Eric Peters: “The Only Time I've Ever Really Made Money Involed Disagreement With The Market”
Following this morning’s “scary movie” anecdote from One River CIO Eric Peters, below we present several vignettes from the weekly thoughts by the hedge fund manager on how to make money when everyone else is losing it… and vice versa, and how the Golden Gate bridge makes all the differnce in a world where everyone else is swimming across the Bay.
“The only times I’ve ever really made money involved a certain type of disagreement with the market,” said the investor.
“A philosophical disagreement,” he continued, reflecting on so many cycles, so many set ups.
“I make money when I believe the world works a certain way and the consensus disagrees.” Memories of so many counterintuitive trends, over so many years, raced through my mind. “Because it’s a philosophical disagreement, the investors on the wrong side of the debate don’t concede, despite enduring big losses.”
“Most investors on the wrong side of a philosophical debate don’t just need to acknowledge the sustained price moves against them, and the financial losses, they must come to accept a new mental model of how the world works,” continued the investor.
“But to accept a new mental model inevitably requires them to give up on a whole lot of related beliefs.” And this prolongs what might otherwise be a quick stop loss.
Which drags out the entire process. Because intelligent people do not easily abandon their philosophies, mental models.
“Can’t say I have a disagreement with the market right now,” admitted the investor, unsure how to make real money in today’s market.
“All my investments now are based on hopes for prices to return to particular levels that make more sense. But these are not things I have a particular edge in.” He sighed, looking out at Alcatraz, searching.
“I’ll never be the fastest runner, or swimmer. In a race across the Bay, I’ll only ever win if everyone else tries to swim and I just kind of look at the Golden Gate, wondering why no one else sees it, and walk across.”
And here is a bonus comment on a market that is just like Forrest Gump in so many different ways…
“Gump! What’s your sole purpose in this army?” screamed Drill Sergeant. “To do whatever you tell me, drill sergeant!” shouted Forrest.
“Goddamn it Gump! You’re a goddamn genius!” declared Drill Sergeant. “When I cut interest rates, print money, and tell you to buy assets, what do you do Gump?” asked Sergeant.
“I buy assets!” answered Forrest.
“This is the most outstanding answer I have ever heard. You must have a goddamn I.Q. of 160. You are goddamn gifted, Private Gump.” Forrest saluted.
“And when I hike, shrink my balance sheet…”