The Fine Art of Being Wrong.

This is a link to Barry Ritholtz recent article on how to be wrong and move on. He applies it to trading, but the same philosophy could be used at anything. Admit your mistake, correct it and move on without dwelling on it. It helps not having a big ego – a rarity among the trading kind.

What does NOT admitting error look like? It is Apple investors, who double up all the whole way down from $700 to $400. It is the radical financial deregulators like Edward Pinto & Peter Wallison blaming the financial crisis on unrelated bank loans to poor minorities. It is the cacophony of excuses from the Gold community, blaming the 30% drop on central banks, Goldman Sachs, “paper” gold, the shorts and the dollar. My friend Albert Edward’s reiterated call for S&P500 at 450 — with the SPX kissing 1600 — smacks of a classic non-admission of error. His preference is to go down with the ship.

I would also include another category to this group: those who trade on political inclinations rather than on reality. John Paulson, one of the goldbugs (and a Romney donor) who saw his fund lose 27% last month (and 47% YTD) is one of those sophisticated guys who are no different from Glenn Beck, betting on the apocalypse. Why do they bet on the apocalypse? Because Obama is a socialist, thus the economy cannot possibly recover during his term. Although, I have to give John Paulson some credit – at least he bets his own money on entrenched personal sentiments. Glenn Beck types first scare regular folks about the upcoming Armageddon and then simultaneously peddle them gold coins. Nice, full-proof business model.

But still, I’m puzzled, and even fascinated how smart guys can be so blinded by political hatred that they allow it to envelop their thinking. John Paulson is not a stupid guy: he made billions betting against subprime in 2007-2008. How could guys like him not have put two and two together? For the last 3 years it was obvious to me that Bernanke will keep his foot on the QE gas pedal for as long as possible, and given the abject economic situation in 2009-2010, one could safely say that it’s going to be years, not months. This simple fact guided my being long stocks and withstand all the ups and downs. You don’t have to have a PhD to see what was going on. Whether QE is good or bad is secondary to this discussion: guys like Paulson don’t care about social implications when they make money; they only bring up social implications when they have lost all other arguments. Zerohedge guys, another famous goldbugs, are now annoyed to find out that without QE the market would have stayed flat. They want QE ended immediately because it was so successful and thus prevented their luddite, gold-obsessed worldview to be realized in real life! WTF?


9 thoughts on “The Fine Art of Being Wrong.

  1. Vladimir says:

    Economy may recover, and I hope it does ( well I kinda hope it does, but not too strongly, everybody loves this limping along it seems and I am no exception, I love my munis producing monthly cash flow that Uncle Obama can’t touch for now ). Categorically stating that it won’t ( just like stating most things categorically ) is not wise. But if it does recover it will indeed be in spite of our President, not thanks to him.

    • Vladimir says:

      Palpable is a strong word: I don’t hate him. I appreciate his liberal social stand. I don’t even dislike him for raising taxes: it was inevitable after Bush spent like a drunken sailor. As a matter of fact I blame Bush for a lot of things and for Obama being elected as well, as pendulum always swings in the other direction.
      So, my main beef with Obama is Obamacare ( which I think contributed significantly to the slowing of the economy by adding another layer of uncertainty for the companies regrading additional costs of new hires etc) and, even more so, his inflammatory divisive rhetoric which, as I mentioned before, is not too far removed from inciting class warfare – exceptionally damaging.
      I know you didn’t ask me to elaborate, but I have a few minutes, so why not share my views…:))

  2. I thought you would bring up Obamacare while talking about slow recovery. This is one issue that I can’t discuss with assuredness simply because we don’t yet know whether or not it affects business growth. But business aspect aside, I know that having 40mln uninsured is wrong both from humanistic and economic standpoint. The uninsured still go to the emergency room and we all pay for that care anyway – the most expensive type of care. Obamacare addresses it, perhaps in an imperfect way. But I don’t hear calls for improvements in the law – all I hear is calls for complete repeal with no sensible replacement ideas. So for me, if the choice is Obamacare or nothing – I’m for Obamacare.

    • Vladimir says:

      Setting aside how it was carried into law ( like a thief in the night) and a legality of forcing people to buy insurance – if it does slow the economy ( which I think it does, but who the heck knows for sure ) then, again, back to what I said earlier: strong economy should be the focus. Strong economy gives people jobs and enables them to have coverage. Weak economy makes those fortunate enough to have work shoulder more burden still for the unemployed and without coverage.

      However, here is the my main concern: I believe that Obama created a monster, not really knowing what it is or how it will work or pay for itself. Created it in a hurry just to create something. My fear is that it will suffocate or outright break the system. And I say – we are better off without it than with it in its current poorly and hastily designed form. The risk that we created in the system is not fully understood and the damage could be tremendous. The status quo was not a good thing but there was nothing unpredictable or potentially lethal about it. We should have spend more time and designed something better.

  3. But by the same token, (and leaving aside the manner in which it was passed), the drag on the economy can come from people so dependent on their employer-sponsored health care that they’re afraid to look for better jobs, move or start a business. This lack of options stunts entrepreneurship and growth, is it not? If people know there’s a mechanism out there than can catch them if they fall, wouldn’t it enable a more dynamic labor market? It’s better than holding on to the job you hate for the sake of benefits.

    • Vladimir says:

      Clearly I can’t quantify it at all, but it just seems to me that while there may be some limiting effect to the economy’s growth as described by you, it is not significant as true entrepreneurs usually find a way ( and now the Government doesn’t leave them a choice of covering or not their workforce once they reach headcount of 50 ) to open a business. I feel from talking to people that there was too much of uncertainty to risk expansion for many small to midsize companies ( regulation, state of economy, Obamacare ). I personally know two small business owners ( yes, they were nearing retirement, so it was an easier decision for them, but they would be happy to continue otherwise) who shut down their businesses last year because regulation became a suffocatingly expensive and nonsensical burden on them.
      So, there is your drag. But once again, the main problem is the mechanism’s potential to become so enormously unwieldy and expensive, so full of unintended consequences that it may bankrupt the country and/or destroy the healthcare system of the United States. Are you at least reasonably confident that it will not do that?

  4. I am reasonably confident it will not. Remember what they were saying about SS and Medicare back in the day (esp. Reagan with his “telling our grandchildren of the times when we were free” speech on the dangers of safety net for the elders)? Those programs will have funding problems eventually, but that does not make them tyrannical, in fact they are very popular. So I can’t think of any serious unintended consequences other than funding problems – but Obamacare is being funded by tax increases, savings and reduced payments to providers.
    I would find your concern more genuine if you simply said you’d hate to pay higher taxes, rather than invoke some unspecified future consequences. To quote the same Barry Rithotz from yesterday (I know, I got hooked on his blog recently): “Making a claim that some policy is wrong because of some vague danger at an unspecified date in the distant future is, well, bullshit.”

    • Vladimir says:

      No claim, but a general distrust in government’s ability to manage things on time and on budget. Even simple and well-designed and defined things. Not an enormous complicated poorly thought thru Frankencare. Yes, in a way it will be abt taxes, as it will almost certainly prove hugely more expensive than projected and a progressively smaller group of people will be asked to pay more and more, which is, of course, unsustainable.
      Regarding danger to the healthcare system: as doctors are squeezed more, there will probably be fewer of them which will create longer lines, rationing etc. Am I claiming it will happen? No. Am I afraid enough it will? Absolutely.

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