Sheep Logic and Short Selling
I have shared posts from Ben Hunt’s blog before and today I wanted to share an older one titled ‘Sheep Logic’.
It is a longish, but fantastic read.
This paragraph really got me nodding:
Why are we being trained to think like sheep? Because sheep are wonderful prey animals. They pay the rent with their fleece, and when push comes to shove you can eat them, too. Plus they’re not helpless prey animals. Sheep are quite competent and rather self-sufficient prey animals, which from a smart owner’s perspective is really what you want. If sheep were truly docile and stupid, then they’d be way too much trouble to keep. Nope, with sheep you can let them wander around all day and do their thing. Just keep them from killing themselves in some really stupid accident and you can harvest them for years and years and years.
Pretty chilling.
This part really rang true to me as well:
How do we “see” a crowd in financial markets? Through the financial media outlets that are ubiquitous throughout every professional investment operation in the world — the Wall Street Journal, the Financial Times, CNBC, and Bloomberg. That’s it. These are the only four signal transmission and mediation channels that matter from a financial market Common Knowledge Game perspective because “everyone knows” that we all subscribe to these four channels. If a signal appears prominently in any one of these media outlets (and if it appears prominently in one, it becomes “news” and will appear in all), then every professional investor in the world automatically assumes that every other professional investor in the world heard the signal. So if Famous Investor X appears on CNBC and says that the latest Fed announcement is a great and wonderful thing for equity markets, then the market will go up. It won’t go up because investors agree with Famous Investor X’s assessment of the merits of the Fed announcement. The market will go up because every investor will believe that every other investor heard what Famous Investor X said, and every investor will be forced to update his or her estimation of what every other investor estimates the market will do. It doesn’t matter what the Truth with a capital T is about the Fed. It doesn’t matter what you think about the Fed. It doesn’t matter what everyone thinks about the Fed. What matters is what everyone thinks that everyone thinks about the Fed. That’s how sheep logic, aka the Common Knowledge Game, works in markets.
This is the exact reason I gave up news/information from ALL of the above (I would pay for a Bloomberg Terminal if I had the budget/luxury). They gave me ZERO edge. Turning them off completely is what finally gave me an edge.
I think it is ok to be a sheep in the markets as long as you know who your shepherd(s) is (are), what a flock of sheep is, and who the wolves and coyotes are.
I think Ben would be a fantastic trend follower, but he is a short-seller. Here is how he describes himself and short-sellers:
We swim against the current of narrative. Always. We are respected but disliked. By everyone. Our necessary attributes are suspicion and ego, we can never coast, and our rewards, if they come, are punctuated and short-lived. Short-selling will curdle you. If you let it.
I AM a short-seller. It’s my DNA. I just can’t abide the mendacity and the pleasant little lies and the outright raccoonery that I perceive as infesting the investment world. I wish I could ignore it and just go with the flow. I wish I were wired differently. But I’m not.
We need more Ben Hunt’s.
Originally published at Howard Lindzon.
