Follow the (Confident) Smart Guys?
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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Definitions of common statistics used in our analysis are available here (towards the bottom)