Last week I read about the Australian Future Fund (Sovereign Fund) delivering its strongest ever performance, returning 22.2% for the year, growing to $196.8 billion and delivering $35.7 billion to the people of Australia.
To put it mildly, I was blown away. This is something I cannot just accept at face value and needs to be understood a little deeper. According to their website their 10yr benchmark target is 6.1% pa. Granted I can see that the record return comes on the back of their second losing year – but still 22.2% for a pension fund managing the retirement assets of government employees is more than exceptional.
Many years ago, maybe 20+ when I was getting into the funds management business I presented my most recent returns to a seasoned investor and allocator of funds for a major fund of hedge funds. I presented my first years 79% per annum return feeling pretty happy with myself. He said to me, ok so you are probably likely to lose 80% as well. I have to admit to being taken aback. Here I was presenting a terrific above average performance and this old geezer was telling me I was probably going to give back the same amount in losses and effectively blow up my fund. That is not what a young buck wants to hear, however the conversation stayed with me deep down in my ego recesses and over many years I learned the wisdom in those words.
Coincidentia oppositorum (coincidence of opposites) is one of my favourite philosophical ideas that I will reflect on many times in these newsletters. It relates to the unification of opposites where essentially good and bad are two sides of the same coin. I am fascinated by the edginess of this idea. The boundary between the two sides is much harder to identify than you think and true brilliance (transcendence) comes from being able to hold these two opposing ideas together.
We all struggle with a side to ourselves that we don’t like, that embarrasses us, that we hate about ourselves. Carl Jung called it the “shadow”. As much as we don’t want to admit it, we all have the potential to do bad. We can steal, we can murder, we can be nasty, we can get too angry, violent, we can be selfish, we can be lustful, … and so the list goes on.
Just because we have the potential to do all these horrible things, doesn’t mean we will do them. The wise ones amongst us will acknowledge the possibility and will try and install guardrails to help prevent us from slipping.
Back to trading……
When trading it doesn’t matter if we are managing Sovereign Wealth Funds, Hedge Funds, Managed or Proprietary accounts we need to accept that our trading is only one slip away from disaster. We can choose to become one sided and fall in love with the profits we are making not giving equal weight/consideration to the potential losses waiting around the corner.
Alternatively we can learn to live with an existential anxiety that helps us navigate the inevitable ups and downs of trading and life. Profit and Loss are two sides of the same trading coin. You cannot make profits without risking losses, know that, accept that and you are then well on your way to making a long successful career as a trader.