My Worst Investment Ever Podcast Jason Hsu – The Market Can Be Crazy for Longer than You Have the Conviction
BIO: Jason Hsu is the founder, chairman, and CIO of Rayliant Global Advisors (RGA), a global investment management group with over US$15+ billion in assets managed using its strategies as of June 30, 2022.
STORY: Jason bet against the GameStop short squeeze and learned that John Maynard Keyens’ saying that “markets can remain irrational longer than you can remain solvent” still holds true.
LEARNING: The market can be crazy for longer than you have the conviction to stay invested. Apply position constraints and diversify.
“In the short run, the market can really stay crazy for longer than you have the money to stay on. And if you forget that, the market will remind you in as painful of a way as possible.”
Jason Hsu
Guest profile
Jason Hsu is the founder, chairman, and CIO of Rayliant Global Advisors (RGA), a global investment management group with over US$15+ billion in assets managed using its strategies as of June 30, 2022. Rayliant applies quantitative methods to access behavioral-based alpha prevalent in inefficient markets like China. Jason also co-founded Research Affiliates, a smart beta and asset allocation leader with over US$143 billion in assets managed using its strategies.
Worst investment ever
GameStop is a sleepy, almost dead brick-and-mortar retail store selling video games that come in a DVD ROM you put into your laptop to play. It sells cartridges for your Nintendo. In a world where online games are reigning, GameStop is definitely a dying business, and the stock price shows it.
Two years ago, the stock price was trading at a couple of bucks. A forum on Reddit started hyping the stock and convincing everyone that hedge funds shorted GameStop since they had realized the company would declare bankruptcy. The forum insisted it was a good time to do a short squeeze and screw the hedge funds. All this started as a joke, but in no time, the share price got to as high as $300.
When Jason first caught wind of this, he thought the situation would make a fascinating case study. Jason would do a case study and use it to teach his MBA class about how markets can become inefficient and how these prices clearly violate any rationality.
After a while, the stock price started pulling back and gradually falling. By that time, most people had recognized that it was just a crazy short squeeze, and now things were going back to normal. Jason figured the stock price would drop to $30 or $40. He decided to make a bet on that. This was when the second wave of the leading stock rally on GME happened, and the stock, for bout a two-three day run, went from $40 to $200. Jason lost a lot of money on that bet.
Lessons learned
- The market can be crazy for longer than you have the conviction to stay invested.
- Be diversified. Don’t research one stock and bet big on it. Have lots of research and lots of uncorrelated possibilities.
- Apply position constraints so your portfolio is well diversified.
Andrew’s takeaways
- The market can wear you down, but that doesn’t mean you’re wrong. It just means that your timing was terrible.
- Stop losses is a great way to protect you from an inefficient market.
Actionable advice
Apply risk management through a stop loss or position constraint. It doesn’t matter how convinced and sure you are about a stock; size it so that if you lose the entire position, you won’t commit suicide because the pain is intolerable.
Jason’s recommendations
Jason recommends following him on LinkedIn, where he posts his commentaries, random musings, and links to his research papers.
No.1 goal for the next 12 months
Jason’s number one goal for the next 12 months is to stay alert as he observes the bonding process for global equities. He hopes to participate in the next global bull market cycle.
No.1 goal for the next 12 months
Jason’s number one goal for the next 12 months is to stay alert as he observes the bonding process for global equities. He hopes to participate in the next global bull market cycle.
Parting words
“Always ask yourself before you make any trade; am I smarter than the person who’s selling me that share of stock?”
Jason Hsu
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Connect with Jason Hsu
Andrew’s books
- How to Start Building Your Wealth Investing in the Stock Market
- My Worst Investment Ever
- 9 Valuation Mistakes and How to Avoid Them
- Transform Your Business with Dr.Deming’s 14 Points
Andrew’s online programs
- Valuation Master Class
- The Become a Better Investor Community
- How to Start Building Your Wealth Investing in the Stock Market
- Finance Made Ridiculously Simple
- FVMR Investing: Quantamental Investing Across the World
- Become a Great Presenter and Increase Your Influence
- Transform Your Business with Dr. Deming’s 14 Points
- Achieve Your Goals