Quote of the Day: “Beware of Conviction”

A good quote regarding all of those cocksure know-it-alls but get-it-all-wrong anyway on the tube:

"I continue to listen to and read a lot of convicted opinions — for instance, the market has bottomed, financials have bottomed, oil has topped, stocks are enormously undervalued against historic measures (like short- and long-term interest rates), etc., etc. Their mantras of "certainty" are almost laughable considering so many uncertain economic, credit and geopolitical factors…

I would put those convicted opinions in a locked closet away from children and "talking heads" (like myself) who sometimes act like children…Err on the side of conservatism and invest/trade light. Too many imponderables, from my perch."

– Doug Kass, THE EDGE (8/07/2008)

Print Friendly, PDF & Email

What's been said:

Discussions found on the web:
  1. Vermont Trader commented on Aug 20

    Or you can short the crap out every rally like I’ve been doing…

    When it stops working so well, then I’ll move on.

    You know what signalled the bottom back in 2003?

    All the tech company management teams started calling us to vote for for their compensation plans that allowed them to reprice their options to lower strikes.

    There is nothing like that occuring yet.

  2. Rob P. commented on Aug 20

    “cocksure”… hummm yeah, that sounds pretty close to what I’ve been calling them for a while now. :)

  3. leftback commented on Aug 20

    A good reminder that whatever your macro convictions might dictate (inflation / deflation / stagflation etc..), you have to trade what you see. This is especially true when we seem to many to be sitting at an inflection point in the $. In a Bear market you have to accept that your gains are going be limited, but excessive conviction (and leverage) can be costly – look at the July results of certain hedge funds !

    Trading light – and alternating between shorting oil/energy and shorting the financials – seems to be working here for the time being in equities. Until we see a strong move in the $ one way or the other, the alternation between “inflation” trades and “deflation” trades is likely to continue, with a bias to the down side. However inoccuous this is on the surface, trading (or the lack of trading) in the credit markets suggests another full-scale panic is percolating slowly.

  4. Hans Van Deun commented on Aug 20

    What’s the difference between them and long-time bears (such as yourself) who kept on calling for a bear market/recession as the market kept on climbing?

    ~~~

    BR: You obviously have not been a long time reader around these parts — or perhaps you are unfamiliar with my many varied calls (some good some bad) over the years.

    I have been quite flexible, flipping bullish and bearish over time, including turning bullish in Oct 2002. (Funny thing, I was called a perma-bull then — those perma-bears probably lost as much money as the perma-bulls are losing now).

    Even some of my critics recognize that I am flexible:
    http://oldprof.typepad.com/a_dash_of_insight/2005/12/were_just_wild_.html

    And, I am directionally agnostic: Apprenticed Investor: Bull or Bear? Neither
    http://www.thestreet.com/_rms/comment/barryritholtz/10219637.html

    I can send you much more, but I doubt someone like you will get very much out of it . . . (Like teaching a pig to sing)

  5. Bob commented on Aug 20

    The whole problem with the world is that fools and fanatics are always so certain of themselves, but wiser people so full of doubts.

                                                   — Bertrand Russell

  6. Gavin commented on Aug 20

    Convictions are more dangerous enemies of truth than lies. — Nietzsche

  7. alex commented on Aug 20

    Barry-

    I am reminded of Yeats’ great poem The Second Coming, the first 8 lines of which seem to resonate greatly in our world today

    The stanza ends, as you may remember, with this:

    “The best all lack conviction, while the worst/Are full of passionate intensity”

  8. Hans Van Deun commented on Aug 20

    Barry – easy with the hostility. I understand that you deal with a lot of “pigs” who are irrationally bullish and taking you to task for your opinions because they’re getting slaughtered.

    I’m not one of them.

    I wasn’t criticizing your record, as I’ve been reading your blog for long enough now to know who you are and what you stand for. Note that I said long-time bear, not permabear.

    Rather, I don’t think you should criticize somebody because they’re very convinced of something – criticize the bulls because they’re wrong, not because they’re sure of themselves. When you were bearish in 2006-early 2007, everybody disagreed, yet you pressed on, because you had a conviction that the housing boom would go bust and take the economy along with it. And I don’t see a difference between that and somebody who’s convinced that the market has bottomed right now. You’re both swimming against the tide because you believe the tide will change soon.

    ~~~

    BR: My initial read of the 1st comment was “gee, another chest thumping perma–bull” — those guys used to haunt these parts in 2007-08 — where ever did they go?

    As to our quote above, please see: “Strong Opinions, Weakly Held”
    http://bigpicture.typepad.com/comments/2006/07/strong_opinions.html

  9. Frank commented on Aug 20

    I have great respect for Doug Kass’s opinions and analysis, including his quote cited by BR. However, I would have preferred Doug include as well those who are “cocksure” (as BR puts it)in the opposite extreme, e.g. no way have financials bottomed, no way are stocks undervalued, etc. The fact is, there’s over 6.6 billion souls on this planet, and not a single one of them can say with absolute certainty where the stock market will close tomorrow at 4 pm, much less 6, 12 or 18 months from now. Take Doug’s advice and trade/invest with this reality in mind.

  10. Pat G. commented on Aug 20

    “Too many imponderables”

    I think Dougie nailed it!

  11. MRegan commented on Aug 20

    I was struck by the last line in the quote from D. Kass, “Too many imponderables…”.
    The notion reminded me of an argument I had with a man named Gilbert Butler (he’s some kind of PE guy out of New York)- I met him through a fluke of fate in Arequipa, Peru in January. Since there is limited room here I will boil it down. He wanted me to give an estimate of how long it would take him and guide to ride on bicycles from the entrance of Colca Valley to Chivay where he wanted to meet up with a glorified site superintendent to view a church restoration in a town called Maca. He, having been educated by Benedictines in RI, and I, by Jesuits in Chicago, proceeded to engage in dueling dancing angels over imponderables and orders of magnitude. My wife, a hard-headed characata, found this pricklish and tossed a number at him to put the kibosh on the argument.
    This leads me back to Kass, convictions and healthy fear in the face of the unknown and what to do. True, there are too many imponderables but the notion of orders of magnitude can help orient onesself in this current fracas. In regard to the financials it seems that if one regards the proportions of leveraging engaged in and the current deleveraging going on then a smart person could map out a general course for many of these entities. Timing is extremely difficult but if you kind of know where you’re going you’ll make it ok. Butler later conceded to me that insisting on setting a time was a mistake. Yes, it was, but it doesn’t matter. That old, disagreeable coot got on a bicycle at about 4000mts above sealevel, rode his bike to Chivay, and finally made it to Maca. I might add that he is extremely rich and I alas am not (I blame the Jesuits).
    We need both the courage of our convictions and the courage to question our convictions.

  12. Matthew Camp commented on Aug 20

    “When a true genius appears in the world, you may know him by this sign, that the dunces are all in confederacy against him”

    Johnathan Swift
    “Thoughts on Various Subjects, Moral and Diverting”

    Go get ’em, Barry!

  13. Richard commented on Aug 22

    Barry,

    I am surprised that you see fit to publish the views of Doug(ie) Kass. He has been so SPECTACULARLY WRONG since 2002, it hurts the psyche even to think about it.

    He is clearly so disillusioned by even his own grim performance that he is trying nto persuade people that consistency of thought (his own) is bad (his performance) and you should beware those that exhbit it (he, himself) and that you should trade light (ignore his advice). It is the all-American ‘sulk’ that overtakes so many commentators that ‘get it wrong’, the latest being Bill Bonner, another genius who just happened to give some long-term free ‘advice’ (worth what you paid) and is now claiming that nobody can know anything, blah blah blah….

    Kass’s seemingly favorite short, Danaher (DHR) has more that doubled since he first started recommending it years ago and it continues to flirt with its all-time-high while Kass continues to pound away at it as a short!!!

  14. Barry commented on Aug 22

    I have to disagree — I’ve seen Doug’s returns (its non-public) I can comfortably say that despite running a short only fund, he has handily outperformed the S&P5000 over that time period.

    And he has been more right than wrong in his annual forecasts of big issues to watch for.

    Here’s the returns of his newest fund:

    “As of April 30, flagship Seabreeze Partners Short fund was up 16.5%, excluding fees, versus a 5.6% loss for the S&P 500. Since inception in January 2005, the fund is up 40.7%, versus a 15% gain for the S&P.”

    http://online.barrons.com/article/SB121097996687000019.html

    You don’t need to agree with everything someone says to appreciate their asset management skills and investment philosophy

  15. Richard commented on Aug 22

    I don’t know what to say, Barry. There’s something that doesn’t tally here. I followed Kass EVERY SINGLE DAY on realmoney for five years and finally gave up on Kass in disgust. Few of his trades worked. He stuck stubbornly to those that didn’t. He remained constantly bullish throughout the 2002/3-2007 bull market with little respite. What more can I say? I have no bias for or against the man. He is who he is.

    Btw, why aren’t his returns public? What does he have to hide?

    ~~~

    BR: He runs a hedge fund — by definition, its non-public — he is not allowed to discuss his returns in public, as the SEC deems that “mass marketing.”

  16. Richard commented on Aug 22

    Maybe, Barry, but as you pointed out, he did just that in the Barron’s interview. So what gives?

Read this next.

Posted Under