Learning to love a queue
I’ve never liked waiting in lines, and I used to carry that same philosophy into how I viewed markets. This is probably why, like many others, I started with value-based investing, where you theoretically buy at fire-sale prices and sell at nosebleed levels. This approach was appealing to anyone with a countercyclical, contrarian personality.
But over time, I realised I was missing the real game. There are many forms of investing and trading, and I was too arrogant or perhaps too naïve to appreciate that. I care less about being right or wrong now. I’m now okay being labelled “dumb money,” and even more okay being part of the herd. I can assure you, institutional investors are doing the same. The ferocity of market moves since early April has not been driven by retail alone, and it's been a smorgasbord of dumb money, smart money, dip-buying, and melt-up FOMO from all players.
“Buy the dip” is often associated with retail speculation, but let’s be honest, how different is that from what the so-called “smart money” does? Consider Warren Buffett’s backstop of Goldman Sachs during the GFC, or the rise of Special Situations and Distressed Asset funds. It’s all deep-value investing. If institutions do it, it's genius. If retail does it, it's reckless - same playbook, different perception. The truth is, markets don’t care about ego or labels. In the end we're all in the same queue.
I've learned to be shaped by real-time developments rather than some tribal based methodology. Tribalism can tempt us to skip the line and try to outsmart the system. One of my favourite books, Fooled by Randomness by Nassim Nicholas Taleb, taught me a humbling truth: there are no market experts, excellent results are often more fluke than brilliance, and all we have are a bunch of experiences.
There are times when deep-value works, there are times when going with the herd works, and there are times when buying high and selling higher really works. Have many plays in your game-book – you don’t have a prescribed mandate like the institutional market.
From bubble to bubble
We’ve entered a new era where markets swing from boom to bust faster than ever. What used to play out over the years now happens in months.
The reflexive nature of markets, where expectations and price movements feed each other, has created a self-reinforcing dynamic. Volatility suppression leads to more volatility selling, pushing markets even higher and around and up we go. George Soros famously explored this in The Alchemy of Finance. Nowhere is this reflexivity more evident than in structured products like the JP Morgan Equity Premium Income ETF (JEPI), which now sits at $40B AUM, rolling massive options exposure each quarter while offering an 8.5% dividend yield. There are eight to nine others just like this one that have to roll options regularly. These products are the new gorillas in the market now.
