Bloomberg Businessweek Europe - 23.09.2019

F I N A N C E

26

Edited by

Pat Regnier

Dear investors,

I wanted to give you an update and share some good

news: The Bubble Opportunity Hedge Fund is up more

than 22 percent this year thanks to our significant

holdings of long-term government bonds, Bitcoin,

and urban real estate.

Alright, I don’t really run a hedge fund. But back

in 2017, I did joke on Twitter that someone should

create a portfolio consisting solely of assets that

pundits love to warn are in a bubble. The premise

was that people always call things that have gone

up a lot a bubble, and most of the time those calls

are wrong (or at least very premature), so it makes

sense to buy them all as a basket.

Paul McNamara, who runs an actual nonpretend

hedge fund at GAM, went ahead and constructed a

hypothetical bubble portfolio a few days later, con-

sisting of things such as Netflix, Tencent Holdings,

Tesla, a Canadian apartment REIT, a London prop-

erty company, the Grayscale Bitcoin Trust, the

Argentine century bond, Japanese government

bonds, long-term zero-coupon U.S. Treasuries, and

so forth—you know, all the things people have been

calling overvalued for years. Some of the positions

have blown up (thanks, Argentina), but by and large,

performance has been robust.

OK, enough horn tooting about my own fake abil-

ities at constructing a portfolio. It’s a fact, though,

that ever since the financial crisis, people have

been claiming nonstop that we’re in one bubble or

another. In 2010 you could find warnings that a new

dot-com bubble was forming or that Canadian real

estate was in one. In 2011 there were postmortems

(LOL) of a Bitcoin bubble—hardly the last of those.

Thanks to Google searches, I could go on, but you

get the point. Calling bubbles is a popular sport,

even if winning is tougher than it looks.

But why is making those calls so popular? Well,

for one thing it allows you to feel sophisticated. You

can furrow your brow, shake your head sagely, talk

about how “history always repeats itself,” and then

cite something you once read in Charles Mackay’s

Extraordinary Popular Delusions and the Madness of

Crowds. And as pointed out by Mark Dow, a longtime

trader and the brains behind the Twitter account

@BehavioralMacro, there’s a nice element of unfal-

sifiability to bubble calls. “You can’t prove some-

thing isn’t a bubble,” he says, “because tomorrow ILLUSTRATION BY EVA CREMERS

Bloomberg Businessweek September 23, 2019

Why we all love to spot

other investors’ mistakes

Seeing Bubbles