Value Hive Podcast

Peter Pham: Inversion Investing

Fri Jan 26 2024

InvestingContrarian InvestingProbabilistic AdvantageCulture and EconomicsSuperpowersPlaying ProbabilitiesHumor in InvestingSocietal Trends

Description

The Macarops Value High podcast aims to make high risk-adjusted returns, continuously learn, and provide differentiated research and education resources. The podcast has the highest retention rates among investing services due to its unique offerings and a community of smart operators. Members of the podcast include professionals, retail investors, and traders who share a deep love for investing. MIT Investment Management Company (Matico) invests with emerging managers who can earn exceptional long-term returns and has created a website for emerging manager stock pickers. Metemco is an investment team that learns about great businesses and investments while working with exceptional investors worldwide. They occasionally hire new members for their team. Marhelm Data is an information service that helps investors find value in an overvalued market, focusing on shipping and commodities. Listeners of Value-Hive can get a 20% discount on subscriptions using the code "value@checkout." Peter Pham from Inversion Investments is known for his independent thinking in markets. He shares his background growing up in Toronto, Canada, where speculating on stock markets was atypical but sparked his interest in technology and eventually led him to the stock market.

Insights

Identifying a probabilistic advantage is crucial in investing

The speaker emphasizes the importance of identifying a probabilistic advantage when investing money that cannot be afford to lose.

Thinking like criminals or conspiracy theorists can lead to contrarian investment opportunities

They suggest thinking like criminals or conspiracy theorists as a way to identify contrarian or inverted investment opportunities.

Understanding the three steps to identify contrarian investment opportunities

The speaker discusses the concept of contrarianism and its importance in investing. They explain the three steps to identify contrarian investment opportunities.

The importance of monitoring stock performance in contrarian investing

The speaker emphasizes the importance of monitoring stock performance to determine if the contrarian idea is successful.

Focusing on the future and identifying inflection points in investments

The guest emphasizes the importance of focusing on the future rather than the past when making investment decisions. Identifying something that is contrarian but also inflecting positively in a stock price or chart can be challenging.

The role of culture in economics and investing

The podcast explores how culture influences economics and investing, discussing examples such as saving face in Asian culture and the influence of Christian theology on American economics.

The rise and fall of superpowers throughout history

The speaker delves into the rise and fall of superpowers, highlighting China and India as historical superpowers and discussing factors that contributed to their decline.

Playing probabilities and detaching ego in trading

The speaker emphasizes the importance of playing in probabilities rather than making predictions and having a detached ego in order to make successful trades and investments.

Humor as an investment strategy

The speaker discusses the use of humor in investment strategies, highlighting how it can provide insights into reality and lead to unique trade ideas.

The impact of societal trends on the economy

The podcast explores the impact of societal trends, such as the lay down movement and changing dating culture, on the economy and investment opportunities.

Chapters

Introduction
Overcoming Biases and Making Money
Identifying Contrarian Investment Opportunities
Identifying Contrarian Investment Opportunities (continued)
Contrarian Views in Investing
Insights into Global Credit Crises
Understanding Currency Dynamics
The Influence of Culture on Economics
The Influence of Culture on Economics (continued)
The Rise and Fall of Superpowers
The Rise and Fall of Superpowers (continued)
Analyzing Market Data
Playing Probabilities in Trading
The Role of Ego in Investing
Humor and Investment Strategies
Societal Trends and Economic Impact

Summary

Transcript

Introduction

00:01 - 07:24

The Macarops Value High podcast aims to make high risk-adjusted returns, continuously learn, and provide differentiated research and education resources.
The podcast has the highest retention rates among investing services due to its unique offerings and a community of smart operators.
Members of the podcast include professionals, retail investors, and traders who share a deep love for investing.
MIT Investment Management Company (Matico) invests with emerging managers who can earn exceptional long-term returns and has created a website for emerging manager stock pickers.
Metemco is an investment team that learns about great businesses and investments while working with exceptional investors worldwide. They occasionally hire new members for their team.
Marhelm Data is an information service that helps investors find value in an overvalued market, focusing on shipping and commodities. Listeners of Value-Hive can get a 20% discount on subscriptions using the code "value@checkout."
Peter Pham from Inversion Investments is known for his independent thinking in markets. He shares his background growing up in Toronto, Canada, where speculating on stock markets was atypical but sparked his interest in technology and eventually led him to the stock market.

Overcoming Biases and Making Money

06:54 - 14:40

The speaker shares a personal anecdote about hanging a punishment on his wall as a trophy, but later realizes it was a waste of time and ink.
The speaker mentions studying information systems and human behavior, which connects to the rest of the conversation.
They discuss the agony of supporting sports teams that consistently lose but still sell out stadiums.
The speaker talks about getting over biases and transcending one's background to achieve objectives.
They mention Bill Ackman and plagiarism in the DEI (Diversity, Equity, and Inclusion) world.
The speaker recently arrived in the US and emphasizes the importance of leaving biases behind when investing.
They suggest that making money should be the primary objective in investing, regardless of specific strategies or biases.
The speaker uses an analogy with weather forecasting to explain the importance of determining probabilities when making investment decisions.
They express dissatisfaction with relying solely on fundamentals or technical analysis in investing.
The speaker recommends taking courses on critical thinking or philosophy of science to address various aspects of our world.
They discuss Karl Popper's concept of falsification as a criterion for scientific ideas, contrasting it with astrology's lack of testability.
It is important to identify a probabilistic advantage when investing and understand if one's thesis is correct.

Identifying Contrarian Investment Opportunities

14:21 - 21:55

The speaker emphasizes the importance of identifying a probabilistic advantage when investing money that cannot be afford to lose.
They discuss the three criteria they use to identify good trader investments, which will be explained in more detail later.
The speaker questions the famous line by Warren Buffet about buying when others are fearful, stating that humans are illogical and it is counterintuitive to buy during times of fear, such as the COVID crisis.
They suggest thinking like criminals or conspiracy theorists as a way to identify contrarian or inverted investment opportunities.
The speaker explains that fear may be used as a tool to control the masses and justifies looking at investments from a different perspective.
They give an example of how the vaccine could be seen as a ritualistic process used by the government to justify its existence and potential bottoms in the market.
The speaker advises considering counterintuitive factors and looking for investable assets related to controversial events, such as buying oil during protests against wars for oil purposes.

Identifying Contrarian Investment Opportunities (continued)

21:37 - 28:23

The speaker discusses the concept of contrarianism and its importance in investing.
They explain the three steps to identify contrarian investment opportunities.
Step one involves looking for something that is inverted or contrarian.
Step two focuses on activism, which can be understood as both institutional activism and passive activism through retail investors.
The speaker gives examples of protests and political connections to stock plays as forms of activism.
Step three is about relative strength, where the speaker mentions Nancy Pelosi's support for technology and her holdings in Nvidia as an example.
The speaker emphasizes the importance of monitoring stock performance to determine if the contrarian idea is successful.

Contrarian Views in Investing

28:04 - 35:20

The podcast discusses the concept of contrarian views in investing.
The guest mentions a framework called the trifecta lens, which includes fundamentals, sentiment positioning, and technicals aligning at once.
Identifying something that is contrarian but also inflecting positively in a stock price or chart can be challenging.
The guest emphasizes the importance of focusing on the future rather than the past when making investment decisions.
An example is given regarding the oil market and how demand and government actions can impact prices.
The guest mentions an inversion trade involving the US dollar, which was initially viewed negatively but then experienced a strong rally.
Forex trading is suggested as a way to potentially benefit from leverage and relative strength of the US dollar.
The long-term performance of the US dollar is discussed, indicating that it hasn't declined as much as people may think.
Buying the US dollar could be seen as a speculative move or a hedge against uncertain global events.
Holding onto investments for an extended period can yield significant returns based on important market pivots.

Insights into Global Credit Crises

34:52 - 41:58

Chinese trade and exports have yet to reach their peak.
Warren Buffett's biggest position is actually in dollars, not stocks or bonds.
Japan's stock market has been gradually increasing since the 1990s.
There is a psychological subversion in America that causes self-hate and guilt.
The GDP per capita in America has tripled since 1990.
Being an Anglo-Saxon G7 country like Canada has advantages due to proximity to the United States as a trading partner.
America is criticized for obesity, but there are also healthy options available in the market.
The American market offers optionality and depth for new industries and innovation.
The US dollar is the last domino to fall in global credit crises.

Understanding Currency Dynamics

41:29 - 48:53

The dollar is not the first currency to fall in a credit crisis, as seen in countries like Zimbabwe, Turkey, and Argentina.
People tend to have a cognitive bias that the dollar is the first to fall, but it's actually more of a final boss battle.
A Singaporean fund manager closed down his fund because he was short on Nikkei and long on China. He wanted to see people who look like him doing well.
There is a struggle for ethnic Chinese individuals to detach themselves from the idea that China is economically structured in the wrong way.
Home or bias plays a significant role in investment decisions, with 70% of one's portfolio typically being invested in their home country.
The fund manager couldn't detach himself from his biases and struggled with losing his edge.
Detachment from biases may be easier for someone whose last name isn't similar to others in their culture.
Being a homer only makes sense when you are objectively winning or have something truly exceptional.

The Influence of Culture on Economics

48:42 - 55:31

The movie "The Last Samurai" is used as an example to explain the concept of saving face in Asian culture.
The philosophy of a country influences its economics, which is reflected in the stock market.
Bonds are considered safer investments compared to stocks because they have less risk.
Taking risks can lead to personal growth and success.
The crucifixion story and certain movie arcs involve characters being publicly shamed but eventually ascending or achieving greatness.
During the global financial crisis, the United States allowed its real estate market to decline significantly before recovering and reaching all-time highs, while other countries tried to cap their losses.
China freezes liquidity in its real estate market instead of allowing it to decline, resulting in lower returns.
America's foundation on free market capitalism and Christian theology implies greater volatility in its economy.
American adventurers faced uncertainty and insecurity when exploring the Wild West, unlike other parts of the world where there was always a ration of resources available.

The Influence of Culture on Economics (continued)

55:01 - 1:02:06

American explorers and cowboys ventured into the uncertain frontier without any guarantees, unlike other parts of the world where rice was always available.
The allure of finding gold in the unknown attracted many to take risks and explore the frontier.
Ego plays a role in investing and trading, with some individuals valuing being contrarian over making sound investment decisions.
People who are obsessed with saving face tend to have inflated egos and emphasize their beliefs to others, like in North Korea with Kim Jong-un.
An investor who refused to acknowledge the seasonal sell-off trend during Lunar New Year ended up losing his fund by doubling down on his investments.
The Moonfall thesis suggests that there is a significant sell-off around Lunar New Year due to cultural factors and an uptick in gold purchases in India during this time.
Understanding historical events, such as the Italian Renaissance and American Revolution, can provide practical insights into superpowers of different eras.
China was considered a mighty empire before 1500, preceding Britain's rise to power.

The Rise and Fall of Superpowers

1:01:44 - 1:09:07

Between the years 1000 and 1500, China and India were the superpowers of the world, making up 80% of global GDP.
During this time, China was a superpower due to domestic developments.
The British Isles, along with Portugal and Denmark, started to dominate the world by navigating the oceans using stars.
The development of astronomy as a field of science coincided with the navigation of stars by these powers.
India and China based their calendars on stars and the moon.
China lost its world supremacy in the 1500s because their kings prohibited further exploration.
Historians are unsure why China stopped exploring, but it is speculated that it was related to their reliance on stars for navigation and their belief in Beijing being the center of the universe.
Beijing believed it was at the center of the universe and did not absorb new scientific discoveries or innovations. They continued to follow a calendar based on flat earth beliefs.

The Rise and Fall of Superpowers (continued)

1:08:48 - 1:16:12

The speaker discusses the connection between seasonal reasons, gift-giving, and the belief in a flat earth.
They mention the influence of ego and pseudo-science in building civilizations.
The conversation touches on the importance of being well-rounded and knowledgeable in various disciplines when working in finance.
The speaker emphasizes the freedom of time and speech as important factors in making investment decisions.
They mention the use of probabilities to buy stocks and highlight market inefficiencies.
The speaker asks for specific data on the S&P's high, low, and open prices.

Analyzing Market Data

1:15:46 - 1:22:48

The open for today was 48.81.75.
The current price is around 70.
If it gets close to yesterday's low of 72, consider going short.
Anticipate collecting three or four more points on the S&P if going short.
Use relative price strength and probabilities to support trading ideas.
Look for inversions and contrarian elements in the market for idea generation.
Consider different timeframes (daily, weekly, monthly) for incremental moves.
Having multiple outs in a position increases possibilities for success.
Market movements can be influenced by factors like profit taking or external events like terrorism.

Playing Probabilities in Trading

1:22:20 - 1:28:54

The speaker emphasizes the importance of playing in probabilities rather than making predictions.
They believe that having a detached ego is necessary to make successful trades and investments.
The speaker claims to have made overt calls about the Chinese market collapsing and Bitcoin's potential breakout, which have proven accurate.
They discuss the difficulty people face in writing and talking about their ideas due to ego and lack of edge.
Successful traders and investors are willing to discuss both their winning and losing calls, showing confidence in their system.
The speaker mentions the need to consistently make accurate calls when catering to high-profile subscribers.
They highlight how writing research has become more challenging with the rise of internet publishing and social media stars.
The speaker explains that they take risks because making unique, correct calls sets them apart from others.
They mention calling for S&P 5000 when it was not widely predicted, demonstrating their ability to make bold predictions.

The Role of Ego in Investing

1:28:34 - 1:35:32

The speaker emphasizes the importance of standing out in a noisy market by telling your own story.
They mention stereotypes about Vietnamese people and highlight the need to be better than those stereotypes.
The speaker believes that being lit (successful) is more important than conforming to certain investment strategies or ideas like V.I. (possibly referring to value investing).
They discuss the risk of blowing up financially and emphasize the importance of recognizing this risk to stay humble and avoid falling.
The host praises the speaker's confidence and track record but asks what prevents them from making reckless trades due to their confidence.
The speaker mentions various topics they cover on their website, including reverse engineering algorithms, politics, asset calls, volatility in financialized products, central planning, inflationary pressures, and programming language.
They argue that their diverse range of subjects showcases their skill set and increases the dramatic potential for redemption after a failure.
The speaker mentions their experience in the market since 1990 and their passion for constantly learning.
They mention not having a home bias in investment decisions and state that future biases towards them are unlikely.
The speaker notes that they come up with ideas based on amusement rather than intelligence or ego.
They give an example of a humorous idea related to China's one-China policy as an inversion of our world.

Humor and Investment Strategies

1:35:08 - 1:41:52

The speaker finds humor in the concept of a "one China policy" and takes a position based on that idea.
They connect the decline in Chinese equities to a semi-pro-democracy election and speculate on the trade's potential success.
The speaker believes that humor can provide insights into reality, especially in a world influenced by cancel culture.
They mention a strategy where they base their trades on what they find hilarious.
The speaker shares a story about being in China and making a humorous comment about not having Chinese currency, which gave them the idea to be long on the US dollar.
They believe that the value of the US dollar reflects elements of the real economy.
The speaker discusses how dating culture and trends reflect macroeconomic factors, mentioning terms like "simping" and "neets."
They explain that there is a growing trend of people choosing not to participate in society, referred to as the "lay down movement."
This movement is connected to changes in the dating market, where a small percentage of people attract most of the attention.

Societal Trends and Economic Impact

1:47:47 - 1:53:35

A rat study shows that in a highly socialized economy, rats end up eating and killing each other, leading to population decline.
This trend is happening in places like America and China, where people feel they can't contribute to the established infrastructure and give up.
COVID and minimum checks have conditioned people to become dependent on universal income.
It is becoming harder for individuals to find partners who are financially stable due to the limited number of people with wealth.
The podcast covers a wide range of topics and the guest is praised for being an independent thinker.
The guest has published a book called "The Big Trade" and has received recognition from major publications like Forbes.
The guest's sub-stack at inversioninvestor.substack.com provides valuable trade alerts and unique content.
The guest's confidence comes from years of hard work and experience in finance, which required effective communication skills.
Effortless presentation is important, even though behind the scenes there is hard work involved.