Change breaks the brittle.
- Jan Houtema

Blessed are the flexible, for they shall not be bent out of shape.
- Unknown

These two articles, on Peter Thiel of Clarium Capital, make for an interesting contrast. Note they are two years apart:

• Aug 2008: Soros Successors Thiel, Howard Prove Global Bears Rule Markets (Bloomberg).

• Sep 2010: Peter Thiel’s Hedge Fund Is Bleeding Cash — Now Down To $850 Million And Half Is His (BizInsider).

Clarium Capital, Thiel’s fund, had close to $8 billion in assets at the mid-2008 peak. Now, two years later, roughly 90% of those assets are gone.

I haven’t followed Thiel in a while, though he had a great interview in Inside the House of Money. At one point, Clarium’s swashbuckling global macro style had him on track to be the next Soros (as the ’08 Bloomberg piece suggested).

Thiel is also notable for being an early-stage Facebook investor, giving Mark Zuckerberg $500K in funding with the terse instructions “Just don’t f*ck it up.”

It seems that, with Clarium, Thiel failed to follow his own advice. He f*cked it up.

So what happened? How did a budding macro legend stumble so badly?

My three-word assessment is: lack of flexibility. Running aground on the old Keynes truism: “The market can remain irrational longer than you can remain solvent.”

Thiel was vocally fighting the tide in 2009. Apparently he is still fighting it. It’s one thing to take an opportunistic contrarian stand against the foolish consensus of the herd. It’s another thing entirely to let the herd trample you.

The great global macro players — like Paul Tudor Jones, who has gone 25+ years without a losing year in his own trading — are protean and fluid in their willingness to change. It doesn’t bother them to switch stances, switch viewpoints, and stay calmly objective as they wipe the slate clean. There is a zen-like lack of ego in this.

It’s not that the great survivors are never wrong. In fact they are often wrong, as most any of them will tell you… and it is their ability to manage risk and uncertainty where no true certainty can be found that provides a sustainable edge.

The most attractive opportunities frequently have an uncertainty component to them. Crafting asymmetric outcomes — where the cost of being wrong is small in comparison to the payoff for being right – thus becomes key.

As PTJ has quipped,

When trading macro, you never have a complete information set or information edge the way analysts can have when trading individual securities. It’s a hell of a lot easier to get an information edge on one stock than it is on the S&P 500.

Again, the vital point is that these great macro survivors are flexible. In pursuit of non-consensus opportunities, they often find themselves wrong… but they don’t allow themselves to stay wrong for very long.

And they recognize, deep in their bones, that staying fluid and managing the risk takes precedence above all.

JS

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