Very Dangerous…

One telephone conversation with Gates in 1993 sticks in Ellison’s mind. “It was the most interesting conversation I’ve ever had with Bill, and the most revealing. It was around eleven o’clock in the morning, and we were on the phone discussing some technical issue, I don’t remember what it was. Anyway, I didn’t agree with him on some point, and I explained my reasoning. Bill says, ‘I’ll have to think about that, I’ll call you back.’ Then I get this call at four in the afternoon and it’s Bill continuing the conversation with ‘Yeah, I think you’re right about that, but what about A and B and C?’ I said, ‘Bill, have you been thinking about this for the last five hours?’ He said, yes, he had, it was an important issue and he wanted to get it right. Now Bill wanted to continue the discussion and analyze the implications of it all. I was just stunned. He had taken the time and effort to think it all through and had decided I was right and he was wrong. Now, most people hate to admit they’re wrong, but it didn’t bother Bill one bit. All he cared about was what was right, not who was right. That’s what makes Bill very, very dangerous. ~ “Softwar: An Intimate Portrait of Larry Ellison and Oracle”

Malcolm Gladwell once retold the following story about George Soros.

An old trading partner of Taleb’s, a man named Jean-Manuel Rozan, once spent an entire afternoon arguing about the stock market with Soros. Soros was vehemently bearish, and he had an elaborate theory to explain why, which turned out to be entirely wrong. The stock market boomed. Two years later, Rozan ran into Soros at a tennis tournament. “Do you remember our conversation?” Rozan asked. “I recall it very well,” Soros replied. “I changed my mind, and made an absolute fortune.” He changed his mind!

Two important takeaways here. 

  1. Cognitive flexibility or being able to hold strong opinions weakly is an incredibly rare talent as well as an extremely profitable one
  2. You need to know your sh*t… you have to have a framework from which to index against in order to know when it makes sense to change your mind

My buddy Tom Morgan shared the following a while back in his must-read weekly, which you can sign up for here. It’s a critical point and should be etched into your trading desk.

Philip Tetlock found that rapid belief-updating is as much as 3x more important for successful forecasting than intelligence. It’s less a question of beating the markets, but more of a deep sense of attunement that enables you to update your beliefs faster than those that are still trying to justify their actions.

I frequently write about how discretionary trading is not about making predictions but assessing the odds. This helps with the cognitive flexibility part. It’s much easier on the ego to update the odds than it is to admit one was wrong and 180 on a market call. And that’s important because we never want to get caught trying to justify our actions… we can leave the senseless pontificating to the Twitterati with large followings and eight-digit TDAmeritrade paper trading accounts. 

But… and this is important…. In order to effectively assess the odds, we have to have some sort of reference points to benchmark against. Signposts along the way to gauge whether or not we’re walking the right path or if we need to turn around.

It’s not enough to have strong opinions weakly held. We can’t just randomly flip-flop from bullish one day to bearish the next, because of daily swings in the tape. We need to respect the wisdom of markets while acknowledging they’ll move in ways that hurt the most people, most of the time (translation: a lotta surprising counterintuitive moves).

To effectively and rapidly update our beliefs then, we need to have high-fidelity signposts. Tested markers that give us a confirming or disconfirming signal for our various scenarios, which when taken holistically provide us with a statistically significant trail map to walk upon.

The graphs on our internal Heads Up Display (HUD) and the data we cover each week in the Trifecta Chart Pack are such signposts. Some mix of our Hierarchy of Technicals; price action levels, sentiment/positioning, breadth, and liquidity typically works best. 

Nothing gives us anything remotely close to certainty though. It’s a weight of the evidence approach. One that’s continuously updated… helping us develop that deep sense of attunement and giving us conditional statements so that if enough of our signposts are there, then yes. If not, then no. 

If things are noisy and none of our scenarios stand out as particularly supported by the evidence. We lighten our loads, hedge our risks some, go back to the drawing board, and/or wait for the dust to settle.

Speaking of, there are some interesting signposts popping up… Some dominos falling into place that’s bringing some clarity to what’s been quite a high noise / low signal market for the last couple of months. This typically occurs in the midst of regime change, which is what we’re likely seeing now.

I’ll be out with more in the coming days where we’ll explore what this new regime is, what it means, and how we may play it.

Until then, stay very dangerous

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Brandon Beylo

Value Investor

Brandon has been a professional investor focusing on value for over 13 years, spending his time in small to micro-cap companies, spin-offs, SPACs, and deep value liquidation situations. Over time, he’s developed a deeper understanding for what deep-value investing actually means, and refined his philosophy to include any business trading at a wild discount to what he thinks its worth in 3-5 years.

Brandon has a tenacious passion for investing, broad-based learning, and business. He previously worked for several leading investment firms before joining the team at Macro Ops. He lives by the famous Munger mantra of trying to get a little smarter each day.


Investing & Personal Finance

AK is the founder of Macro Ops and the host of Fallible.

He started out in corporate economics for a Fortune 50 company before moving to a long/short equity investment firm.

With Macro Ops focused primarily on institutional clients, AK moved to servicing new investors just starting their journey. He takes the professional research and education produced at Macro Ops and breaks it down for beginners. The goal is to help clients find the best solution for their investing needs through effective education.

Tyler Kling

Volatility & Options Trader

Former trade desk manager at $100+ million family office where he oversaw multiple traders and helped develop cutting edge quantitative strategies in the derivatives market.

He worked as a consultant to the family office’s in-house fund of funds in the areas of portfolio manager evaluation and capital allocation.

Certified in Quantitative Finance from the Fitch Learning Center in London, England where he studied under famous quants such as Paul Wilmott.

Alex Barrow

Macro Trader

Founder and head macro trader at Macro Ops. Alex joined the US Marine Corps on his 18th birthday just one month after the 9/11 terrorist attacks. He subsequently spent a decade in the military. Serving in various capacities from scout sniper to interrogator and counterintelligence specialist. Following his military service, he worked as a contract intelligence professional for a number of US agencies (from the DIA to FBI) with a focus on counterintelligence and terrorist financing. He also spent time consulting for a tech company that specialized in building analytic software for finance and intelligence analysis.

After leaving the field of intelligence he went to work at a global macro hedge fund. He’s been professionally involved in markets since 2005, has consulted with a number of the leading names in the hedge fund space, and now manages his own family office while running Macro Ops. He’s published over 300 white papers on complex financial and macroeconomic topics, writes regularly about investment/market trends, and frequently speaks at conferences on trading and investing.

Macro Ops is a market research firm geared toward professional and experienced retail traders and investors. Macro Ops’ research has been featured in Forbes, Marketwatch, Business Insider, and Real Vision as well as a number of other leading publications.

You can find out more about Alex on his LinkedIn account here and also find him on Twitter where he frequently shares his market research.