The Merit of Confidence
How to build stratospheric wealth
[Not investment advice. Past performance is no indicator of future success.]
When Roaring Kitty made 11 million dollars on Gamestop stock, he explained he did it based on the inherent value in the stock. His August 21st 2020 video:
is a great overview of the thinking that went into his decision, and how he ultimately managed his risks to overweight on his position in Gamestop. It's easy to ignore the fact that his initial price target was $50.
It leads me to believe being overweight on a specific idea, one which you have thoroughly vetted or have deep confidence in, is a successful strategy. There are multiple examples of this historically as well. Most individuals who have reached stratospheric wealth over weighted in a single company. Now, of course the opposite is true, that you can also lose everything on a single idea. That is why a truly deep knowledge or understanding will allow someone to also make snap decisions on an idea when presented with new information.
This is a response to a tweet which explores a Druckenmiller quote about George Soros. Soros was well known for being overweight on ideas he had confidence in, including notably regarding currency in 1992. But the quote from Druckenmiller needs additional context: Soros was also likely faster to recognize the risks of a strategy and cut his position than Druckenmiller was as well. In the same vein, it can be said that if you are ever going to overweight on something, you must understand it better than most anyone else. This will allow you to maneuver through new data and make informed decisions about your position.
In my life, I have been exposed to rapidly appreciating things. I have never overweighted my position on those things. Historically, this has probably cost me a tremendous amount of unrealized value. Maybe next time I will take a page out of Soros and spend a bit more time building my confidence.