The Blunt Dollar Dean Smith: The One Metric Wall Street Worships
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Nov 11, 2025 Dean Smith, Chief Strategist at FolioBeyond and expert in fixed income, shares his unique path from rock guitarist to Wall Street. He discusses market inefficiencies and behavioral biases like recency bias that trip up even seasoned investors. Dean recounts his successful short trade ahead of the 2008 crisis and critiques the reliability of credit ratings. He emphasizes that current market prices often outweigh forecasts during uncertainty. Finally, Dean explores the future role of AI in finance, suggesting it will enhance—rather than replace—human strategists.
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Behavioral Biases Warp Market Judgment
- Human biases like recency bias and falling in love with a thesis distort even expert market calls.
- Considering "what if I'm wrong?" reduces big mistakes and severe drawdowns.
Drawdowns Matter More Than Std Dev
- Standard deviation alone mismeasures real investment risk because losses matter more than volatility.
- Prioritize avoiding large drawdowns since recovering from big losses is mathematically painful.
The Subprime Short That Paid Off
- In 2005–2008 Dean Smith identified subprime origination failures and used credit default swaps to short the market.
- The trade profited despite skepticism and moral discomfort about betting against homeowners.
