I recently rewatched “Silence of the Lambs” - fantastic movie. It was with a bit of a shock that I realised I had a lot in common with Hannibal Lecter - I mean other that the killing and eating people part. He has his own moral code, he enjoys analysing people to try and work out what pushes their buttons, has little tolerance for arrogant hacks, and can be very patient in working for his goals. I think I have all that in common with Hannibal, and I really like his analytical work. In the movie Clarice Starling asked Hannibal if he had the courage to analyse himself? Well Hannibal didn’t, but I think I have.
Analysing yourself is much more difficult than analysing other people. Physical clues, particular eye and facial movements tend to betray peoples real motives. Very hard to analyse your own eye and facial, and self-denial is a real thing. So when I analyse myself, I look at my actions and my enthusiasm rather than my words. I might say I want to get fit, but if I can’t be bothered to get out and train, then it is only words. So the question I was asking myself is - why do I keep looking for bearish trades - when I could just buy the Nasdaq, or magnificent seven. All my work says they have locked up the political and economic system to make it almost impossible to either fail, or see valuations drop - so why not just buy it already?
Even more importantly, with my name, reputation and contacts, I could set up an closet index tracking fund for awhile, and get myself a cushy income stream. This is the obvious thing to do, and the financial incentives are there - but I am not interested. Why I am not interested? The simple answer, and a total lie, would be it has gone up so much, and I am waiting for a better entry point. This is not true - but a lie I might tell myself to avoid addressing the real issue.
The hard truth is that I only do things that I can think I can win. And this is true of everything I do. I love basketball, and have only recently stopped playing. My build is not conducive to playing basketball - I should have played rugby - at 182cm (6 foot) and 100kg (220lbs), but I developed a game that was difficult to play against - and every time I stepped on the floor I would be thinking of way to beat the team I was playing. I always played to win, and was very happy to win ugly. I particular enjoy coming up with strategies to win - and I think I may even take up coaching at some point, now that all my joints are beginning to ache. The point is that I always play to win.
When I was a teenager, I started learning Japanese, and by my mid-20s spoke incredibly good Japanese. But in the mid 1990s, I saw that speaking Japanese was not enough to guarantee success - and other good Japanese speakers tended to end up in jobs that did not appeal to me. I also realised that even if I spoke perfect Japanese, I would always be on the outside, and there was nothing I could do about that. I could not “win” at Japanese, and my ardour for it has cooled.
I started this substack, because I thought I could win at it. I am not sure you can definitively “win” at substack, but it has certainly been successful. And because of that I find it very easy to write and publish articles. The “fire in the belly” is there.
So what about markets? Well, I am not particular interested in being another closet indexer, even though that has been the correct call since the GFC. I would be embarrassed to say I was “an innovative and risk taking portfolio manager”, to then invest like an index tracker. What I really want is to be the best, and clearly the best. For me, that route is through short selling, and being bearish positioned consensus long assets. If there was any role model, it would be George Soros, not Warren Buffet. For me, it seemed perfect to focus on short selling. Financial crisis, either currency or debt crisis, seemed to happen every three to four years. 1991 - savings and loan, 1994 - tequila crisis, 1998 - Asian Financial crisis, 2000 - dot-com bust. So when I got my first fund in 2006, I was very long, and then went short in 2008, and raised more money in 2 months in 2008 that I had in 2 years previously. Later on I was short commodities in 2011, MLPS in 2014, Japanese banks in 2015, and even Chinese tech in 2021. I got a lot of short calls right - but markets kept going higher.
In 2018, I thought I had found a career making trade in clearinghouses - and how they systematically misprice risk. The analysis, still looks as good as ever, but every crisis that is caused by clearinghouses gets cleaned up by the authorities. Bearish analysis is not rewarded, and this is what makes it hard for me to get excited about markets. How can I win, if leading stocks never fall?
You are probably asking, why not just win and lose with everyone else, why not just buy the S&P 500 and enjoy the free money the US government is dispersing. Well I could, but it would also take all the joy from financial markets from me. Its a financially stupid, emotional answer - but its the truth. For me its a hard truth. Should I take the easy but financially rewarding route - index investing, or buying quality stocks - or do I keep slogging away trying to find a different more fun way to make money? I already know the answer. I should have stopped playing basketball years ago - I have SOOO many injuries, and yet I keep going out there as its fun. I suspect I will keep looking for that “fun” trade - or eventually just lose interest in markets. Funny - trying to be a winner, has made me a loser. But unlike my knees and basketball, I think I still have the mental capability of finding that trade. That is probably why keep shouting into the void with my substack - just to make sure I am looking around for that long lost “fun” trade.
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