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Gavin Baker
+ Your AuthorsArchive @GavinSBaker Managing Partner & CIO, Atreides Management LP. Formerly Fidelity OTC Fund. No investment advice, views my own. Jan. 03, 2021 3 min read

1) Confluence of the new Covid strain, Georgia runoffs, potential instability around January 6/20 and the “narrow”speculative mania in some pockets of the mkt is worrisome to me.

All consensus, but still...

Caveat: I am generally worried and rarely right in my worries.

2) The fact that I am generally worried is a consequence of starting my career as a professional investor in September 1999 and being a tech analyst as the bubble burst.

Watching the Nasdaq go down 80% shaped me.

3) Watching so many careers end and making plenty of my own mistakes scarred me.

I am prone to thinking a pullback is right around the corner.

Obviously this view has been wrong *way* more often than right.

4) It is one thing to intellectually understand that if a stock goes down 80%, it has to go up 400% to break even.

It is another thing entirely to have lived it with an entire sector.

That creates visceral understanding.

5) Intellectual vs. visceral understanding is an important distinction to me.

This is why most children end up touching a hot stove despite being warned not to do this.

6) It is *very* hard to learn from the mistakes of others. One of the many tragedies of the human condition.

Learning from the mistakes of others = intellectual understanding.

Learning from your own mistake = visceral understanding.

7) Unfortunately for me, I often need to make my own mistakes more than once to really learn from them.

As much as I have tried to watch a lot of metaphorical film over my career, there is nothing like being on the metaphorical field as the game is always changing.

8) So with the caveats that my biggest mistakes all revolve around the facts that I am always worried, rarely right to be worried, rarely worried about the right thing and that my worries have cost me a *vast* amount of performance over the years, here is what worries me today:

9) The new Covid variant. Excellent piece from @zeynep 

10) The Georgia senate run offs. Markets like divided government.

A Biden Presidency with a narrow Democratic House majority and narrow Republican Senate majority is great for risk assets.

11) January 6 and January 20. Will say no more on this other than I think there could be more instability than is currently priced in.

12) The “weaponization of short gamma” which is behind much of the current speculative mania.

A consequence of the move to free trading. Manifest in the fact that almost no stocks with a large $ float (and hence less susceptible to retail options activity) are wildly overvalued.

13) This speculative mania is concentrated in a few narrow pockets of the market: EV/Lidar/Battery SPACs, new issues - all of which are highly susceptible to the “weaponization of short gamma.”

See call options volume, put/call ratios, absurd valuations, etc.

Well documented.

14) This mania will eventually end.

I am not worried about this - it’s easy to stay away - I am worried about contagion when it ends.

Good news is that these are all consensus worries. Should be discounted. It is rarely what the mkt is focused on that becomes a problem.

15) i.e. Unknown unknowns are almost always the biggest risk. If the risk is visible, it is generally discounted to some degree.

16) And lots of positive offsets that should cushion these potential negatives:

The broad market is reasonably valued, especially large caps (across the sectors I focus on), rates are low and 2021 economic growth is likely to massively surprise to the upside.

17) Flows into equities in January are going to be massive and earnings will ground the market more firmly in reality.

So hopefully any downdraft will be short and regardless, getting through all of this will be a clearing event.

Curious for the thoughts of others.

18) And yes, time in the market is more important than timing the market. I agree wholeheartedly, but cannot help myself from worrying a little.

You can follow @GavinSBaker.


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