Back in my trading days, we often played What If?, a game that took a real or supposed major event and called on the players to postulate what would happen and, more importantly, what trade should be made in response. In his brilliant and acerbically funny book, Liar’s Poker, Michael Lewis describes playing What If? in light of the Chernobyl disaster and thinking “Buy oil” before being one-upped with “Buy potatoes.” It’s a terrific training exercise, requiring quick and multi-layered thinking.
An off-shoot of What If? is to ask “What trade hurts the most people,” especially when the market seemed like a one-way street. The idea is not that what seems highly unlikely is necessarily going to happen. Rather, the idea is that when seemingly everyone is racing in one direction, the opposite is much more likely than appreciated and, if and when it does occur, it can do major damage for those who are 180 degrees wrong.
When I was in New York recently, Josh Brown and I were asking that off-shoot question and agreed on the answer. The trade that hurts the most people is the market continuing to grind higher. Continue reading