$INV: Thread on the three basic tribes of FinTwit | Jan 2020


When Three Tribes Go To War, A Point Is All That You Can Score…( A thread)

There are three basic tribes on FinTwit – The Normal Distribution Tribe, the Long Tail Tribe and the Fat Tail Tribe.

1/ The Normal Distribution tribe tends to be populated by investment bank analysts, mutual fund managers, RIA’s, Relative Value investors and a more than a few journalists.

They tend to do well over benign parts of the business cycle but they tend to be benchmark-huggers by nature and thus see lower returns with low volatility. They are uncomfortable out of major consensus, prefer medium- term mean reversion and love to mock anyone who sees outside of the usual 1 standard deviation distribution of outcomes around the mean. Then they lose their jobs. (Unless they are mutual fund managers who hide in the herd of performance of the big Normal Distribution tribe)

They tend to have a good career, while it lasts.

Their place of worship is CNBC. Then there is the Long Tail Tribe.

They tend to be populated with hedge fund managers with short careers (but who can make HUGE wealth if they are right and get their timing right). The other part of this is the Agora newsletter readers, the Bitcoin, gold and inexperienced short-seller tourist sub-tribes. The smaller part of this crowd are skilled risk takers but have a tough fight against the odds. Others are big dreamers who dare to think differently of different futures. Others get the odds wrong through inexperience. This is a rough and tough tribe. They fight all day with the Normal Dist. tribe.

These people either are spectacularly successful or end up bitter that the world doesn’t always deal 6 sigma events. They swing big.

Their place of worship is podcasts YT channels and newsletters. Then there is the Fat Tail Tribe.

The Fat Tail tribe tends to spend a lot of time within the two standard deviation distribution zone, where their volatility of returns is not as high as the Long Tail tribe and more than the Norm Dist tribe. Sometimes they have down years and other times they have bigger up years. They tend to be happy mingling with the two other tribes and learning. Both are right.

But they also see the other opportunities or possibilities that the other tribes don’t. They tend to see different and more varied opportunities over time and gravitate to the 2 standard deviation zone and into the Fat Tail, when the market assigns the wrong odds, in their minds.

This tribe tends to be the more success performers over time but there is a tendency to become cult followings when they are hitting well in the 2 SD zone and then people move away when they aren’t hot. They generally stay in business but can sometimes lose assets when they are not so hot, and have to close up shop.

They are generally misunderstood by the other tribes.

The Norm Dist tribe mock them when they dare to think differently and the Long Tail tribe hate them when their view doesn’t match with their own.

The FT tribe often share views with both and drift from both.

It is usually time horizon and the business cycle that separates them tho.

I try to be in the Fat Tail tribe. All of my investment hero’s tend to be in this tribe. This is the Macro Tribe.

We are used to being wrong but try to be right more often and bigger. We don’t always get it right but over time the odds skew in our favour. Other variations of this tribe are the “smart” VC tribe. @wolfejosh is a prime example – a VC who bets on the Fat Tail but understands the risks and therefore aims to trim the downside tails and calculate the upside probabilities different to the crowd. The king of the Fat Tail tribe is the unicorn that is Stan Druckenmiller. He lives in the 1 standard deviation world to earn his living and moves swiftly into the two and three standard deviation world to make his wealth. That is very rare.

Skilled short sellers reside here too. Also, the best entrepreneurs are Fat Tail tribers, like Reid Hoffman. Some are Long Tail, like Elon and others are Normal Distribution, but they are fewer. China tends to produce ND entrepreneurs (they copy and don’t innovate but find a market they can capture). The Fat Tail tribe tend to worship on Real Vision @realvision where all views are accepted and never mocked but are learned from.

All the tribes have a place in all our society and a validity. They all take different risks with their capital and their careers. My advice, if it matters at all, is whatever tribe you are in, try to also see the point of view of others. They too shall be right (and wrong).

Try and learn from them. You don’t know all the outcomes but someone may have a better read than you. But do your own homework. Think carefully before you mock others. One day, you too will have egg on your face.

How much egg is down to you.

I’m proud and happy in the Fat Tail Tribe, it suits me. I hope it adds some value for you, whatever tribe you are in.

Good luck for 2020. 

Leave a Reply

Your email address will not be published.