What can we learn from $GME about investing. The key take away that the trade that can set you up for life can be found with good research and positioning months before the actual event.
It mirrors the Big Short movie where several researchers came to the same conclusion. Coincidentally, Michael Burry was involved in both trades.
But it's conceptually the same thing. A lot of institutional investors crowding together on the wrong side of a trade. In the Big Short it was emergent risk created by the housing bubble. For GME it was the excessive bets against a company far from bankruptcy.
This will happen over and over where the actions of multiple parties create an entangled scenario where it is difficult to extricate away from. This happens when conventional wisdom is flawed and parties think they are acting rationally when they are not!
The point here is not to be attempting to catch the latest fad. But rather, making the effort to see the flaw in the current fad. Become a patient investor and seek out opportunities where everyone else is looking the wrong way.
The crowded trade is that trade that has an element of momentum. It works when the interactions of the participants are in synchrony. That is like when everyone queues up to enter a movie theater. It is fine as long as the theater does not exceed capacity.
But when the theater's capacity is exceeded and people refuse to exit the theater. It only takes a misconstrued spoken word to create pandemonium. There is a kind of social physics involved here. Those with the tools are those likely to win out big.
Here's the question though. Are we entering a new regime in asset management where we monitor and exploit the social physics of the market? A kind of strategy where we are cognizant of swarm intelligence and the flaws of this intelligence?
What sort of metrics do we invent to expose when market participants are so crowded that they are practically stepping on each other's feet?
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