A couple months
ago, I commented upon the propensity of the human species to fail in staggering
fashion as the result of collective opinions which are staggeringly wrong. I ran through the requisite arguments of
evolutionary predisposition towards a herd mentality, then advocated the value
of picking one’s own path. Of course,
this argument was placed against the backdrop of the subprime mortgage collapse
– the most recent and blatantly obvious example of erroneous “group-think.” I
feel compelled to examine the value of deviation from a different perspective,
that of the rogue, the non-conformist, the polemic; the one who understands not
only how, but when to risk resources and reputation on a bet the other way.
The
fact is, in both economic risk management and general philosophy, meteoric rises
are not merely the result of being “right,” but rather, being right when the
world is insistent otherwise. Returning
to the dead horse of the subprime collapse, many individuals acquired wealth by
betting with the herd – they made their money and moved on to other trading
desks or other ventures entirely.
However, the dozen or so who were brazen enough to bet the house that
the house of cards would collapse acquired not only fantastic amounts of money,
but the prestige and reputation that ultimately sparked the remainder of their
careers.
Of
course, they found value in deviation quite literally, as the market
tremendously underpriced the contracts which paid out large sums in the event
that borrowers were unable to repay their loans. However, there are other circumstances in
which the value in being correct is proportional to the weight of opposing
disagreement. Presuming that Adrian
Peterson would be an effective running back in fantasy football this season was
“right,” but of course, the world at large shares in that position, and thus,
his cost was a 1st round pick.
The gain associated with a correct assessment of his talents was minimal
as his performance was merely commensurate with his draft status. Alternatively, the fantasy football world, as
a whole, did not think highly of Steve Smith – a receiver thought to be past
his prime and saddled with a rookie quarterback lacking the ability to run an
NFL offense. Of course, this
characterization was incorrect in the extreme, and the late round pick invested
yielded enormous returns – a top-five fantasy receiver. This was possible only because the general
perception allowed for the opportunity to disagree vehemently. Were one to
disagree that Adrian Peterson was a fantasy football juggernaut, at most, one
could simply not pick him, a bet which would be shared by every team, excepting
one, and thus, utterly minimizing the potential returns. Regardless of the depths of one’s contrarian
views, there is simply not an instrument with which to express it. Beyond the realm of finance and fantasy
sports, there are academic, professional, and social decisions in which a
deviant thought must be married with a means of expressing that notion and an objective verification sometime
thereafter. Whether Adrian Peterson or
Steve Smith underachieve or surpass expectations can be empirically verified at
season’s end. Whether the borrowers
begin to default at higher rates or not is modeled in market prices. The fact that I dislike peanut butter &
jelly sandwiches, though undeniably uncommon, lacks an instrument of vehement
expression (at most, I can simply choose not to eat them) and a means of
assessing the “correctness” of that position, unless of course, kindergarteners
who eat PBJ become sterile during adolescence.
The
secondary issue of course, is the time frame in which one’s contrarian view
might bear fruit, and the costs associated with awaiting that moment. While in finance, synthetic CDO’s facilitated
this easily when betting on the failure of the American mortgage market and in
fantasy football, low-round draft picks allow such atypical ideology to be
suitably expressed, the “real-world” offers fewer such opportunities.
Perhaps
an admirable professional goal should lie not in simply bucking the trend, but rather,
in locating a means to express that opinion.
What is the next unlikely paradigm shift?
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