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Playing both sides of the market

This is a great interview with Kyle Bass (Hayman Capital) that captures two things really well: approaching opportunity and how media sometimes approach trading.

The first compelling point of this video is that is shows viewers how successful traders approach opportunities and the calculated fashion in which they “speculate”.  While it is true that there is risk in what traders undertake, you can see how entirely rational Mr. Bass’s assertions about the world are.  If you listen very carefully to what is being said you will hear that in spite of his very negative outlook on the world in 2006, he still had positions (i.e he owned stocks) that believed the market would go up AND positions that the believed that the market was going to go down.  In simple terms, the cost to take the bet against the market was so low, and the potential reward so high that even though his ‘negative’ bet was “wrong” for a year and half while the markets still rose, when that negative bet paid off, it did in a big way.   Despite having both lost and gained money, his gains exceeded his losses and in the end that is what makes your trading portfolio grow.

The second really interesting part about this interview is that it highlights the way in which the media/press sometimes sensationalize issues at the expense of being accurate. In other words, they try to shock viewers rather than inform them. While the questions were pointed, Mr. Bass’s responses were often unfairly interrupted and in spite of the interviewer trying to construe Mr. Bass and traders like him as the source of problems in the markets, he did an excellent job of pointing to the real causes of the financial mess, and most importantly how to think through hedging against what could be around the corner.

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