"You know what I noticed? Nobody panics when things go according to plan...Introduce a little anarchy, upset the established order, and everything becomes chaos.” - Heath Ledger as the Joker, The Dark Knight
As I thought about markets and my positioning over the long holiday weekend, I was reminded of a scene from one of my favorite movies, The Dark Knight, where the Joker, portrayed by Heath Ledger, visits Harvey Dent (Aaron Eckhart) in the hospital. Ledger’s Joker continues by saying, “I’m an agent of chaos. Oh, and you know the thing about chaos? It’s fear.” Imagine, for a moment, replacing the citizens of Gotham with markets and market participants. Nobody panics when markets relentlessly trend higher and complacency reigns supreme. Yet, introduce volatility to the market, disrupt the established trend, and suddenly, everything becomes chaos.
Frankly, I pondered the parallels between the quote and markets for more time than I’d like to admit, but for good reason. What I realized was that in a euphoric market like the one we have today, markets will always find a reason to move higher because reckless abandon is the “plan” – extend risk, taper hedges and hope for the best. To make sense of this market, I turned to one of the most valuable aspects of my investing process: writing. Writing not only allows me to organize my thoughts; it also allows me to evaluate my positioning and juxtapose it against a different backdrop like heightened volatility.
Writing is a multi-faceted process for me because there are different ‘tiers’ of notes that I keep, ranging from bullet points to explore further all the way to fully-formed investment theses that I am investing on the back of. The evolution of a thought to an actionable thesis is a meticulous practice for me, one that only a handful of ideas sees through. In order to get comfortable enough with a trade or investment, I always take the other side of the trade to try and poke holes in my own thesis. If I can’t find any weaknesses, I then vet the idea with colleagues who see things differently than I do. In a perfect scenario, I am able to find someone who is on the other side of the trade so I can compare and contrast their position against mine.
The rest of this piece, with the charts and tables the argument was built on, is at the source link below.