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It is a difficult decision for me, but I have determined that now is the time to leave my current position and to pursue a similar but not so similar path, something that is more true to my heart.
Reflecting upon the past four years, I distilled my key learnings into the following.
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Inflation is not a very “researchable” topic. Most projections about inflation are condemned to be wrong. The Fed employs over 400 Ph.D. economists, yet its inflation projections have been consistently wrong for years.
I believe it is extremely difficult for humans to comprehend and predict the dynamics of a large complex system, even though we have perfect knowledge of all the individual elements in such a system.
Let me draw an analogy, call it “Scientists versus Water”: Scientists, in a laboratory environment, think they know everything about water. Water is H2O; water can freeze, boil, and evaporate. However, sitting in a lab, staring at water, these scientists could never imagine tides, waves, or tsunami, let alone trying to make predictions of when these phenomena could occur. Yet, these are what water can do too! The scientists who only study water in a lab will never know!
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2020 laid bare the truth in that saying. To manage a pandemic, it is not about whether a country has the strategy, the money, or the technology to handle the virus; it is about the culture of its people.
My wife and I were in Beijing during the outbreak. The news broke out during dinner time on January 20, 2020. Within an hour or two of that news, as we left restaurant that night, some people were already wearing masks. By the second day, some 20% to 50% people we saw in Beijing and Shanghai were wearing masks. Mask wearing — it was a culture.
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I analyzed all American and Chinese companies that were ever publicly traded from 1970s to today. I then grouped them into “U.S.” and “China” according to a company’s country of domicile. In total, my analysis covered over 21,000 listed stocks.
My findings can be summarized in the following tables. Here, the columns “Average ‘Baggers'” mean the number of times a stock has gone up (including dividends) during a given decade — for example, if that column shows 15, it means the average stock from that particular sector has gone up 15x during the given decade — i.e., your $1 of investment has turned into $15.
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I predicted negative oil prices in April 2020 — and from the data I have seen I was one of only a handful of investors to do so. Some people reached out to me and asked whether I am a dedicated short seller or a specialist in commodities or futures trading. My answer is NO!
I did not make that negative-oil prediction because I wanted to short something, nor because I wanted to do something global macro. I made that prediction because I study fundamentals. I think in “first principles,” which leads me to focus on the fundamental truth of a thing — and in this case, the supply and demand of crude oil, a study which eventually led me to conclude there would be a severe surplus of oil supply and the world would run out of storage space for crude oil, thus we would see negative oil prices.
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On April 19, 2020, I became convinced that over the next two days, prices of crude oil would drop below $0. The next day, April 20, oil opened at $17.73 a barrel and closed the day at negative -$37.63 a barrel.
To help us appreciate the magnitude of that epic collapse, the oil price chart below showing the past 25 years would be helpful. See that big plunge?
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I am always intrigued by the question of “what are your interests?” I ask myself this question often. I also throw this question to others. One business school student answered: “my interest is to find an investment banking job.” Well, he was not really answering my question.
Many people see their short-term goals as their interests. This is a mistake and I believe this is why many high-achieving people don’t feel happy (even after they have attained their goals). By not seeking to know their own interests, people end up spending their entire life doing things they don’t like and they don’t care.
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As I wrote in December 2019, “Think Scientifically” was one of my five key takeaways from 2019. Of late, it has become increasingly obvious to me that there is great value in scientific thinking — and, not doing so is unusually dangerous.
To think scientifically, I believe, is to think independently, to be grounded in facts and free of preconceived notions. Scientific thinking seeks truth, not opinions. It welcomes different ideas, new ideas. It also encompasses the willingness to acknowledge that “I can be wrong.”
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