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This is the 4th Chapter of my book, and will live behind the paywall. At some point, I will make it to a single product, but that is in the future.

I started my fund management career as an Emerging Market analyst in 2002. I had wanted to be in emerging markets because I knew that China would be the next big thing. But in 2002, although China was starting to move, the big thing in markets at the time was the “convergence” trade. Essentially, whenever a country was seen as joining the Euro, markets would buy their bonds and currencies, with a view to some eventual convergence.

Convergence was a political rather than an economic trade. To join the EU, you needed to meet some economic measures on fiscal spend, reforms and debt to GDP, but once you were in, you were in. And the ECB would accept all European debt as equal, regardless of underlying economic trends.

I remember in 2005, I travelled to Nuremberg to watch Australia play in the confederation cup, and I started to think the convergence trade might be a problem. I had recently been to Warsaw and Prague for work and Ljubljana and Bratislava for pleasure, and what shocked me was that Nuremberg was much cheaper than all these places.

Does convergence make sense when you are already more expensive than parts of Germany? I didn’t think so, and I started to get nervous about the convergence trade. I put my concerns to the back of my mind, until in late 2007, credit concerns started to rise in the markets.

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Capital flows are a funny thing. Everyone knows they cannot go on forever, but then again, no one wants to miss out on the fun. And for some reason, everyone thinks they can get out before the tide turns.

Usually capital flows need some catalyst to make them change. The most common is central banks raising interest rates, as this usually makes some assets look expensive, and money starts to flow out. The problem is that there can be a substantial lag between rates going up, and changes in capital flows. But in my long career in financial markets, I have been lucky enough to stumble on the most extreme, and most transparent of all capital flows, and was lucky enough to be short when the flows reversed.

Back in 2014, I was made aware of Japanese funds that offered very high dividends to Japanese investors, often over 20%. I wondered how this was possible. The one that most stood out to me was the Japanese listed US REIT funds. A REIT is a Real Estate Investment Trust, a structure that allows the owners of Real Estate to avoid tax as long as all rental income is paid to the underlying investor. They tend to offer high yields, and are very attractive to retirees. They are a well understood investment product. US REITs managed in the US tended to have around 5% dividend yields. These Japanese managed REIT funds had exactly the same investment profile, yet offered yields of 20% or more. Where was this extra 15% coming from?

Intrigued, I dug further into it. Oddly enough, there was no mystery. The managers promised to pay out 20% regardless of what the cash flow was. These had some tax advantages for Japanese investors, but during the first bout of Yen weakness under Abe, the REIT funds were able to make these returns through a combination of Yen weakness and REIT appreciation. This meant they were able to make cash pay outs while not selling any of their REIT positions. This performance caused more money to come into the REIT, which further helped them to meet their cash pay outs.

The largest of the funds, Shinko US REIT saw assets explode from 16bn Yen at the beginning of 2010, to a peak of 1,500bn Yen in early 2015. By then, this one fund owned 10% of the Simon Property Group, then the largest REIT in the US. But its transparency was a problem. It was committed to a 20% dividend yield, which meant if it did not generate the asset gains from stock appreciation, dividend yields or Yen appreciation, then it would become a forced seller. That is the capital outflows that had come from Japanese retail investors would turn, and become capital inflows as managers needed to sell US assets to make Yen dividend distributions.

At the time, this was not only high yielding self feeding fund in Japan. They were funds linked to Brazilian Real, Turkish Lira, and plenty of other REIT funds, all paying Yen yields over 15% or higher. And all needed Yen to keep weakening, or they would become forced sellers. But Yen weakness was getting harder to sustain, and it was mechanically very easy to see when capital flows would turn for these funds.

The market was running record net Yen shorts in 2016, but as the capital flows reversed, Yen strength returned, which caused capital flows increase further, and Yen strengthened from 120 to 100 - destroying many macro funds in the process. Theses capital flow created its own bull market and bear market.

Before I understood markets, I saw what money does to a place. Not in charts. In the streets.

In 1990, I went to China as a teenager. It was my first real exposure to a country that felt like it was moving — not smoothly, not efficiently, but with force. It was full of dust, noise, disorder, half-built structures, and constant activity. It wasn’t “developed” in the Western sense, but it had momentum. People were trying. Trading. Building. Selling. Improvising.

It felt alive.

In 1991, I started a one-year high-school exchange in Kobe, Japan. It was the peak of the bubble economy and Japan at that time felt like the future. The trains were spotless and fast. Cities were dense and hyper-organised. Shops were full. Technology was everywhere. Even the vending machines seemed advanced. Compared to rest of the world at the moment, Japan looked and felt like a civilisation several steps ahead.

I didn’t know it then, but I was looking at two different stages of the same force: Capital Flows.

When money flows into a system, it doesn’t just make prices go up. It changes behaviour.

In Japan during the bubble years, capital had been pouring in for decades. The Plaza Accord (1985) had weakened the US dollar and made investors think long Yen was a winning trade. Capital had subsequently flooded in. Asset prices had risen. Corporate balance sheets were flush. Banks were lending. Property was valuable collateral. Confidence fed more confidence. Companies invested because markets were rewarding growth. Workers spent because wages were rising. Rising asset prices justified more lending.

The system reinforced itself.

The surface story might have been about productivity, culture, or technology. But underneath it was a powerful feedback loop driven by capital. Money flows in, asset prices move higher, higher collateral values support more lending, this creates more activity, which in turns encourages more capital flows. And so the cycle continues until something breaks it.

This feedback loop doesn’t need perfect fundamentals. It needs flows of capital. At some point however those flows will reverse, and the process goes into reverse. More becomes less.

China, when I first saw it, was earlier in the process. Less polish. Less capital per person. But you could feel that something was building. There was a lot of energy without the infrastructure to support it yet. It was a system on the way up: still rough, still chaotic, but propelled forward by the movement of people, trade, and investment.

At the time, I didn’t have a framework. I just had an impression. Some places feel heavy, whereas some places feel like they are being lifted. Later, I would understand this feeling as capital flows.

One of the mistakes investors make is thinking bull markets are rewards for good fundamentals. Sometimes they are. Bull markets are often the cause of improved fundamentals, not the result.

When asset prices rise, companies can raise money more easily. They invest. They hire. They expand. Consumers feel wealthier. They spend more. Governments collect more taxes. Banks lend more willingly.

The rising market creates the conditions that justify its own rise. It becomes self-reinforcing.

You could see it physically in Japan. Property values were so high that balance sheets looked bulletproof. Banks were willing to lend because collateral values kept rising. Corporations invested heavily because capital was available and cheap. The system looked strong because asset prices were strong — and asset prices were strong because the system looked strong.

It’s circular. But it works — until the flows reverse.

What struck me, even as a teenager, was how environments shaped people.

In Japan, confidence was embedded in the infrastructure. Everything worked. Systems were reliable. The country felt efficient and modern. It was easy to believe that this success would continue because the surrounding physical world confirmed the story.

In China, belief came from motion. From visible change. Markets. Construction. Trade. It wasn’t yet polished, but you could see the direction of travel.

If you compare that to places where capital has left, the contrast is stark. Infrastructure decays. Investment slows. Confidence erodes. People become defensive. Risk-taking falls. The environment feels static or brittle. Capital doesn’t just move numbers. It moves psychology. This became one of my core beliefs: Capital flows create their own bull market.

When money moves into a country, sector, or asset class, it sets off a chain reaction. Higher prices improve balance sheets. Improved balance sheets encourage lending. Lending funds expansion. Expansion attracts more capital. Optimism becomes rational because the flow itself is supportive.

This is why markets can look expensive and keep going. Investors who focus only on valuation ask: “How can it still be rising?” Investors who watch flows understand that the system is still being fed.

The reverse is just as powerful. When capital leaves, the loop works in the other direction.

Falling asset prices weaken balance sheets. Lending tightens. Investment slows. Confidence drops. More capital leaves. What looked stable begins to look fragile very quickly.

Bull markets and bear markets are not just about earnings. They are about whether the tide of money is coming in or going out. You don’t need to know the exact level of the tide. But you do need to know the direction in which it is flowing.

My early travels gave me something that spreadsheets could not: a physical sense of what a system under inflow feels like versus one under outflow. Years later, when I analysed markets, I often came back to that instinct.

Does this place feel like Japan at its peak — polished, confident, fuelled by capital? Does it feel like early China — messy but being lifted by flows? Or does it feel like somewhere capital has quietly stopped arriving?

Those questions don’t replace analysis. They simply guide where you look.

Long before fundamentals show up in earnings, capital has already started moving. And when capital moves, markets follow.

Chapter 2 of my book - chapter 1 is here. If you are just here for timely market insights and not details of how and why I think the way I do, feel free to ignore.

It was 2021, and I was reading the Financial Times, when a small article caught my attention. The newly created Chinese digital regulator had called all of the biggest Chinese tech firms in for a meeting. At the time, the COVID tech bull market was raging, and US investors were all talking about FANG (Facebook, Amazon, Netflix and Google). These were the stocks that were going to lead us onwards and upwards. The Chinese equivalent was BAT (Baidu, Alibaba and Tencent). Even though relations between China and the US was deteriorating, everyone was hyped about tech, including Chinese tech.

I did not have particularly strong views either way on tech, but I knew that the Chinese government did not call in companies just for a “chat”. That was not how it worked in China. To me, it sounded like a problem. Curiously, the article did not mention which companies had been called in - just “leading tech companies”. So I spent the next couple of hours searching the internet to find the names of the companies involved. Eventually I found a list of 34 companies.

I started looking through the list - many were high profile companies that we all know - but I was surprised to see almost every Chinese tech company with a US listing was called into the meeting. Some had only just listed, some were just about to list, and some had been around a while. When I looked at market positioning, it was universally positive. When I asked people their thoughts, basically it was along the lines of the US has FANG, China is going to have to support its tech companies to compete, so the regulators will do nothing.

The thing that really got me was that the Chinese regulator was basically saying to the Chinese internet companies, you can not use your platforms to dominate and to promote firms you own or have an interest in. That is you could not use your market power to extract rents from other companies. For me, this sounded incredibly bearish - technology is naturally deflationary without consolidation and collusion. So after two hours work, I decided to put small shorts on all the companies.

As expected, the market was caught off guard completely by the level of regulation that the Chinese government imposed on its internet champions, and the effects on profitability. All of these shorts fell by 50% or more over the next few months.

This was one of my most successful shorting campaigns, but also wake up call. Previously, all my short themes had been built on pure economics, supply and demand and shifting prices. This campaign was built on two hours of research and from reading Chinese politics better than Wall Street. It was realising this, that led me to change my investment style, not because the world had changed, but because the politics of the world had changed.

Markets Are Driven by Politics, Not Economics

Before I ever opened a company report, I lived inside a policy machine.

My mother worked in Parliament House in Canberra. Not as a politician, not in front of cameras, but in the engine room — the research service that fed information directly to ministers. Her job was to answer the questions they were going to be asked in Parliament: What is Australia’s position on the Middle East? On China? On trade? On security? She would research, draft, and write responses that would later be delivered — often word for word — by elected officials.

As a child, I didn’t fully grasp the significance of that. I just knew Mum worked in a big building with flags, and that politics was not something abstract that happened “out there.” It was something people did. Something negotiated. Something constrained.

What I absorbed, as if by osmosis, was that decisions were rarely about what was economically “best.” They were about what was politically possible.

That difference matters.

In economics textbooks, systems move toward equilibrium, towards the most efficient outcome. In politics, systems move toward survival.

Governments don’t optimise. They stabilise. They delay. They trade one problem for another if it buys time. They protect voters, coalitions, and power bases. The outcome might look irrational from an economic perspective, but from a political one, it often makes perfect sense.

Growing up, I heard conversations about policy not in terms of theory, but in terms of trade-offs. If you raise taxes, who do you alienate? If you cut spending, where does the pain show up? If you devalue, who wins and who loses?

This lens stayed with me long before I understood how to use it.

Australia in the 1970s was not a calm political environment. The dismissal of Prime Minister Gough Whitlam in 1975 — the only time an Australian Prime Minister has been removed by the Governor-General — was a constitutional earthquake. It happened in the world I grew up in. These weren’t distant historical events; they were lived reality.

Later, I would admire Paul Keating for pushing through painful reforms that damaged his popularity but strengthened the economy long term. As a child, I didn’t frame it that way. But I saw, through my mother’s work and the atmosphere around us, that leaders often had to choose between economic logic and political survival — and usually chose the latter.

That lesson became crucial in my understanding of the markets.

When I started working in finance, I noticed something odd. Investors talked about governments as if they were rational economic actors. As if central banks pursued pure price stability. As if policymakers allowed recessions to “cleanse excesses.” As if currencies floated freely according to fundamentals. And even when economies and policymakers act “rationally” this was treated as a policy decision as well. Free markets are not an economic inevitability; they are a political choice.

Governments intervene. They distort. They subsidise. They bail out. They cap yields. They suppress volatility. They support asset prices when political stability is threatened. They don’t do this because it is economically elegant. They do it because falling markets mean falling confidence, unemployment, elections lost, social unrest. Even when governments don’t intervene, that is a political decision as well. Markets are not just economic systems. They are political systems with price tags attached.

I saw this clearly during crises.

When markets wobble, investors ask: What are the fundamentals? Policymakers ask: What breaks if we do nothing? Does this help us stay in power or not?

Those are not the same question.

A currency might be overvalued. A banking system might be insolvent. A property market might be a bubble. But if letting it collapse threatens political stability, the authorities will often choose distortion over discipline.

Rates will be cut. Liquidity injected. Rules bent. Losses socialised.

The flip side is crisis. This can also achieve a political aim. To break the power of certain interest groups, for example. Everything is political first, economics second.

If you analyse markets as if they are governed purely by economics, you will repeatedly be surprised. If you analyse them as political systems, the behaviour becomes more predictable. Most fund managers and investors do not, I have noticed, want to take political views.

This awareness shaped how I interpreted policy moves.

When China launched enormous stimulus after 2008, many analysts focused on debt sustainability and misallocation of capital. Those mattered, but the deeper driver was political. Growth had to be maintained to preserve social stability. The leadership could not tolerate a sharp slowdown. Economics came second.

Similarly, in developed markets, central banks repeatedly supported asset prices because falling markets fed directly into consumer confidence, pension funding, and electoral outcomes. The “wealth effect” was not just an economic concept — it was a political stabiliser.

Once you see markets this way, you stop asking: “Is this economically justified?” You start asking: “What is the political constraint?”

That is often the more powerful force.

Now I increasingly take the view that Japan’s lost decades were not a fundamental economic decision, but a political one. The 1980s saw the rise of US-Japan trade tensions, and policymakers chose a policy of benign neglect of Japan, to stabilise the relationship. Now, with the rise of China, Japanese political calculations are changing again. Politics before economics.

This doesn’t mean economics doesn’t matter. Over the long run, imbalances build and eventually assert themselves. But the timing — the path — is shaped by politics. Pain is delayed. Losses are shifted. Incentives are altered.

As an investor, this means you cannot just model growth and valuation. You must model power, incentives, and survival. That instinct came to me not from a trading desk, but from growing up in a household where politics was dissected as a practical activity, not a moral debate.

I learned early that outcomes are negotiated, not optimised. Markets are the same.

So when I say markets are driven by politics, not economics, I don’t mean numbers don’t matter. I mean numbers operate inside political boundaries. Those boundaries move. They bend. Sometimes they break. But they are always there. Understanding that gives you an edge — not because it tells you exactly what will happen, but because it stops you being surprised when “irrational” policy choices override economic logic.

To many investors, government intervention feels like distortion. To me, it feels like the system behaving exactly as it was designed to.

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I was calm, because I knew I was right. I had seen this story play out before, and my strategy was ideally placed. The problem was how to get other people to see that. So, I sat in the meeting room, running over the ideas in my head, waiting for the investor to come.

It’s a strange feeling to meet, for the first time, someone who has complete power over whether you fail or succeed. I was already perceived as a failure. I knew that. A big ex-client had recently told me so at a conference: “Why do you keep going?” he said. “You know your fund is a dead product, right?”

I could see where he was coming from. Assets had collapsed, and we had lagged the market badly in the rally back from the 2008 crisis. Changing managers added to the problems. Even though I had worked for the same firm and I had the same style, clients told us that changing managers meant everything was reset. We were back to zero. The optics were poor. A USD 5bn fund was now just USD 100m. It was barely breakeven, and here I was meeting the last big client. A client that held over 60% of the assets in the fund. A client I had never met before.

We were meeting in New York. The client was one of the biggest funds of fund investors in the world. I was expecting to meet one of those clients who had already made up their mind. This meeting was, surely, just to deliver the bad news. Soon I would be unemployed, and thinking of some way to make it back from the abyss. The average life span of a hedge fund manager back then was only about 4 years, so I would be bowing out bang on average. As I day-dreamed about my idle future, the client walked in. To my surprise, he seemed like a “nice guy”. Generally speaking, in finance, nice guys are rare, but he seemed like a nice guy to me. Anyway, he asked me what I was doing, and why I was doing it. And so I told him: China was following the road map of Asia in the late 1990s and consequently was heading for a currency crisis. This made me want to be positioned for deflation – long bonds and short equities – particularly those dependent on China, which at the time was most of the market. For me, this was the easy part. I had been in HK for the Asian Financial Crisis, and my thesis at university was on currencies. I was convinced I was right, even as the market was going against me.

After I talked, the client thought for a few minutes. At last, he spoke: “My team is telling me we should redeem from you and move on, that we should stick with bigger, better older managers.” He paused. “But I think you are smart. If we don’t give younger managers a chance, then what do we do in the future?”

I waited. Not sure where this was going.

“I tell you what I am going to do,” he continued. “I am going to redeem a small amount, but I want you to keep doing what you think is right.”

And that saved me. Right there and right then. That client’s willingness to give me a little longer. That saved me. It didn’t turn things around, but it kept me in the fight. And that fight led, ultimately, to the biggest turnaround story in hedge fund history.

This is my story. I want to share it with you. And along the way, I want to share with you some investing rules I use, and how I discovered them.

Chapter 1

Consensus Often Signals Risk, Not Safety

I did not grow up in a place that produces hedge fund managers. That was a huge hinderance to start with, but once I made it, it has been a huge advantage.

Canberra, in the 1970s and early 80s, was not a financial centre, not an industrial hub, not even especially ambitious. It was a purpose-built capital city dropped into the middle of the Australian bush — a town of public servants, tidy lawns, wide roads, and a sense that the rest of the world happened somewhere else. If you follow the logic of how success is “supposed” to work, nothing about my upbringing pointed toward global markets.

But that was the gift.

Canberra was isolated, but it was still connected. That’s the distinction. The state schools in Canberra were unusually good ones. My classmates weren’t drawn from one tribe. They came from everywhere. Children of diplomats. Refugees from Vietnam and Cambodia. Kids from government housing. Children of academics, activists, small business owners, truck drivers. It was an unusual mix for such a small city.

As a child, I didn’t think of this as diversity. I just thought it was normal. It was only later when I realised that these early experiences had taught me one of the most important lessons of my life. What looks “normal” depends entirely on where you are standing.

One of my primary school friends, Huy, had arrived in Australia as a refugee from Vietnam. He once wrote a school story about the sound of grenades exploding around him when he was three or four years old. At the time, he was just another kid in class. We chased each other around. We did homework. But his “normal” and my “normal” had nothing in common.

Another close friend, Piseth, was from a Cambodian family. His parents were elegant, calm, self-contained. They carried a quiet dignity that, as a kid, I couldn’t explain but instinctively noticed. Their lives before Australia had been nothing like ours.

Growing up around people whose experiences were fundamentally different from mine did something subtle but permanent. When I later encountered ideas, cultures, or market views that didn’t match my own, my instinct was not to reject them, but to dig a little deeper. Why does this make sense to them? That question — more than any economics textbook — shaped how I look at markets.

At home, there was another influence running in parallel. Sunday lunches were not quiet affairs. My father cooked, but politics did most of the talking. My mother worked in Parliament House, researching and writing briefings that ministers would later deliver as their own. She was one of the early women in that role. She understood, in practical terms, how decisions were made.

Dinner-table conversations weren’t about slogans. They were about motives.

Why would a politician take that position?

Who benefits?

Who loses?

What is the long-term aim?

I learned early that outcomes were rarely the product of simple logic. They were the result of incentives, pressures, trade-offs and personalities. People didn’t act because something was “correct.” They acted because it served their interests, solved a problem, or bought time.

Later, in markets, this translated directly. Prices did not move because spreadsheets said they should. They moved because of flows, positioning, policy, fear, career risk, and crowd behaviour.

But I didn’t know that yet. As a kid, I was just absorbing a worldview in which the surface story was never the full story.

Canberra itself reinforced the lesson. It was a capital city with barely 200,000 people in 1980s. At the time, it only had one nightclub, which as a teenager I was shocked to discover my parents had been to. Endless open space. Kangaroos on the outskirts. You could walk or cycle almost anywhere. It felt remote from the “important” parts of the world.

And yet, because it was the capital, embassies and international institutions were there. You could be in a small suburban classroom and sitting next to someone whose parents were negotiating trade agreements or had fled a war zone.

This combination — isolation and global exposure — was powerful. It meant I grew up slightly outside every centre of gravity. Not rural. Not metropolitan. Not elite. Not disadvantaged. Just… adjacent.

That “adjacent” position matters. When you’re fully inside a system, its assumptions become invisible. When you’re fully outside, you lack the tools to engage. Being adjacent lets you see both the system and the gaps in it.

In markets, that’s where edge lives.

As a child, I didn’t think of myself as contrarian. I just noticed that different people believed different things with equal conviction, and that reality somehow held all of them at once. What one group saw as obvious, another group saw as nonsense.

Years later, when I would hear phrases like “the market consensus,” I always felt a quiet resistance. Consensus sounded comforting, but it also sounded fragile. It reminded me of being in a room where everyone shares the same background and reaches the same conclusion — not because it is true, but because no one in the room sees the missing piece.

In school, in Canberra, I had seen too many missing pieces.

This is the foundation of my first investing rule. Consensus often signals risk, not safety.

Not because the crowd is stupid. Often the crowd is well informed. But crowds are shaped by shared experience, shared incentives, and shared blind spots. The more universal the agreement, the more likely it is that an assumption has gone unchallenged.

I learned to be comfortable slightly outside the group. Not aggressively opposed. Not rebellious for its own sake. Just willing to sit with the discomfort of holding a different view and asking, quietly; What if the people in this room are all seeing the same thing — and missing the same thing?

That question would later guide trades, positions, and career decisions. But it began long before finance.

It began in a small city at the edge of the world, where nothing was quite as simple as it first appeared.

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