“Most of the natural sciences try to represent the results of their investigations as though these had come into existence without man’s intervention, in such a way that the collaboration of the psyche – an indispensable factor – remains invisible. An exception to this is modern physics, which recognizes that the observed is not independent of the observer. So in this respect, too, science conveys a picture of the world from which a real human psyche appears to be excluded – the very antithesis of the “humanities”.”
It sounds like Carl Jung understood quantum mechanics far better than most physicists of his time.
That’s what happens when you keep writing covered calls on the way down. When the market rebounds, you’re left without exposure—and pondering, like everyone else, whether to bite the bullet and load up at the top.
Alas, markets can wait…
The last update, centered around the London 7/7 bombings, struck a chord—your comments and feedback were much appreciated. It also came as a pleasant surprise that no one asked about the identity of the Bund bomb powerlifter. We’ll stress again: it was totally out of character, and likely a reflexive response that anyone else in the same position might have had.
Boston Marathon Bombings
To shift the focus back a little closer to home, I distinctly recall a similar gut reaction following the Boston Marathon bombings in April 2013. It’s only natural when: (i) you’re probably carrying more risk than you really should, and (ii) you’ve had your head in a vice all day—or all week—as the market grinds against you. The lesson from London 7/7? Don’t irritate the Yanks (a native Bostonian) around you—who remain exceptionally warm and welcoming to recent transplants—and use the moment as an opportunity to lighten up a bit on risk. Or perhaps I did nothing, and just let the clamp tighten again around my head.
Fortunately, the majority human condition is to quickly forget painful experiences and remember the good—likely only to repeat the same mistake later. Still, that’s better than a world where the reverse is generally true.
Baupost-Klarman ‘Margin of Safety'
For a perfect example of how a grown-up at the top of his game handles it, we refer you to Baupost—Seth Klarman’s Boston-based hedge fund—and his letter to investors published in early 2014. Unfortunately, we can’t share it here, but the full version may be available online (rather than just excerpts). More unfortunate is the endless stream of content—manure that’s useless even for agriculture—that other fund managers churn out via X posts, and the corresponding scarcity of the good stuff.
Klarman dedicated the first paragraph of his ink to commemorating the victims of the Boston Marathon bombings before moving on to markets and investments. But then again, when you’ve got his—and his firm’s—stellar track record, and by default the confidence of your investors, you don’t need to spend much time justifying your actions or what’s on the books. The fund has been closed to new investors for many years, with a long waitlist.
Speaking of books… the price of a used hardcover copy of Klarman's famous Margin of Safety keeps going up. It's listed at $2,250 on Amazon! I may still have a digital copy of it somewhere—kindly shared by a once-junior trader, now a rockstar (deputy CIO) hedge fund manager we won’t mention by name, to avoid embarrassing him. [Subject to review if or when he cancels his membership.]
To summarize Klarman’s book—as the title would suggest—the team at Baupost probably had little to do on the day of the Boston bombings in terms of their investments, instead tending to more important personal matters. Beyond that, it largely reinforces the time-tested discipline of investing—rather than trading—in markets. To quote Klarman: “I was just inoculated by these concepts quicker than most.”
PTSD
If the instinctive response described above is considered abnormal or alarming, it’s best not to mention what goes through the minds of U.S. veterans with Post-Traumatic Stress Disorder (PTSD) the moment they hear about a mass shooting. Deep, dark places—the kind that help explain why so many take their own lives before they ever cause harm to others.
And these are the same people being left in charge of distributing aid in Gaza—or facing cuts to the support they receive from the VA. But the empty words of gratitude on Veterans Day—and the privilege of cutting queues at Disneyland—will, of course, continue.
Amateur Psychoanalysts
Anyway, here’s the overarching theme to take away from our discussions: Whether through our analysis of open sources or anecdotal conversations, we see ample evidence of mission creep and PTSD stemming from toxic domestic politics and international affairs—both among market participants and more broadly.
In most instances, the patterns and methods of key actors are (fairly) consistent. The observers, however, are not.
If one wishes to engage in amateur psychoanalysis of world leaders, then so be it. But let’s stay true to the science. It's worth noting:
- Every psychotherapist must first undergo psychoanalysis themselves—and continue doing so on an ongoing basis—before working with patients.
- Professional psychoanalysts seldom assess their subjects from a distance or in staged settings, but preferably in private, one-on-one environments. Even the CIA analyst in charge of preparing psychological profiles of foreign leaders includes a disclaimer at the top of her reports, noting that it's unethical and counter to professional standards to assess living individuals in this manner.
- Mental health professionals frequently report fatigue and are themselves susceptible to mental health issues after prolonged exposure to patients’ psychological trauma. Just saying.
We’ll pat ourselves on the back, at least, for staying consistent. Early on, we agreed: if Trump was the more like winner of the 2024 election—and given that he’s very much a media and PR showman—then it wasn’t worth wasting our time listening to prominent Washington political pundits who had no real inroads to the Trump campaign.
Better, we figured, to speak directly with the campaign and communications operatives—the very people Wall Street elites tend to turn their noses up at. And still do. At least they actually know their client and have an idea for what's next installed—far better than the so-called experts in U.S. politics who flip-flop week to week just to stay relevant to a news cycle they've no clue to predict.
Is it possible to say that the Trump campaign folks we’ve had the pleasure of collaborating with are, in many ways, far more delightful to deal with than some of their counterparts who are supposedly more ideologically aligned? Hopefully that won’t get us doxed—or anyone too upset.
Soft Science? Maybe. But It Works.
To most market professionals, behavioral science is post-millennium abstract mumbo jumbo devoid of context and practical applications. While many of the standard theories used by market practitioners have proven less reliable in recent years, many successful business models in Silicon Valley are rooted in behavioral economics. With UC Berkeley serving as an intellectual powerhouse, much like the University of Chicago for modern day finance.
Yes, yes—we know there are plenty of outstanding U.S. universities with major contributions in these fields. It's still a blessed nation. But Carnegie Mellon University always seems to get overlooked—especially when it comes to financial mathematics and engineering. That said, it must be acknowledged: the neuroscientists at Stanford are cut from a different cloth.
The AI Stuff and Nvidia
Turning to AI—a core topic we've covered over the years—we still feel more comfortable discussing it in terms of big data, neural networks, machine learning (ML), and natural language processing (NLP). It’s something we first mentioned shortly after OpenAI launched ChatGPT… once you’ve spent time playing around with the standard tool and model.
Then comes the phase where you've poured far more time—and money—than necessary into building custom tools atop a rapidly proliferating stack of libraries and APIs. Maybe you've even launched a cool new tool that’s used by very few, and mostly for little more than tweaked standard model features applied to a custom dataset.
The next step is to decommission the product and move on, or go deeper. And going deeper inevitably means questioning the underlying models, framework limitations, the quality of the data, and—if you stick with it long enough—perhaps even beginning to grapple with the human psyche itself to make further progress.
By then, the technology is likely to have transformed your own ways of thinking—for better or worse. You may even come to realize that the data you started with was never that great to begin with. It much easier to cook with fresh ingredients.
Nvidia just hit an all-time high without an emergent AI investment narrative, but a strong business story. Wild how back in early January, folks were panic-selling because DeepSeek model efficiency was going to ‘kill' GPU demand.
Note: Jensen Huang has shunned the limelight and largely refrained from commenting on U.S. domestic politics. His stock is up year-to-date. Meanwhile, Elon Musk stuck his nose into everywhere he wasn’t welcome—craving attention. His stock is down. Nice to see some of the best attributes of the American system are still alive and well. Just saying!
Other News
In other news, as the Gaza ceasefire talks (officially) fall apart, Israeli Prime Minister Benjamin Netanyahu is reportedly considering extending his trip to Washington through the weekend for further meetings with the U.S. administration.
He may already be serving time—at His Majesty’s pleasure.
Alright, let’s get back to markets—with updates from the best in class. Those we refer to as the “special ones” tend to get the big calls right—and they usually don’t need to flood the feed with content to course-correct like the rest. It also makes our job a whole lot easier when we’re working with the best ingredients.
Just saying…
