During his recent interview with The Investor’s Podcast, Dan Rasmussen explained how investors can win by betting against the current hubris. Here’s an excerpt from the interview:
Rasmussen: Everybody has a lot of opinions about what future growth should be or is going to be. And right now, in the moment, we can’t disprove any of them. This is why there’s no right answer to what Nvidia is going to grow at for the next three years. We can all have opinions, and all of them could be right. We won’t know until those next three years unfold.
And so we have markets where some people are, you know, the market can get irrationally, in my view, optimistic or irrationally pessimistic, or let’s say extremely pessimistic or extremely optimistic. But it’s not necessarily irrational, right? Because that growth could happen or that disaster could happen.
But over long periods of time, because the future unfolds in a relatively random, unpredictable, and surprising way, it tends to be true that people who are excessively optimistic or excessively pessimistic end up being wrong as the future unfolds in a random fashion.
And so this is why growth investing is always dangerous because you tend to be leaning into consensus thinking and you tend to be leaning into fads. Sometimes that can work for a very long period of time, right? So if you lean into the FANG fad or you lean into crypto, those things really worked for a period of time.
If you leaned into First Republic Bank stock, you know, it worked for a long time. And it tends to work for a long time until it crashes because the narrative that’s underlying people’s consensus conviction about future growth can be shattered very quickly. Ultimately, multiples drive the majority of volatility in the market, not underlying fundamentals.
And so you’re really, you know, as I said before, investing is a game of meta-analysis, not analysis. If you look at the multiples and you say, “Gee, these are the things that people are most optimistic about, these are the things that people are most pessimistic about.” And you basically bet against hubris.
You just say, “Gee, I’m gonna take the other end of that bet.” You know, you’re giving me these crazy odds. I just don’t think it’s possible or not likely. It’s possible that this future could end up being quite exactly as you predict. Um, you end up winning over time, and I think that’s the central thesis.
You can watch the entire discussion here:
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