Thinking About Endgames
"Never let the future disturb you. You will meet it, if you have to, with the same weapons of reason which today arm you against the present." Marcus Aurelius
It’s tempting to try and predict the endgame when the world is shifting. When a new market regime emerges we want to be ahead of the game and anticipate how it is all going to play out. Our ego craves the satisfaction of being proven right, having seen it all coming before others.
As I’m working on my next deep dive, this one about Stanley Druckenmiller, I tweeted lessons from his famous speech at the Lost Tree Club during which he echoed the sentiment:
“Never, ever invest in the present. You have to visualize the situation 18 months from now, and whatever that is, that’s where the price will be, not where it is today. If you invest in the present, you’re going to get run over.”
These days, there are plenty of endgame scenarios to contemplate. Putin, Ukraine, and the West. China, Taiwan, and the US. The energy transition. Software and AI eating the world. We seem to have entered a period of upheaval in which conflict and volatility are rising again - whether that’s cultural, technological, or geopolitical. After years of exuberance and free money for many investors, has the party stopped?
I don’t know. But I know that this search for the next grand narrative is especially tempting at the extremes. The greater the stakes, the higher the potential payout. Predicting and shorting the collapse of bubbles is a popular sport among contrarians. In its more extreme form, it resembles rapture ideology - a desire to see the righteous contrarians rewarded and the sinners, the speculators undeserving of their easy money, punished. In other words: ego and envy can affect decision-making. Unfortunately, it’s easy, and extremely dangerous, to get overconfident after seeing some initial success that seems to confirm one’s imagined endgame.
My favorite case study is Paul Tudor Jones who became convinced that market of the late 1980s resembled that of the 1920s. He noted both fundamental and technical similarities. Valuations were high, debt levels and bank leverage rising quickly, markets like fine art experienced speculative exuberance, takeovers were running hot, and there was distress in both the oil patch and the farm belt.
Jones famously used a (fudged) overlay chart as part of his prediction of a market crash:
When the market crashed, Jones became a household name on Wall Street. Everyone was eager to hear his opinion. He now faced a conundrum: had the crash confirmed his prediction of a another great depression - a scenario he had laid out publicly? Predictably, in the aftermath of the crash Jones was bearish on the U.S. as well as Japan where one of history’s great stock market and real estate bubbles was unfolding.
I believe it would have been easy for him to blow up. U.S. stocks soon returned to a bull market. Japan continued to rise for years before its bubble imploded. Execution and risk management proved at least as important as identifying the trade idea. Jones changed his mind when the market disconfirmed his views, noting:
“Ego is the single most destructive force you can confront in business. I treat every trade as a business decision. You have to be sure you have the discipline to get out of a losing trade.”
You can find more details in my case study. Jones started with:
“The only real operative historical parallel to what we have right now is the Twenties. And the similarities are so striking, so rampant and so numerous that one has to use that as a basis.”
And eventually conceded:
“My job is to get with the flow. I will make a forecast, but my job is simply to trade the range.”
Jones understood that it was impossible to predict a complex adaptive system. That any endgame he could conceive of remained a hypothesis to be tested.
It’s why many investors throw their hands up and shun the macro completely. Brett Bivens wrote about it eloquently in his piece contrasting “seeing the present clearly” with predicting trends and markets. In The Power Law, Sebastian Mallaby made a similar point when he argued that the important (technological) revolutions can’t be predicted. They have to be discovered “by means of iterative, venture-backed experiments.”
All of which brings me to my own experiment. As I wrote in The New Year’s Conundrum, I’m trying not to overthink the future (and trying even harder not to dwell too much on the mistakes of the past). I have no idea of what my endgame will be. I try to remain open to new possibilities and connections and take the next step when I find resonance. Sometimes it even works.
"I don’t make choices or decisions. I don’t weigh possibilities. Instead, I observe patterns and move with them. I wait for unfolding. I sense currents and I flow with them. You don’t have to be enlightened to operate this way; you just have to release the tiller." Jed McKenna
Sometimes this feels like a luxury. It wouldn’t be possible if I had to provide for a family (and it wasn’t when I was married). Sometimes it’s nerve-wrecking and has introduced me to something I had no experience with: bouts of insomnia when my mind tries to think it’s way to a solution that I simply can’t see yet.
Which is how I found myself at my desk at 3am a couple of days ago, re-writing the about page (some of which I will share below). It felt like it was time to take another stab at the fog obscuring the future of this project.
Why is it so difficult to find comprehensive and nuanced profiles of history’s most interesting investors?
I am fascinated by great investors - the people who steer their ships across an ocean of uncertainty in search of treasure, who rise to solve the market’s puzzles every day anew. I am intrigued by their ingenuity and creativity, their discipline and hubris, their triumph and tragedy.
Unfortunately, I believe they are frequently misunderstood. Their insights are reduced to superficial soundbites and much of their wisdom is lost.
Case in point, Druckenmiller is known for his advice to make concentrated bets, to “go for the jugular” as Soros coached him to do. That advice can get you killed if you take it without the right context. For example, I wrote about how Druckenmiller and Soros created many layers of conviction when shorting the British Pound. They understood every nuance of the trade, they knew the other players at the poker table, and they saw the trade’s extreme asymmetry. That confluence of factors allowed them to make an exceptionally concentrated and levered bet. In my piece on him I will highlight another key nuance that he unfortunately omits in most of his interviews.
There are, of course, a handful of very valuable books covering great investors. In fact, we’re going to study a few of them together. It’s about time I added a book list here. But my impression is that much of the valuable information is scattered across books, podcasts, and articles. It is effectively lost to most in the community.
As a result, each generation of investors finds themselves condemned to sift through endless noise and platitudes to rediscover timeless lessons. Figuring this out from scratch is a waste of everyone’s time. Frankly, it frustrates me to no end.
It is my hope that I can contribute to improve this sorry state of affairs and help foster a community by creating an engaging, comprehensive, and insightful collection of investing wisdom and ideas. I hope it will help all of us develop novel and better perspectives on markets and life.
This is what I’m thinking about right now:
Deep dives: the backstory will continue to be free. My perspective on the lessons, recent commentary, and a list of key sources will be available for the premium community.
Podcast conversations: I love to get into people’s heads and want to do these more regularly. I hope that over time I can add a distinctive voice to this arguably crowded space. For starters, I’m working on an idea of a mini-series around a specific topic that would combine conversations with a written piece with commentary and resources.
A brief weekly check-in with all of you.
As I mentioned, I’d like to turn this into a hub with comprehensive and nuanced information about the most interesting people and organizations in the business. This would be content for the premium community. A first step could be pages with key books, quotes, and case studies.
I would also like to find more ways to have a dialogue and encourage sharing. This could be in the form of open discussion threads on the substack or a regular Q&A or AMA. Or perhaps a regular community call to discuss big pieces or other topics. Another idea would be have community-only interviews with interesting authors or investors or give the community the opportunity to submit questions in advance.
Rather than trying to predict the endgame, I see this as the next sequence of iterative experiments to discover the future.
If you’re a premium subscriber, I’d love to hear what you would be interested in. If you’re a regular reader but not a premium subscriber, I would love to know what would make a subscription compelling to you. Feel free to contact me via email or Twitter DM.
If you’re a new subscriber
Continue reading if you’re interested in some background on me and my work. If you’re a long-time reader, you will have seen some of this before.
My own journey
I grew up in picturesque yet rural Southern Germany. Stepping into Manhattan’s concrete canyons for the first time changed my life forever.
After college, I moved to New York to be with one of the world’s most breathtaking women (now my ex wife). I spent more than a decade on Wall Street, cranking in banking, serving at the mercy of immense wealth at two family offices, watching how institutions allocate billions at an investment consulting firm, and finally getting my ass kicked at a hedge fund.
But I never quite fit in. I was always trying to be someone I was not. Life had to hit me like a midnight freight train before I could let go.
After my divorce, I picked up a new hobby. On Saturday mornings, I took a stack of notepads and a sandwich and I made my way to the New York Public Library. Specifically the old SIBL building, across from the Empire State Building and a block away from J.P. Morgan’s amazing private library. There I started browsing through microfilms, newspaper databases, and old books.
I was burned out and desperately trying to find that spark, something that would tell me why I was still hanging around the world of financial markets.
I found that these dusty archives and forgotten interviews allowed me to step into the drama of markets. I could watch legends like Julian Robertson navigate their way through momentous events like the 1987 crash. It was a first glimpse at my new mission: to follow my curiosity and create something worth sharing with the world.
I have since written about some of my ups and downs:
Divorce, Denial, Dissonance Reduction: How to lose money and friends (“Everybody gets what they want out of the market.”)
To get a feel for my work check out (all free):
David Tepper (The King of Bouncing Back)
Or take a look at the The Most Important Insights
For some premium write-ups, check out:
Leverage is one hell of a drug. Kirk Kerkorian spent a lifetime perfecting its use and rose from school dropout to one of the world’s richest people. Oh, it also cost him much of his fortune in the end.
How did a people person like Michael Bloomberg build the world’s dominant financial information company? (“Small, earned steps – not lucky big hits.”)
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