RV Blog RV Classics — Issue #6

RV Classics — Issue #6

RV Classics

This Week…

We’re throwing it back to 2016 for an interview that quickly became one of the most watched and raved about in the history of Real Vision: famed investor Kyle Bass in conversation with Grant Williams.

The founder and CIO of Hayman Capital Management, Kyle rose to prominence as one of the few investors who bet big against the housing bubble during the Great Financial Crisis.

Since then, he’s continued to capitalize as an event-driven trader.

In this discussion, Kyle shares his approach to position-sizing, tips for developing an investment thesis, and how investors can know when to go on the offensive in these constantly evolving markets.

Four years later, it seems like Howard might have been peering into his crystal ball.

The business cycle is shifting, risk assets are in the process of correcting, and uncertainty is at an all-time high. As Howard is keen to point out, “nothing is a sure bet,” but we hope this flashback will help you better understand how to deal with whatever comes next.

RV Classics

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This is RV Classics, a monthly newsletter where we pull the best from the Real Vision vault. We’ve spent the last 8 years learning from some of the greatest investors of our time, and we’ve got thousands of hours of analysis to show for it. Well, now it’s time to dig into the most thought-provoking, relevant insights. 

Consider these our tales from the crypt — the greatest hits handpicked by Raoul Pal to help you learn how past cycles are shaping the world today.

Real Vision Classics Newsletter

A decade of the best financial interviews, compressed into a 5-minute read.

The Highlight Reel

  1. Home Run Hitting: When it comes to position sizing, Kyle treats investing a lot like a baseball player waiting for the right pitch to hit. “I respect the investors who take large, concentrated positions when they have high conviction,” he says. “Rather than eking out 8% gains with 40 positions and no conviction.” The right sizing depends on the asset class and how far a trade can move against you, so investors “have to be able to think in different dimensions, in different asset classes.”

  2. Test Your Process: As an investor, constantly testing your beliefs and considering opposing viewpoints is critical to success, regardless of market environment. In Kyle’s line of work, these debates often become public. “Those who are committed to the excellence of ideas and thorough research invite a new level of scrutiny,” says Kyle. “Those conversations are priceless, and that discourse makes you better at what you do.”

  3. Shapeshifting: In these constantly evolving global markets, investing requires an ability to pivot at a moment’s notice. “If you can show me logically and objectively how I’m wrong, I will change my opinion,” says Kyle. “The people who do refuse to be objective end up losing a lot of money and investors in the end.” But there’s a delicate balance between flip-flopping and changing your thesis with reason. According to Kyle, seeking out objective opinions and eliminating the “yes men” in your circle can help you maintain — and adapt — your convictions.

  4. A New Paradigm: “I would submit that this game of investing was a lot easier before the Great Financial Crisis,” says Kyle. The way he sees it, the post-GFC monetary policy parachute forever changed the game, and now central bank QE has become the cure to all ills. Keep in mind, this was in 2016 — long before the super-charged cycle of COVID liquidity injections.

  5. Identifying Risks: When investors spot risks in markets, we have to decide whether to hedge our portfolio (spoiler alert: that’s usually a good idea), or go on the offensive. “I’m not a permabear,” says Kyle. “But just hoping that things work out would be an outsized risky proposition.” Whether you decide to hedge, attack an asset via short positions, or both, just make sure you have a well-tested thesis and conviction.

Watch Now

Beware the paywall: This video is available to Real Vision Essential members and above.

Not a member yet? Right this way…

Kyle Bass: Building an Investment Thesis — Kyle Bass shares his opinions on the importance of position-sizing and explains why it’s so crucial to have conviction behind an investment thesis.

Thanks for reading. In our next issue, we’ll revisit a relatively recent instant classic. When Raoul Pal and Jim Bianco spell out the evolving dystopian future of work and the global economy, we take notes.

When you have a moment, let us know what you think of RV Classics. Just email us at essential@realvision.com.

Real Vision Classics Newsletter

A decade of the best financial interviews, compressed into a 5-minute read.

RELATED CATEGORIES: Investing, Learning, Market Analysis