The Market Loves a Good Story
But the best trades usually come from facts, not headlines
I just read a great piece by John Authers called Hindsight Capital, which I highly recommend. In it, he describes a fictional hedge fund that makes imaginary trades with the benefit of perfect foresight—essentially knowing exactly what would happen in markets around the world. The idea isn’t to suggest these trades were realistically achievable, but to illustrate how extraordinary the returns could have been if one had timed everything perfectly. It’s a clever way to highlight major market moves in hindsight, and to remind us how easy investing looks when viewed from the rearview mirror.
What struck me most in this edition of Hindsight Capital was the oil trade, which I’ve highlighted below.
Source: Bloomberg
It’s remarkable how many people—including those who are financially savvy—believed that Trump was good for oil. As I’ve pointed out before, that wasn’t really the case. During much of his first term, oil prices remained below $60 per barrel. But optics often matter more than facts, and slogans like “drill, baby, drill” are catchy enough to shape perception.
This is a strong reminder of why doing your own due diligence is so important. It’s easy to repeat narratives, especially when they’re coming from high-profile sources, but real conviction should be based on data. That’s essential when investing your own capital—and even more so when managing other people’s money.
To be clear, this isn’t a critique of John Authers—I enjoy his work and often recommend Hindsight Capital as a thought-provoking read. Rather, this is an example of how narratives can easily override reality, and how that disconnect can create some of the best investment opportunities. Whenever there’s a clear gap between narrative and reality, there’s often value to be found for those willing to dig deeper.
Speaking of which, there was some interesting news this week involving Shelf Drilling and a new contract with Aramco. I’ll share more thoughts on that tomorrow. It’s another classic case of narrative vs. reality—with potentially attractive upside for investors who can do the work and tolerate some volatility.