Raoul Pal: My Life in 4 Trades

32:56But the problem was the interest rate markets, they were raising interest rates to stop the speculators borrowing the currency. So if you have to borrow the currency, it's now 20 % borrow costs. It's expensive and it was difficult to do. so across asia this game had been if you were lucky enough to secure your funding the borrow costs you could do these trades but if you were too late they were becoming marginal because there was 20 cost of capital just to do it maybe more so south africa had a really unusual situation they had two currencies the financial rand and the commercial rand the commercial rand was fungible.

33:44You could trade it around the world.

33:49But interest rates on that, because everybody wants to short it, were like 20-something percent. Call it 27 percent. Crazy rates. As foreigners, we couldn't short the financial round. I can't remember which way round it was. I think it was the financial round we couldn't short. and so i'm like okay i understand what were you doing here he goes oh it's pretty simple he said we realized that when you short stocks in south africa your borrowing costs were half a percent and you got short the financial round which nobody else could short and he said it fell 50%. Nobody else had figured this out. It was a way round funding that nobody else had figured out.

34:40And they'd seen it and acted super fast before anybody knew what was going on. And so what I thought the trade was, was shorting the stock market. But that was just one of the tools to get the actual position, which was the short currency market, which had fallen 50 % and get around the issues of stock borrow, regulations between markets, all sorts of stuff. It was at that point I realized that different people play a different level of game than I could. It's funny that you tell that story because we're now in a situation where we have a global crisis that's, you know, sort of unfolding, although we don't really know yet.

35:22It'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, 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 so i saw it again from more capital and 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.

36:30And 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. they'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 isn't 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 business in Europe.

37:36This is the Dow Gen 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. A maid of fortune, because he 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 gonna every european country is gonna do this to how the telcos the european telco is gonna afford this to well this is gonna absolutely kill them amazing 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.

38:31So, 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 say 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.

39:29That'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.

40:23So 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 rewards 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.

41:02And 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.

41:40And 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. And 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.

42:11And 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. Fine. Got all that right. You know, cover 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.

42:58And 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. And 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.

43:39People don't understand that an entire system, the commercial system of which we live, is based around finance and banking. And 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%.

44:36Because what is the resolution? Now, the resolution ended up being quantitative easing. None 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.

45:44Down 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 that. 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.

46:29And 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 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 Noam very graciously agreed uh you know we debated all this stuff and obviously I then had a terrible year afterwards of course but actually to be known to be fair to Noam 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.

47:33I'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, your 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 everybody around us was screaming other things and so i didn't close out my short positions that it'll be fine because it'll roll over again and then i added and and i was recommending it as well and there's a bunch of people 2009 was a mixed year you either got you either did really well or you got absolutely nuked.

48:25And I got absolutely nuked. I don't think I, I think, well, 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 excess with that bear call, is it easy to get sucked into that again? You 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.

49:10Bear 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 Tula Joneses and the Lewis Bacons and the Stan Druckermillers, 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, blah. And it was like in the middle of the day 2002 after 9 11 and he just said yeah i agree ral 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 um but 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.

50:36Sometimes 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. How do you recover from something like that? So you went from being the sort of 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.

51:15And 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 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 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 so i 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 unconfident.

52:18I mean, it's happening to me now. You know, you just feel like, fuck, 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 just stick with it because over the time horizon, the risk reward still works? Or am I fooling myself? And it takes a while to do all of that. And it's pretty horrible. And I remember even in 2001, 2002, when I was at GLG running a big book, there'd be periods of time where it just didn't work and we'd been making money.

53:06And 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 of the office Go and do something else. And then we can rebuild up.

53:22So 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 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, because I was doing the trade similarly. So there is a trader at Tudor, and I won't mention his name, Privacy. And we get to hear about one of the salespeople.

54:05I'm at GLG now. and 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 had crossed 50, growth was weakening and the markets had started pricing in cuts, but this was 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, most likely they're going to have to go 300 or 400 basis points.

55:05So 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.

55:45So 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 the rates are going to go down, not to short the equity market, which is the lazy trade.

56:30It 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.

57:15and he does nothing and his 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 you're coming into the office he's like no what's the point because 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. Okay. So he's now, he's decently in profit very quickly because he saw the trade fast.

57:52And 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 the Fed not going to cut anymore right these narrative shifts you get a lot and the stock markets bouncing 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 talk to me so he gets on the plane flies to london goes to see paul and um mark horton berry um who runs the london office and a bunch of others and they call him in they're like okay we you had the biggest pnl so far this year you've got huge risk on you're just given a whole ton back what do you want to do?

58:56Because your P &L is, you know, 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 risk limit i'll double your risk 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 mallorca 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 an hedge fund, guys.

59:40Normally trading just doesn't do anything. The one pure trade. And then he, it's about November and the trade has 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. He 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.

1:00:39We 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 2000, the pivot in 2018. So there was the trade setup. Buy bonds, wear diamonds, or buy bonds and go to the beach. It then plays out a second time because that's playing out, But then we get to this period where the economy is kind of stabilized a bit. The ISM is 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 position. So people are closed 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.

1:01:26So again, I'm not trading with my emotion here. I'm using my stuff. And then I see the pandemic. I see it 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 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. And 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.

1:02:18So 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.

1:03:29But 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.

1:04:13Like 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 pnl so he could handle it you know the luck in this kind of situation is that.

1:04:45Your 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. So after the European financial crisis, the sovereign crisis in 2012.

1:05:34And 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, Emil Woods. another um i think it's ex 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.

1:06:27And 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.

1:07:11That's with the equivalent of gold at around 1 ,300, 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've 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 a hundred thousand dollars overnight so it goes up five x in it goes up a hundred percent in 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 you know i can't get it you know i'm just so amazing i you know 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 it bit which is now Paxos which was owned by Emile Woods and Chad Cascarilla they 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.

1:09:35We launched Real Vision 2014. It's in the first ever video on Real Vision. In fact, in that little Genesis video that I've 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. There's a lot of emotion going on. People are really involved. I still own it. I'm kind of quite vocal on Twitter. I started to talk about this. And it's now about$2 ,500.

1:10:16So 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 just got divorced and I needed to pay my ex-wife half of that. And the forking wars happened. So this is when 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 and 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.

1:11:28So I take profits. I don't think anything of it. I'm like, great. It was a great trade. It goes up another 10x. It goes to 20 ,000. And I am observing it. I have no feelings. People are 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 pieces on Real Vision around December, about December 2017, saying, look, 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. Fine. So, you know, I'm feeling quite good about myself.

1:12:08I 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, an old friend of mine, kept pestering me about Bitcoin. and Dan's an amazing thinker um he's really one of my really trusted go-to macro people and he kept pestering on bitcoin I'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 i had not understood about bitcoin and cryptocurrency overall and my thesis was that the next recession bitcoin's going to be something so i've been watching the price like a hawk and it's been wedging slowly in this triangle formation and what i really love to see and that reminds me you know several times in the past I'll trade it 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.

1:14:10I'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 Eurodollar futures and I had some other stuff, gold and other stuff. But 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 made, you know, 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?

1:14:50That'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 thousand and I bought it six and a half thousand and maybe a bit up as well as it broke through ten thousand and now it's a twenty thousand okay I thought nothing of that I thought yeah I've done well I'm a 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 crypto like that and then I went back and did the maths and it only happens to be recently after I set up the exponential age the digital asset asset management business, and I was writing for Macro Insiders as well, for Real Vision Pro, I thought, I want to know how I actually did compared to if I just held on to my original thesis.

1:15:47So I went back and looked, and I remember how much money I put into Bitcoin when I started with, and 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 cue, I'm a macro hero, look at me, I can be Stan Druckenmiller, I would have made five times as much money.

1:16:19But, 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.

1:17:10Oof. 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? 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.

1:17:47Go back and look at the chart on the NASDAQ. It was just noise. It was noise and an 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?

1:18:29It'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, OK, 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 emad mostak on um um about 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 It's the same with genetic sciences.

1:19:15It'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. These 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 and 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 so but people have this belief and i'm 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 Why?

1:21:27You 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 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, it's just timing wasn't right or their revenue didn't come quick enough. So that you can get, 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.

1:22:00You 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 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 it's still an amazing bet three times it's still a 10x so that's how i look at these things and i've just what i did was spread across a basket of different stuff so even though i talk about arc people think i just own arc arc 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.

1:23:21But I know probability is better if I buy the sell-off. That was the Bitcoin lesson. Also, as you say, 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 10-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 like i've always said crypto has been the is and will remain the best risk reward but for equities these are interesting too 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 you will my I can sit on Twitter you'll drive yourself mad by rejecting it like I remember Amazon I've talked about this big part I Amazon bookseller great Amazon Kindle Great.

1:24:35Love 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, short. 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 that clarity. Once you get the trade, you stick with it, get the time horizon, get the trade expression, and that's it.

1:25:10So 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 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.

1:26:08It's not material. It's a quality of life. And if you've got that and your bank is full, your bank, your account is full of quality of life and quality of life experiences, that's the greatest trade on earth. And 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.

1:26:33So 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 you know 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 I'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 Damme Lex actually built the course Lex Lex, some of you may have heard of him.

1:27:48He made the BBC show Million Dollar Traders, and Lex and I appeared in that. Actually, 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.

1:28:29So we sat each other, known each other forever. He 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 masterclasses, 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.

1:29:04If you are, make sure you use the course. Everybody 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.

1:29:49what 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.

1:30:36We hope you enjoyed this episode. At Real Vision, we arm you with the expert knowledge, time-efficient tools, and a powerful network to help you succeed on your financial journey. Get a taste of financial freedom with our free offer at realvision.com forward slash free.

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