My Worst Investment Ever Podcast
Business:Investing
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 everGameStop 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 learnedApply 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 recommendationsJason 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 monthsJason’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 monthsJason’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
David Kass – Don’t Invest in a Company Unless the CEO Owns a Large Stake
Christopher Panagiotu – Go With Your Gut, but Verify
ISMS 29: Larry Swedroe – The Shiny Apple is Poisonous and Information is Not Knowledge
ISMS 28: Stocks for the Long Run
Folarin Daniel Adeboye – Business and Friendship Can Never Mix
Dana Anspach – Loving a Product Is Different From Running a Business
ISMS 27: Larry Swedroe – Familiar Doesn’t Make It Safe and You’re Not Playing With the House’s Money
Manisha Thakor – Invest in Your Financial Health and Emotional Wealth
Richard Smith – Anything Valuable Is Hard
David Perry – Bet on the Person, Not the Idea
Tom Wall – If You Make Some Money, at Least Take Half off the Table
Rick Warner – Be Careful When Investing in Banks
Mohit Tater – You Don’t Know What You’re Getting Into Until You Are in It
Vorathep Srikuruwal – Walk That Property Before You Buy It
Phil Bak – Be Slow to Jump Onto Bandwagons
Jack Schwager – Never Stay in a Position That Violates What You Believe In
Sampark Sachdeva – Don’t Be Afraid to Take the Plunge
ISMS 26: Larry Swedroe – Are You Subject to the Endowment Effect or the Hot Streak Fallacy?
Vishal Bhardwaj – Do Not Let Emotions Run Your Business for You
Harjeet Khanduja – Work Smarter Not Harder
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