Raoul Pal: My Life in 4 Trades

35:11It's not rapidly, things are not rapidly falling apart, but you have rising rates. You have, you know, you have lots of people looking at different situations. You have policy diversions. Can you do things like that now? Or was that particular to that time period? No, it just depends what it is. You know, there's complexity. I don't know how the funding markets work, but somebody in the funding markets will be figuring out something to do. But it wasn't the complexity of that, of knowing the plumbing. it was the speed of which they processed the opportunity and went for it before anybody even understood what was happening.

35:49So I saw it again from MoreCapital. This is not one of my best two trades, but it was, again, amazing. So in the UK, the 5G licenses were being issued, and the UK decided to auction them. Sorry, 3G licenses. They decided to auction the 3G phone license. And what happens was there is a massive bid because everybody outcompetes themselves saying we must have this ability to have 3G. And I can't remember how much it was, but it was billions of dollars. And the moment that hit the tape, Lewis Bacon figured out this is going to bankrupt every single telco in Europe because every single country is going to do this.

36:34they're all going to extract as many as much revenue as possible by auctioning off 3g licenses and everybody's going to go bust or bust you know they're going to come under severe financial stress and that's when we started the sector swap business in europe the guy from the trading guest calls me up and goes how the fuck do we short telcos in europe i'm like well there is an index the Dow Jones um um index that's based on this stuff he's like well is it tradable I'm like no he said well you're gonna have to figure it out and he said and I need to go and find a friend of yours who'll make a market as well so I can get out of the trade without just relying on Goldman because I need to protect myself I'm not going to get killed by you guys so I called up Jason Good a good friend of mine at Deutsche Bank said listen Jason we're going to start the sector a business in Europe.

37:26This is the Dow Jones sector. This is the telco index. He's like, fine. So we start it. And again, within probably about an hour of figuring out that we can do it. And we said, we'll figure out the details. He had sold like a billion dollars of telcos before anybody even figured out what the hell was happening. and made a fortune because he's just so fast to see the knock-on effects. It's like, oh, amazing auction. Wow, that was a lot of money to, well, everybody's going to, every European country is going to do this to how the telcos, the European telcos are going to afford this to, well, this is going to absolutely kill them.

38:10Amazing. So the guy was really good at doing that, is really fast, assessing huge amounts of information. and making the best expression of the view. So, you know, what lesson did you take away personally? How did you think about that as you, especially once you started, once you left Goldman and started managing money yourself and, you know, thinking about your macro framework? It was really about too many people do the obvious and there's another group of people who overcomplicate. What you're trying to look is for that sweet spot between seeing something that nobody else is seeing yet but still giving yourself a high probability of success i've seen this my old boss at glg noam goddessman would so when i would get a little bit carried away by doing some kind of weird option structure he'd say listen ral if you want to scratch your ear you don't put your arm all the way around your head to scratch your ear you just scratch your ear so if you want to go long the euro buy the euro why have you got the stupid structure and it was the keep it simple stupid idea that I see so many people still to this day do and I hear them on Real Vision.

39:19That's overcomplicating stuff. So there is a balance between being too simple, in which case it's too bloody obvious for everybody, or too complicated that the trade never works anyway. And so many people have lost their entire careers doing that, particularly option guys. They always overthink everything. So it's that sweet spot between being fast, not overthinking it, but thinking it through further than most people do in a shorter period of time which is easy to easy to say that it's so incredibly difficult to do and when you see it done like that it's awesome it's just you know it's just like it's like watching a grandmaster play chess and doing it really fast it's like wow okay do that again yeah that was magic but it also then you know it's possible so you're like oh crap if you can do it like theoretically we all should be able to do it, but it's just, it's so, so hard.

40:13So this next trade, the second trade is one of your worst. It's one of yours. In 2009, you ignored your macro framework and you overrode it with emotion. So set the scene for us. Like what's happening in your career? What's happening in your, you know, in your life? Have you been successful trading at this point? I have basically retired from the hedge fund business. I didn't make the fortune to make the richest man in the world, but I'd done well from it. And my last year, I didn't do great, but we were up for awards for some of the years. So I had a decent shot, but I didn't want to do it. I didn't like managing money for other people.

40:51And I didn't like being forced into a shorter term time horizon than what I thought macro should be. I think that macro should be higher volatility, longer time horizon. But the pension industry and the fund-to-fund industry was forcing people into shorter-term time horizons, less volatility. So it became about gathering assets and not about performance. I'm like, I could see where this is going. I want out. And I was dead right. I saw it in advance and got out the hedge fund industry as it slowly imploded its way through lack of performance. So I was living in Spain, writing Global Macro Investor, which is my institutional research service.

41:30And I had seen the financial crisis coming and had written about it and done extremely well and made money trading myself, made a lot of money for my clients, made a lot of money, made my whole reputation on that. A lot of the people from the big short were clients of mine. a lot of the most famous hedge fund people in the world became global macro investor clients back then and are still with me today. And then it came, so I've been using the business cycle framework, which is the ISM that people have seen me talk about on Real Vision, using the business cycle to predict where asset prices go.

42:13Fine, got all that right, you know, covered most of the financial crisis, got it right. And then the markets have been imploding. So it's now kind of March 2020. No, call it April, May. They've started bouncing from the low. And I'm thinking the financial system is going to completely go. Because that was the sentiment that we're going to go to the logical conclusion. I see people doing this now. The logical conclusion is the complete wipeout of the financial system. and whether that leads to a sovereign crisis, whatever it is, but it's the next step. It's the depression, right? That's in the back of everybody's mind is that 90 % downside and the whole thing going.

43:00And this is around, this is after, part of what was feeding into that, because this is after we see Lehman go. I mean, it was like dominoes, like firms that had been around that had weathered all of that were just falling. I mean, it was a crazy time. I mean, you're right that people thought the world was ending. I mean, it was not a joke. I mean, the wheels were coming off. You know, Hank Paulson is throwing up in the White House in his memoir, he tells us, because he's so freaked out by what's going on. People don't understand that an entire system, the commercial system of which we live, is based around finance and banking.

43:38And the entire banking system become insolvent. And that was probably the pensions industry as well. and anything to do with housing. I mean, it had all stopped. And the terrifying thing is, if you're not careful, you go back to Barter. It had happened in Argentina in 2004. We'd seen it. People knew. So somewhere in the back of my mind was, holy shit, this could be Argentina 2004, where it went to Barter. or this is 1929, 1931, 1932, 1933 all over again, which means that even though the market's down 50%, it can go down another 50 % and another 50%. Because what is the resolution? Now, the resolution ended up being quantitative easing.

44:32None of us knew what that really meant. So I see the quantitative easing. I see the massive fiscal stimulus, the TARP policy, all of this stuff, and the markets start rallying. And you're used to short squeezes. So, of course, you think it's a short squeeze. My economic indicators had bottomed. They got as bad as they were going to get, and they'd started to rise. But my emotion was telling me, this is not over yet. we're going to go to the logical conclusion it's when you kind of impose your will on the markets and you see it i see it now i see it i've seen it in different periods of time where people impose what they think it should be not what it is so i'm like this is the comeuppance of the financial system this is the big one and it was a big one right it was catastrophic but i thought it should be more.

45:34Down 50%, that's nothing. We need total wipeout here. This is what we're going to get punished for the leverage that we've taken. And so my indicators were picking up to say the business cycle had bottomed. And I had constructed a narrative in my head that the business cycle would roll over again and create another new low. I had no evidence to support at. What it was, was emotion telling me that's what I wanted. I just had a huge success of 2008. I was now feeling hubristic. I thought I was invincible. Of course I would nail this. And imagine the glory if I got it right again, that the market rolls over and that it didn't mean revert.

46:19And then we went through decades of markets not going back to the highs. And if I called that then i would be amazing right every time i've done this every time i've started to believe my shit smells of roses i've had my nose rubbed in it i remember when i was at glg i remember the difficult conversation with noam goddessman who's still a mentor and a very close friend of mine um about a pay rise uh being compensated for you know we'd had some good performance and I wanted to get a a percentage a better percentage of the performance fees so no very graciously agreed uh you know we debated all this stuff and obviously I then had a terrible year afterwards of course and actually to be known to be fair to know him he's like I was like no I'm gonna leave and he said I said look and I'm not gonna get a bonus anyway because I negotiated this and I stand by that if if I'm not making money I should get paid he's like no no i'll pay you a bonus regardless because i want you around i'm like i can't do that because i'm not honoring my part of the deal but thank you that was the kind of guy he was but so a hubris i've learned is when it creeps in you start to you sure spidey sense should go up i completely got this wrong so all of the work all of the economic work that i taught myself how to look at the business cycle all said the probability is that the worst is behind us my emotional side was screaming other things.

47:49Everybody around us was screaming other things. And so I didn't close out my short positions. I said, it'll be fine because it'll roll over again. And then I added. And I was recommending it as well. And there's a bunch of people, 2009 was the mixed year. You either did really well or you got absolutely nuked. And I got absolutely nuked. I think it was easily the worst year I'd ever had in the history of Global Macro Investor, easily the worst year I'd had personally. And a lot of clients got murdered by it as well. When you had such success with that bear call, is it easy to get sucked into that again?

48:36You know that you're in that bearish framework and just hard to make that pivot when it works so well? It's very hard. And you begin to self-identify. All macro people self-identify with bear markets. Because generally speaking, if markets are a string of positive returns and negative returns, bull markets tend to take time. Bear markets happen super fast. So if you get it right, you make a lot of money very quickly. So macro guys love bear markets. We use leverage. we go for the kill then you walk away and the lesson everybody learns is the when do you walk away and when do you not so the really good people the paul tudor joneses and the lewis bacons and the stan drucker millers know i remember writing to paul in fact in 2001 and i wrote to paul i said you know i'm really bearish blah blah blah blah blah and it was like in the middle of the 2002 2002 after 9-11 and he just said yeah I agree Raoul just be careful don't outstay your bearish welcome I remember the email really well and he was warning me obviously that he could see that we were getting close to the reversal um and I probably did out I certainly did overstay then wasn't the worst.

50:04But in 2009, I just overstayed it. I just overstayed it because I wanted to be right as opposed to not realizing. And that's very different being early or getting a trade wrong. These are very different things. This is the emotional overwriting of your macro framework. Sometimes you can be like, I'm currently really quite wrong on bonds, but my macro framework tells me that this is the best risk reward position and this is what you should be doing. So it's not an emotional position. It's very different. Yeah. And you can see all over Twitter that people are very emotionally tied to the narratives they have in their head across a range of issues.

50:48What is, how do you recover from something like that? So you went from being the best and most respected and suddenly you're losing money, you're losing clients' money. How do you bounce back from that? First, you need to get back to the point of intellectual honesty. And that takes a while. To get back to, yeah, screwed up. And then your head is not normally right. So the first thing to do is try not to take a lot of risk. and just calm down. Your thesis was wrong. Find a new thesis, but don't force it because often you try and get the next big trade, right? And I've seen that. Kyle Bass, a bunch of these guys make a ton of money in one trade and try and force a narrative and it doesn't work because they want to be that guy.

51:39So I think 2010 was kind of okay, um but i was gun shy 2011 i think was pretty decent and then 2012 was a great year because i got the european crisis and i didn't overstay so you build yourself back up you build yourself back up cautiously you can't help it you're scarred and you feel i'm confident it's happening to me now you know you just feel like i can't get anything right right now and it makes you feel you know just insecure generally about what you're doing and the answer is is to do your work is to do the analysis set yourself aside from your emotions and saying today what would i do would i put this trade on or not put this trade on you know okay you've got the trade on do i do i just stick with it because over the time horizon the risk reward still works or am i fooling myself and it's quite it takes a while to do all of that um and it's pretty horrible and i remember even in 2001 2002 when i was at glg running a big book there'll be periods of time where it just didn't work and we'd been making money and what we tend to do is just close everything out just close everything out and just stop and so fine look let's just take a day out the office go and do something else and then we can rebuild up

53:12so the third trade is one of the best that you saw and it's a hedge fund trader who bought euro dollar futures in january of 2001 and then went to his house in mallorca to wait so what so what what is this about so between this trade and that lewis bacon trade this is really how to trade macro right these two are the best macro trades i've ever seen yeah george soros and the pound but I wasn't involved in that. I was directly involved in, well, not directly involved in the second one, sort of, because I was doing the trade similarly. So there is a trader at Tudor, and I won't mention his name, Privacy.

53:52And we get to hear by one of the salespeople, I'm at GLG now, and I am, so we get to hear of this story and it unfolds over the course of the year. so i think it was january the 2nd 2001 the fed cut the ism and cross 50 growth was weakening and the markets had started pricing in cuts but this is the first so this is how macro people think again this guy went well we're in the middle of a stock market bubble, we've got debt problems. They're going to have to cut a long way and the Fed never cut once. So simple hypothesis, they never cut once. The market is only pricing in 75 basis points of cuts.

54:50Most likely they're going to have to go 300 or 400 basis points. So that little bit of understanding, he sees it's on January the 2nd. I think it was January 2nd or December 28th, something, one of these kind of really illiquid times, he rushes into the office, beginning of a new trading year, goes limit long euro dollar futures for the end of the year. So euro dollar futures are a bet on where interest rates will be over a period of time. And he's betting to December 2021. And many of us in the euro dollar markets, we were super involved over that period because it was all about this rate trade, which made it very easy because rates tend to be less volatile, but tend to move a lot.

55:35So the risk rewards get very good and get a lot of leverage in these things. So anyway, so he goes limit long. And then he has the understanding. So first he's seen the path, right? This is the future path that I talked about before, the knock-on effects. Then he also understands his time horizon, which is what, how long does this take to play out? Well, a recession is usually kind of about a one-year, 18-month process, and they're going to have to keep going. The stock market already peaked at that point. So he realizes that, okay, the best single bet in the world is to bet that rates are going to go down, not to short the equity market, which is the lazy trade.

56:20It was to bet the stock market goes down. The bond yields go down. And euro dollars were the best expression, best leverage, best risk adjusted return. So he figured all this out. Massive, irresponsibly long position in this. And he gets on a plane and goes back to where he came from, which was his holiday home in Mallorca in Spain. Because he had that much confidence. Well, normally you would be sweating and biting your fingernails because you've got record risk. It was the beginning of the year for him. So he had new risk limits. So that helped. And he went and the trade starts working almost immediately for him.

57:04And he does nothing. And his colleagues at the office are like, you're coming back in. I mean, this wasn't work from home, right? You're working for one of the most famous hedge funds in the world. You're running a big book. It's not work from home, do what you want. They're like, are you coming into the office? He's like, no, what's the point? He goes, I've got one trade to do. The absolute clarity, there is only one trade to do. And I'm in my trade. He said, there's nothing I'm going to do. The Fed are going to cut several hundred basis points. And I'm going to clean up. So that's it. OK, so he's now, he's decently in profit very quickly because he saw the trade fast.

57:41and by about June, he's really up. You know, he's now got the most profitable trade of anybody at Tudor, and euro dollars back up 75 basis points as the market starts saying, is this over? Is the worst over? Are the Fed not going to cut anymore? Right, these narrative shifts you get a lot, and the stock market's bouncing, blah, blah, blah, blah, blah, and he gets the phone call, the big phone call, the Paul Tudor Jones phone call. And Paul's like, I'm in London and I'd like you to come in and talk to me. So he gets on the plane, flies to London, goes to see Paul and Mark Hortonberry, who runs the London office and a bunch of others.

58:31And they call him in and they're like, okay, you had the biggest pin-el so far this year. you've got huge risk on you've just given a whole ton back what do you want to do? because your P &L is your end of year bonus here is going out the window and it's only June and he looked at them and said I need to double up and they went Paul went fine you know what you're doing you know your wrist limit i'll double your wrist limit um but you're playing with your own bonus here and you know if you get back to flat you're out whatever it was and so he gets back on the plane and goes back to majorca so he's traded once beginning of the year he's then doubled the entire position size and he's gone back on a plane he does not trade a single other instrument this is a hedge fund guys normally trading just doesn't do anything the one pure trade and then he it's about november and the trade is played out extremely well and he gets back on a plane closes the trade takes his profit again before he's kind of before it's reached its end, it actually goes further because 2002, things go further.

1:00:00He could have just kept the trade on, but he didn't. He took his money off the table. He then quit his job and retired. That was it. That is pretty epic. And I wrote about this on Twitter and it became the basis of the buy bonds, where diamonds trade in 2019. because that was a situation where I knew the Fed had over-tightened. We knew that the economy was weakening. We didn't know about the pandemic. And therefore, the trade would be, the moment they cut was to buy bonds. And they started backing away in the pivot in 2018. So there was the trade setup. Buy bonds, wear diamonds, or buy bonds and go to the beach.

1:00:49it then plays out a second time because that's playing out but then we get this period where the economy is kind of stabilized a bit the ism's bouncing and we're kind of in this no man's land in 2019 and a lot of people are getting frustrated with the bond positions i'll be able to close it out and i'm like you know really if it's right it should continue lower because the economic forward-looking data is still weak and it should be going down so again i'm not trading with my emotion here i'm using my stuff and then i see the pandemic i see it in 2000 in 2020 january and i figure out immediately what it meant just by chance and i just remember the moment it went to italy i just wrote a note to global macro investor which is was titled panic and you just knew what had to happen, is there is no way we were going to get through this without massively cutting rates.

1:01:54And that was all the extension of the learning of this one trade is how to take the purest expression of the view when you know that the probability is so far in your favor that you have to be greedy. So do you think that this is about skill or luck? both the skill is knowing and george soros writes about this stan druckemiller they all talk about is knowing when to be greedy you won't get it right every time but when you get it right and you're in the groove paul is one of these people he knows when he's trading well and he'll back himself george soros the alchemy of finance talks about this a lot you back yourself when you know you you've got it you're you're you're feeling it your trades are working you're with the flow of the market that ability to choose that moment a lot of people chase that moment their entire careers because they get it once and they want to do it again and i yeah that was kind of 2009 for me a bit you you have to be really careful because they're super alluring when you get it right it it is the greatest feeling in finance when you get that moment in time where clarity comes, you see it and you are really greedy with the opportunity.

1:03:19But God chasing that thing, if you're not careful, you'll go bankrupt doing that. I think Sergio Silva, we were talking about a different asset market, but I think he said being prepared for when luck comes your way. So the skill is being prepared and ready. and then you can sort of know what to do or optimize that when luck strikes. See, I don't think there's a lot of, there is luck, but generally with something like that, there's not a lot of luck because that was preparation, understanding, homework, assessing what is the best risk to take and everything else. The luck is usually the speed at which it happens.

1:04:03Like a pandemic hits and then. yeah because that allows you to stay with the risk if that guy had come in from tudor and the whole thing and moved 50 basis points against him he would have been stopped out and he would never have done the trade so the luck was the speed of the initial move because then any retracement never took him to a negative p &l so he could handle it you know the luck in this kind of situation is

1:04:33that. Your last trade is one of yours and it's one of your worst and it's probably, well, it's Bitcoin trade back in 2013 to present, I guess. I don't know. I was going to say currently, although I think you're more ETH than anything else. But why does this count up as one of your worst. So we talked about trade construction. We talked a bit about time horizon. We've talked about when to be greedy, all of these things. And this is a story of me learning other things as well and trying to put it all together, doing the right thing and still getting it wrong. So let me try and explain what I mean.

1:05:17So after the European financial crisis, the sovereign crisis in 2012. And most people have heard the story that this is out of this became the reason we started Real Vision because people got destroyed by it. But I also wanted to start the world's safest bank because I knew that we didn't own any assets. Cyprus had taken all the money out of the banking system. It was a terrifying time and I knew that debt burdens hadn't gone away. So that's when I got introduced by a good friend of mine, Emile Woods. another um i think it's x goldman who um ran a large hedge fund in new york and he's like you need to look at bitcoin forget the bank here's something interesting and so 2012 i first look at bitcoin properly i write the first macroeconomic strategy paper on bitcoin in about i think it was March 20, yeah, March 2012, 2013.

1:06:17And I do the analysis and say, well, if it's like gold, then we know kind of how much gold's above ground and we know how much gold is probably below ground. We have an idea that's called a stock to flow. And I could probably back that out in Bitcoin to give us an idea of what this bloody thing's worth because we know it's interesting, but we don't know what it's worth. So the macro guys were interested, but didn't know. And it had already done a decent cycle already, but performed extremely well. So it was interesting. And so at the time, Bitcoin was at$200. And I thought the maths worked out that it was worth a million dollars.

1:07:01That's with the equivalent of gold at around 1300, which is not a million miles from now, right? Gold's actually gone nowhere over that period of time. So it's worth a million dollars and it's at$200. So learning the lessons of hubris, I'm just like, I'm just going to discount myself by 90%. And I like to do this periodically. Is I just said, well, I think it's worth a million. Let's rate the Raul is an idiot factor by 90%. We'll turn up the idiot dial of 90%. It's still worth 100 ,000. so that's the best risk reward i'd ever seen in my entire career and any of us had ever seen so i'm like well we've got to buy this right it could go to zero but it's an option so i probably got quite a few people in it that article became famous got circulated around silicon valley because nobody looked at macro um bitcoin in a macro way before so i buy it and my thesis my time horizon is so i've done my homework i'm now onto the time horizon the time horizon is well this is probably at least a five-year bet, probably longer, and I should just close my eyes and see where it ends up because it ain't going to a million dollars overnight or$100 ,000 overnight.

1:08:17So it goes up 5x in – it goes up 100 % in a week, after two weeks after buying it. I'm like, shit, what the hell is this? It then goes up 5x from where I bought it. and I'm like, clearly I'm just George Soros. I'm just a god. I can't get it. I'm just so amazing. No, I wasn't that hubristic about it, but I was like, wow, okay, this is something I've never seen before. It then falls 85%, but it goes back to 200. So, okay, I've never lost money in it. Never lost a penny. In fact, I've never lost a penny earning Bitcoin at all. and I just forget about it. I've opened an account at an exchange called ItBit, which is now Paxos, which was owned by Emil Woods and Chad Cascarilla.

1:09:13They built this exchange in Singapore and I kept it there and I forgot about it. I don't even know the password. I just, you know, and I keep my eye on the Bitcoin price because I was interested. We launched Real Vision 2014. It's in the first ever video on Real Vision. In fact, in that little Genesis video that I shared recently, there's the Bitcoin logo, right? So I knew where this was going. It's the macro crypto we're going to meet in the next recession. And I've made that clear and tried to bring as many people on the journey as possible. I don't trade it at all. 2017, I'm now quite involved because it's spilled onto Real Vision.

1:09:50There's a lot of emotion going on. People are really involved. I still own it. I'm kind of quite vocal on Twitter. started to talk about this and it's now about two two and a half thousand dollars so i'm now up 10x so 10x that's a great bloody trade you don't get those many in your lifetime and so i start thinking actually that's quite a lot of money now and i'd also um just got divorced and i needed to pay my ex-wife half of that and the forking walls happen so this is when they've they replicate the bitcoin chain and create a new one that has some different attributes and i didn't understand this stuff and so when you don't understand it you should close it now i shouldn't have because my thesis was longer term and that i should let it play out but it becomes really hard when you're up a lot of money and you owe half it to your ex-wife it's become very hard is when you then sit go back down right um and it's it's hard to do if the forking wars had been a thing and it meant that the bitcoin chain failed and everyone was on bitcoin cash or whatever it was getting so i take profits i don't think anything of it i'm like great it was a great trade it goes up another 10x goes to 20 000 and i am observing it i had no feelings people like you're an idiot on twitter look at you you're an idiot i have no real emotions either way i'm like i've done fine happy with it let's see where this goes and then you know i do a few people pieces on real vision around december about december 20 um 2017 saying i think it's a bubble i spoke at the consensus conference the day before the bubble popped saying, look, I think it's a bubble.

1:11:56Fine. So, you know, I'm feeling quite good about myself. I bought it. I kind of got the top pretty much right in terms of telling people I sold that too early. Fine. All well and good. I then observe it. We have like Bitcoin week on Real Vision. I'm seeing what's going on. There's nothing really happening. It keeps falling. So it's 2018, 2019 keeps falling. but Dan Tapiero who hadn't been in Bitcoin beforehand and was a long-term global macro investor subscriber and old friend of mine kept pestering me about Bitcoin and Dan's an amazing thinker he's really one of my really trusted go-to macro people and he kept pestering on Bitcoin.

1:12:46I'm like, yeah, I'm just not interested yet because the price was falling and I didn't have anything to base an investment off. And we had no real thesis yet. Yes, the economy was slow, but there was no real understanding what was going to drive this. And anyway, I eventually get him on Real Vision because I'm like, the only way to shut you up is to interview you publicly on Real Vision. So we have an amazing conversation. He completely opened my mind to things that I had not understood about Bitcoin and cryptocurrency overall. And my thesis was that the next recession, Bitcoin is going to be something.

1:13:20So I've been watching the price like a hawk, and it'd been wedging slowly in this triangle formation. And what I really love to see, and that reminds me several times in the past I've traded, is something that comes up, forms this wedge, and it kind of touches it once, down to the bottom once, up to the top once, down to the bottom once. It kind of goes up to the top once, and then it pulls back into the middle of the range and then explodes higher this little flag pattern is a really great pattern and I was expecting this to be happening and so March 2020 there it goes it plummets right from that wedge top of the wedge straight into the middle of the range I'm like I have to buy it and so I put in all available cash yeah I had some other positions at the time I had euro dollar futures and I had some other stuff, gold and other stuff.

1:14:10But anyway, I bought it. I made a big thing of it. And that was at around 6 ,500. And it explodes higher. And it goes up to 68 ,000 and back down to where it is now. And I switched into ETH and that was a great call because it made a lot more money from it. And this bet in March was by far bigger than my original bet. Massively bigger. So I just put everything in irresponsibly long. Yeah, that's where the t-shirt comes from, right? That's right. And so I'm like, okay, so I bought it really cheap. I sold it 10x. I then bought it again, but at a much higher price than I sold it. Because I sold it at 2 ,500 and I bought it at 6 ,500 and maybe a bit up as well as it broke through 10 ,000.

1:15:01And now it's at 20 ,000. Okay. I thought nothing of that. I thought, yeah, I've done well. Look at me. I'm a good macro guy. Traded it, did all right, made money out of it. Not that many people have done well out of crypto like that. And then I went back and did the maths. And it only happened to me recently after I set up the exponential age, the digital asset management business. And I was writing for Macro Insiders as well, for Real Vision Pro. So I thought, I want to know how I actually did compared to if I just held on to my original thesis. So I went back and looked. And I remember how much money I put into Bitcoin to start with.

1:15:42And it was a decent amount. It was a decent bet. And, but not massive, massive, but, you know, it was quite a big bet for me. and if i'd have just held that bloody position and not done anything not any of the q i'm a macro hero look at me i can be stan druckenmiller i would have made five times as much money

1:16:08but and here's the big learning is i hadn't understood exponential trends logarithmic trends and adoption of Metcalfe's Law, all of these things that subsequently came to me. And that tells you if a technology is about to be adopted at scale, then it doesn't revert back to the mean, it reverts back to this logarithmic channel, the bottom of that. And so you should buy, unless something completely changes your trade thesis, you should just buy at the bottom of the channel when it gets oversold. So I figured out if I just added the same amount every time as my original bet in the couple of times that it got to the bottom of the channel, I'd make 25 times my money.

1:17:00Oof. But that's having to learn, right? That's a little bit different because of the nature of this, or is it the technology and the nature of this newer asset than what you would have your prior experience had led you to. No, because we should have done it with the NASDAQ as well, and we didn't do it. We should have done it with Amazon. We didn't do it. None of us did because we're all mean reversionists because we think boom equals bust, and it does not in technology. Even when you go back and the tech crash of 2001 that so many people still think about on Twitter, see, see, technology, it's a bubble.

1:17:37Go back and look at the chart on the NASDAQ. It was just noise. It was noise and adoption trend of the internet that happened. So it's so interesting because you say this and you look at your charts and you're sort of applying this sort of intellectual framework to this. And yet you know that there is such tribalism around this conversation and you have a massive public following now. And people get really heated about this. I mean, for every person who says, yes, that makes sense to me, there's somebody who's attacking you for shilling shit coins. So how do you deal with that when in your mind you're just operating on and kind of fine tuning the framework that you've always used?

1:18:19It's been really interesting. It's the outside of crypto, which is fine. It's kind of tribal, but this whole exponential age thesis, which is saying, okay, I cannot see a world in which this probabilistically does not play out. There is no way, and I've just done an interview with a good friend of mine, Ahmed Mostak,

1:18:47about artificial intelligence. There is no way that this is not happening faster at a bigger scale than anything you've ever seen in your life before. And that's the same with robotics. That is the same with space travel. That is the same with the Internet of Things. That's the same with genetic sciences. It's the same with blockchain technology. These things are happening. They're not going to stop. There's nothing that will or can stop them. Not, oh, the Fed raised interest rates. Oh, you know, oh, the natural rate of interest rate is going to be higher at 4%. It's not going to stop. And these things are exponential.

1:19:27These things are doubling, quadrupling every year. And so I'm trying to get people to understand that I understand that you might fear it. I understand that you know of the world in terms of the things that you know. you know the federal reserve bad um oil good markets go up and down boom equals bust right these things are so put into us that money printing equals inflation narratives that most of these are narratives and i'm like okay you can either invest like the gold guys for a long time said the great inflation is coming. And they bought gold. And they said quantitative easing, debasement of currency, gold.

1:20:27And they're going to confiscate your assets, gold. All of those things have happened. And gold is still nowhere in real terms. In fact, it's negative. In fact, gold mining stocks that have been every newsletter's tip for the last 40 years are all-time record lows in inflation-adjusted terms. But people have this belief. And I don't want people to miss an opportunity. Because we can fear change or we can use it to help ourselves. you may fear ai christ i do but what am i going to do am i going to own gold or do i just buy ai you know this is a mindset that you have to go through so that you have to have that big picture but this is where you can't get we know not every company will make it right like this is where it gets tricky because you can you can believe in the trend but we know from the dot-com bus some of them didn't get through although now a company that pretty much does what they did they're just timing wasn't right or their revenue didn't come quick enough.

1:21:39So you can believe the bigger narrative, but you have to be careful. Okay. So what was the right answer is the answer I learned from crypto investment. You buy the massive sell-off. So I bought a whole basket of this exponential age stuff. None of the highs when I started talking about it, but after it was down 70 % because I kind of have a rule of thumb anything down 70 % or more that is not going bust you should own particularly if it's part of a secular theme so the trade's still not up I think overall it's down about 15 % but you know I'm like down 30 don't really care because probably it's going to be up 10x so you know it's the risk adjusted reward is what you're looking for you know down down 30 percent up 10 times you'll take that risk reward all day even if i'm wrong let's discount me discount me by 50 it's up five times okay but still an amazing bet three times it's still a 10x so that's how i look at these things and i just what i did was spread across a basket of different stuff.

1:22:52So even though I talk about ARK, people think I just own ARK. ARK is one of the positions that I have. I have a whole bunch of ETFs on robotics and all sorts of stuff, plus some single stocks like Reliance in India and a whole bunch of stuff to spread that risk out a bunch of names because of the point being, as you say, we don't really know. But I know probability is better if I buy the sell-off. That was the Bitcoin lesson. Also, as you say, we don't quite we know the direction of travel but we don't know which ones are going to travel there so let's get some diversification you set your time horizon which is okay this is probably a five or ten year bet and it's going to be volatile okay so those are the parameters it's pretty straightforward um and that all comes from the learning of stuff like what happened in bitcoin how to express the trade from the guy in Mallorca who's like, you see the trade is the best risk reward.

1:23:50Like I've always said, crypto has been the is and will remain the best risk reward. But for equities, these are interesting too. And I just think it's intellectually important to participate in something so disruptive that even if it may not make as much money as you might make in crypto overall, I think it's just really important to be involved. Because if not, I can sit on Twitter. you'll drive yourself mad by rejecting it like i remember amazon i've talked about this big path i amazon bookseller great amazon kindle great love this right now it's worth more than every other bookseller in the world added together this is stupid this is insanity trading at a p of 800 this is ridiculous i'm a macro guy this is the most ridiculous thing i want to short it short it sure keeps going up it's like tesla people have just gone through this whole experience with tesla it's like because it wasn't a fucking bookseller it was a network and once you understood it wouldn't have made the mistakes and it's it's that clarity once you get the trade you stick with it get the time horizon get the trade expression and that's it so last question do you think your best trade is still ahead of you my best trade is always the same it's in quality of life and that quality of life is everything from friends family how you live not where you live not your material possessions it's how you live your life having a lust for life a cure curiosity enjoying being outside of your comfort zone i've talked about this before there's your comfort zone and there's where the magic happens and they don't overlap up it's it's that experience of life itself is the best trade and the game is to accumulate as much quality of life and that can be a walk in nature or it can be it doesn't have to be anything it's not material it's a quality of life and if you've got that and your bank is full your account is full of quality of life and quality of life experiences, that's the greatest trade on earth.

1:26:09And I'll continue to do that trade until the day I die. That's fantastic advice. Ralph, thank you so much for being on. Not at all. It was a lot of fun. I hope I didn't bore people.

1:26:23So as you can tell, I've been super lucky to have a front row seat of pretty much everything that's happened in macro in its glory days and learned from the best by seeing them operate and be able to ask questions. And these people are incredible. I mean, they're just truly amazing people. But also, I'm very honest with myself that I can get it terribly wrong too. I can get it really right. And Global Macro Investor probably has, well, no, definitely has the best recorded track record of any research service as far as I can tell in history. It's been going for 19 years. But I've had some stinkers as well.

1:27:03I've really got it wrong because that's part of the game. Sure, we all get trades wrong, but I've fucked the whole thing up before. And so that's what I wanted to show you in that and then how to think about life itself. I think all of this is all part of the learning journey. If you are interested in the learning journey, obviously, Real Vision Plus is an absolute bargain with a full academy course that teaches you how to become an investor. That course was developed with myself and a guy called Lex Van Dam. Lex actually built the course. Lex, some of you may have heard of him. He made the BBC show Million Dollar Traders, and Lex and I appeared in that.

1:27:45Actually, I was a lot behind the scenes developing the course. This course became Lex's Million Dollar Traders and his whole famous five steps to trading. Real Vision bought the course and developed it into the Real Vision Academy. So Lex was head of prop trading at Goldman Sachs. When I was running hedge fund sales, he'd sit opposite me trading for Goldman's own account in equities and equity derivatives. Then we both went to GLG Partners, the hedge fund giant in Europe. He run the European Equity Fund and I started and ran the Global Macro Fund. So we sat each other, known each other forever.

1:28:21He developed this course and eventually we bought it and turned it into a course to help you guys. Because most courses sold by anybody are all just nobodies pretending they know. But Lex is golden prop trader plus GLG running a very large hedge fund. And he now runs a family office. So he's been in the game as long as I have. So that course is this now. And that course is just part of the PLUS membership. Plus the masterclass is my laughing for trades and AMAs with anybody. So make sure you do check out Real Vision Plus if you're not a member already. If you are, make sure you use the course.

1:28:56Everybody should be revisiting that course, freshening up, going through the masterclasses, taking notes. I can't stress the power of taking notes. When I was at GLG just starting as a hedge fund manager, having been a salesman, an investor came in to see me and said, look, Raoul, we know you understand macro and blah, blah, blah, but you've not been a manager before, portfolio manager. So let me give you one piece of advice. And the one piece of advice he said was, okay, you come up with an idea, write it down. Write down your trade thesis, your entry level, where you'd stop out. what kind of risk reward, i.e.

1:29:39what profit versus the cost. So let's say you're risking 1 % of your portfolio, you're aiming to make 5%. Okay, so you've got a risk reward, you've got a thesis, and then where you could be wrong. And then monitor that to hold yourself accountable. And he said that doing that process alone will dramatically change your trading. And I can't agree more. So even if you are a Real Vision free member or a central member, the notes are there for you. They're a superpower. Use them, share them, help other people. All of that functionality is coming out in the next few weeks. So enjoy it. And I promise you, it'll change how you invest, and it will definitely help you unfuck the future.

1:30:25All of us together are living through the death of an old world and the birth of a new one. This is a fourth turning, but this is not the fourth turning of demographics or politics. This is the birth of the new technological age. This new world has a world of 3D printed rockets, crypto payments in space, discussions on the rights for humanoid robots, machine intelligence that may outperform our own, Simulated worlds where autonomous AI agents write code for other autonomous AI agents. It's a world full of opportunity and full of difficulty too. You see, we are living history and it's happening much, much faster than any of us can comprehend.

1:31:10This is Reid's law, Metcalfe's law squared. Humanity has never gone through anything like this. But we have to comprehend and understand what is happening. It is into this world that The Exponentialist is born. The Exponentialist is a new service from me, Raoul Pal, and David Matin, author of New World, Same Humans. It's an almanac of the fastest period of change ever witnessed in the human history. A period of excitement, exhilaration, difficulty and terror. And The Exponentialist really is for humans first and investors second. Yes, the opportunities are enormous all round. To find out more and get our special launch pricing, go to realvision.com forward slash the future.