Is he? And if he really is, should we care?
Let’s start from the beginning: if you do not know Scott, google him, so you will be up to speed. Full disclosure: I like him and I read all his books; I think that this could make me biased but also put me in the right position to make the following comments, because you have to put his predictions in the right context. This week I found these two tweets on my timeline:
the Inverse Professor Galloway ETF has outperformed the S&P 500 by 11.2x https://t.co/24NT70gCz3
— Turner Novak (@TurnerNovak) June 18, 2020
If you picked Macy’s to beat Amazon you’re… ummm… well, you’re the big dawg!! 😂😂😂 pic.twitter.com/HWL0YjGwXF
— jason@calacanis.com (@Jason) June 18, 2020
I do not really want to talk about Scott specifically, more use those as an example of what you should not do.
Your trading decisions should not be based on articles you read
How frequently do you read “Ray Dalio moved to 100% cash” or “[stock market guru] is bearish on stocks”? If you pay attention, more often than not those headlines are bearish and instil fear in you. This is because the title has to push you to read the article and the journalist is in the business of generating clicks, not informing you how to better manager your money. They interview people that got it right in the past but this does not necessary position them to have valuable insight for the future: think how many of the traders that made money during the 08/09 financial crisis made a killing the years after; worse, media give a lot of space to perma-bears like Roubini who did not even have a good past track record but are great in kicking your emotions.
Your trading decisions should not be based on someone else opinion
You do not know nothing about the specific circumstances of the person who is talking, Jon Snow. Maybe they think the market is overvalued but they have a rule-based investment approach, so they tell you to sell while they are still invested. Maybe they sold but they did days, weeks, even months before the interview you are reading, putting them in a different position compared to you. Think about Feb – Mar this year: stocks selloff was so fast that you could easily read that you have to sell with the market at the bottom while the person talking sold near the top. They do not tell you which circumstances will change their mind: how many ‘updates’ to past articles did you read, like “yes, three weeks ago [stock market guru] was bearish but now this changed his mind”. They might manage a stock-only portfolio, and comment about that, while their personal portfolio has a different asset allocation, a different risk profile that will lead to different conclusions.
Now back to Scott. In his writing / podcasts he frequently makes ‘predictions’ that revolve around strategies and future trends. This can be a very good PART of your decision process but cannot be the ONLY input in it. Lets also put the record straight: in 2017 Scott published a book called The Four, basically stating how FAA(N)G will rule the world. They did and if you invested accordingly, you would be rich(er) now. But I will talk about the manipulation of his predictions later.
Price is not value
A good strategy does not always make a good investment, it depends how much you pay for it. Value investing, for example, does not centre on companies turnaround (strategy), is buying assets for less their intrinsic value. When you compare Scott predictions to stock returns, you are comparing apples with oranges. Sometimes Scott follow this logic, he consider Uber (and WeWork and Peloton) an expensive business based on current prices but not necessary a bad investment at any price, but I sense that his background is closer to a consultant than an accountant. Stock prices rarely trade at intrinsic value, they spend the majority of time overvalued or undervalued and it takes years for them to regress to their mean. If you ever shorted a stock, you know that being right means choosing the right company AND the right moment: you have to find a catalyst that will drive the company bankrupt and invest right before it. Without a catalyst, a stock can stay afloat longer than you can stay solvent. Scott is a marketing professor and ‘short’ stories, predictions about companies that will go down, sell better than stories on great companies, that is why he focus on them; the difference between him and a money manager like Jim Chanos is that he does not need to focus on the catalyst, his salary does not depends on him being right at the right time.
When I started my professional career, a mentor told me that small investment firms usually give forecast around relevant economic numbers, like Non Farm Payrolls, way above or below consensus: if they miss, no one will care but if they get it right ONCE their name will suddenly become famous. They do not trade according to their forecast, it is just a marketing stunt. You can see Scott predictions under the same lens.
Jason Calacanis
I would like to give Jason a special mention because his situation is quite peculiar. Jason is an angel investor and started a feud with Scott because he did not like Scott comments on companies he funded. Jason also became rich because he was a friend of Travis Kalanick and this gave him the opportunity to be an early investor in Uber. I let you decide if he was prescient or if he was in the very right place at the very right time (lucky). The right way to reply to Scott would be to explain why Uber, for example, can raise its margins and become a viable business; Jason instead attacked Scott changing the professor point, multi-channel retail will be more successful than online or offline only, into go long Macy’s / short Amazon. Taking a single prediction to judge a whole person judgement capability is extremely bad for a VC, an investor who is successful when he get right one investment out of ten.
Scott and me
As for any other ‘advice’ I give on this blog, I did the same mistakes I tell you here not to do. I traded multiple times after having read this or that opinion but while writing, it came to mind a specific example that involved Scott himself. I think it was five years ago because I was still living in Geneva and still trading a limited number of individual stocks. I was long Google and I read Scott saying that its future was going to be bleak because more and more videos were being consumed on Facebook, a fact that would make YouTube soon irrelevant. In retrospect I think I was simply looking for an excuse to sell since I had a nice paper gain: obviously YouTube is still here and Google capacity to mine profits was never even dented.
Conclusion
Scott direct and no-filter predictions give me a point of view, a perspective that is either new to me because I did not thought about it before or challenges my current opinion. Counter-arguments are useful in investing and having access to someone with Scott experience is better than asking someone in you circle, like your wife…even if you know that your wife is always right. It is the same reason why Twitter is hundred times better than FB to enhance your brain: you choose the people to follow on Twitter while on FB you have access to your friends, a random set of humans that intersected their life path with yours.
The number of opinions is important, the quality of those opinions is important but is also crucial that you make decisions based on your judgement, because you (and maybe your financial adviser) are the only one that knows your circumstances, risk tolerance and other variables that make any financial decision the right decision for you (yes, I am not the bullish on eToro social trading feature).
What I am reading now:
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