I was chatting a few days ago with one of the smartest hedge fund managers I know. We were talking about the recent carnage in unprofitable tech “dream” stocks, and he reminded me of a time many have forgotten. “From 1995 to 2000, I watched some of the shrewdest managers get annihilated shorting the dot-com bubble,” he said. “By the end, they all went out of business. I then watched the next five years destroy all the long managers who had ridden the euphoria to the upside, until most of the aggressive ones were also sent packing.”
In hindsight, bubbles always seem obvious and easy to trade. As someone who has experienced more of these than I care to remember, I assure you they are not. Take the mid-2000s real estate episode. With movies such as the “Big Short,” and glowing newspaper articles about hedge fund managers who made fortunes profiting from the real estate collapse, it seems like opportunity was everywhere.