Markets Make Everyone Feel Stupid at Some Point
The real questions is, how long are you willing to live with it?
Bloomberg, February 25, 2019.
I want to look at three questions today:
How long are you willing to look stupid?
What degree of confidence do you have in the process you use for deploying risk capital?
How comfortable are you holding a position that isn’t working, and hasn’t worked for several years – or longer?
That is not random set of queries; these are deeply felt questions surfaced because of market events. They are loaded with deep philosophical resonance and investment process meaning.
Perhaps a few examples of “looking stupid” will illuminate the underlying issues.
Let’s begin with the 14th annual MIT Sloan Investment Conference, held on the Cambridge campus last week, where I moderated a few panels. Various panelists owned up to feeling pretty stupid. The explanation offered was that being wrong, at least temporarily, was an integral part of the job description for so many in finance, including quants, hedge fund managers, endowment CIOs and data researchers. It is humbling to moderate a few panels where they spot you 100 IQ points just to make it fair, and then listen to this group discuss why they have been feeling dumb . . .