In the age-old capital
markets, many have made fortunes and many have lost fortunes.
In another sense,
many were rewarded for being proved right whilst many others had their
opinions, theories, and calculations rejected with a blow by the wealth
transfer system, also known as the markets.
اضافة اعلان
Throughout history,
hundreds of money system scientists — economists — have become legends.
These
are a select group of people who shared their thoughts and beliefs with the
world through parking their money in an asset for a duration of time and were
rewarded beyond financially.
People like George Soros, the man that bankrupt the
bank of England; Peter Theil, the first outside investor in Facebook; Ray
Dalio, the catalyst for the chicken McNugget; and many more have made a name
for themselves by being proved right while all others were proven wrong.
Legends, in retrospect, should have also made their decisions during rough times
and unlikely circumstances; they also should be a minority standing before a
much stronger majority.
In the past thirty
years, two characters in the Wall Street world have successfully shown signs of
becoming future legends by making incredibly challenging bets on the markets
and coming out right while the majority came out wrong.
Cathie Wood started her
career over 45 years ago in the investment world at entry-level jobs in the
financial world.
Today she is the CEO & CIO of ARKK Investments, one of the
biggest investment firms on Wall Street, which has its own exchange traded
funds (ETFs).
ARKK Investments made highlights that attracted billions after
booking huge profits from investments in some of the most speculative, high
risk, fundamentally over-valuated names in the world such as Tesla, Palantir,
Bitcoin, Shopify, and many others.
Furthermore, she was known for making
insanely large price predictions on high risk names like Tesla’s stock price rising
above $30,000 and Bitcoin exceeding the $1-million mark.
It seemed like Wood was
a future optimist and brave intellectual to the point that she has invested
billions in names that gained their value from their assumed claims of the
future.
On the flip side, the
Big Short was a Hollywood movie made almost entirely to narrate the story of a
hedge fund trader that successfully predicted the 2008 US Housing bubble and
made billions throughout his career calling out disasters long before they
happen, then making bets on the catastrophic outcomes.
This soon-to-be-legend
is Michael Burry.
Michael is from an opposite school of thought to that of
Wood’s; while she is a in favor of speculative names, Michael believes that
most stocks, cryptocurrencies, and assets that have risen in value and rallied
in price are overvalued and due for a huge crash.
Over the past 20
months, Michael Burry has been an outright market bear and accumulated billions
of dollars in bets against most US tech stocks, cryptocurrencies, and
speculative assets while Wood has accumulated billions worth of market bets
that the markets will go even higher, especially for the case of stocks like
Tesla and cryptos like Bitcoin.
Yesterday a public filing for Burry’s company,
Scion Asset Management, revealed it has over 235,500 contracts representing
price drop bids in Wood’s ARKK Innovation ETF and new similar positions worth
over $31 million causing the ETF to drop over 2 percent overnight.
This all should in some
sense sound like just another day on Wall Street, where opinions are countered
with a hefty bill to pay for the weaker opinion.
However, to a person like me,
I look at the matter from a different perspective.
This paradigm difference in
both opinion and action between two highly experienced, highly skilled, and
most importantly well-educated participants shows exactly how wide the
difference between either possible outcomes could be.
Mind you, these two are
pretty confident, well-versed researchers who are supported by strong
scientific tools to support their opinions and theory, yet they are both
pointing towards two different extremes.
One can only wonder how
much less confident, more uncertain, less scientific, more speculating market
participants might react to either extreme outcome, let alone how might they prepare.
Here is what I think will happen: In my opinion, the best strategy to use when
navigating market environments so extreme that it allows for such variances
among the market whales, one should play out their believed strategy with on
much smaller size.
Apply a hedge strategy that is even smaller in size and opposite
in direction to the original strategy.
Finally, and most importantly, maintain
liquid cash reserves to benefit from opportunities that may arise from
extraordinary circumstances when least expected.
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