030, demonstrating that it is clearly possible to organize, retain, and process huge amounts of random information. When we say someone has a lot of experience, it’s the professional equivalent of 70,030 digits of pi that provides the context to recognize the patterns in the short term data, store it, and access it when it’s needed later.
When it comes to stock analysis, the onslaught of information can easily lead to flustered and fruitless searching for the patterns in an endless parade of 12 letter sequences. A career of experience can provide the context, but it can also lead to a failure to adjust to changes in the game.
Ultimately, the key is not having the best short term memory processing power, or the deep organizing roots of experience, it's having a process that helps you forget the past and adapt to the future.
Back to the Healthcare Grind…
Abandoning old habits is scary and hard to do, especially without something to replace them. Fortunately, we have the Quads, which allow us the freedom to let go of the past and embrace the organizational processing power that allows us to adapt to the future. This isn't a short cut, or a moving average, but it does save time by eliminating a lot of wasted time and energy on things that don't matter.
We're in Quad 4, now what?
The Quad Playbook is a great place to start since historically Health Care performs pretty well in Quad 4. From there we can narrow the field with the preferred Quad 4 factors of large cap, low beta, and dividend yield. Within Health Care Sector, we also know that the rank order of performance by Industries is first Life Sciences & Tools, then Health Care Equipment, Health Care Services, and lastly Biotechnology. With the tickers in hand, we further filter the names for positive estimate momentum, above average growth and acceleration, where the back test enriches the probability of success even further.
Both BAX and BDX fell out of this process on the long side in our Health Care Position Monitor in recent weeks. To carry what should be a high probability long across the line we need to forget some of our old habits, past bad experiences with both names, and our bias that our time is better spent sifting through the endless details, rather than focusing on the big stuff that will make the difference.
What comes next in the analysis is more like risk mitigation, and overcoming my biases that would keep me from a good idea. In this case, the big thing that makes a difference is the January peak in the Omicron wave that suppressed non-COVID hospital volume down to 0% year-over-year, but as Omicron has faded, those non-COVID hospital stays have accelerated to +8% as we head into March. That re-acceleration in hospital volume will be a tailwind for Med Tech generally, and BAX and BDX specifically. Taking a fast step forward we screened company core growth against thousands of Health Care Macro series which tells us which trends to keep an eye on in case things change, but also how the quarter is shaping up.
With the Quad Playbook as our support, filling in details becomes a much easier and more productive exercise. It’s not easy, but the hardest part is getting past the old system and embracing a new one.
If you would like to learn more about my research team's in-depth investing research please reach out to .
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 30yr Yield 2.08-2.29% (neutral)
UST 10yr Yield 1.73-1.97% (neutral)
UST 2yr Yield 1.31-1.54% (bullish)
High Yield (HYG) 81.94-83.88 (bearish)
SPX 4 (bearish)
NASDAQ 12,915-13,990 (bearish)
RUT 1 (bearish)
Tech (XLK) 145-157 (bearish)
Consumer Staples (XLP) 73.48-76.69 (bullish)
Energy (XLE) 66.90-71.30 (bullish)
DAX 13,920-14,857 (bearish)
VIX 24.01-33.34 (bullish)
USD 95.61-97.32 (bullish)
EUR/USD 1.115-1.133 (bearish)
Oil (WTI) 89.56-99.15 (bullish)
Nat Gas 3.94-4.84 (bullish)
Gold 1 (bullish)
Have a great day out there,
Tom Tobin
Healthcare analyst
