Follow the (Confident) Smart Guys?

Follow the (Confident) Smart Guys?

November 26, 2013 Uncategorized
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(Last Updated On: December 15, 2014)

I was at Grant’s Interest Rate Observer a couple years ago listening to the end of the world.

Seriously, EVERYONE was ultra bearish. And EVERYONE was extremely compelling.

I was completely sold, and yet, I was protected because I’ve devoted myself to “following the model” and disregarding anything my pea-brain has to say about anything.

Trends rule markets. Expect the unexpected. Avoid highly confident predictions. Follow the model.

Hugh Hendry was the most compelling speaker at the conference. He gave a fabulous pitch for shorting JGBs; shorting the world; and buying a lot of gold.

And now Hugh is tapping out:

“I cannot look at myself in the mirror; everything I have believed in I have had to reject. This environment only makes sense through the prism of trends.”

I’ve made a new rule: listen to really smart people, since it is entertaining, makes me feel more intelligent, and gives me overconfidence for multiple predictions; however, avoid trading based on the projections of highly confident smart people.

Note: Bill Ackman and Herbalife/JCP is another interesting case study.


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About the Author

Wesley R. Gray, Ph.D.

After serving as a Captain in the United States Marine Corps, Dr. Gray earned a PhD, and worked as a finance professor at Drexel University. Dr. Gray’s interest in bridging the research gap between academia and industry led him to found Alpha Architect, an asset management that delivers affordable active exposures for tax-sensitive investors. Dr. Gray has published four books and a number of academic articles. Wes is a regular contributor to multiple industry outlets, to include the following: Wall Street Journal, Forbes, ETF.com, and the CFA Institute. Dr. Gray earned an MBA and a PhD in finance from the University of Chicago and graduated magna cum laude with a BS from The Wharton School of the University of Pennsylvania.