This blog post originally appeared on RealMoney Silver on July 20 at 8:30 a.m. EDT.
"To predict the behavior of ordinary people in advance, you only have to assume that they will always try to escape a disagreeable situation with the smallest possible expenditure of intelligence." -- Friedrich NietzscheWe are now more than halfway through 2009. The last 12 months has been one of the most tumultuous and painful periods in history. Recently, that pain has been supplanted by pleasure. What does the balance of 2009 hold? How do we profit? For some possible answers, it's time to grade and update our 2009 surprise list. For a little background, in late December in each of the past six years, I have taken a page from my friend and former Morgan Stanley strategist Byron Wien (now the chief investment strategist at Pequot Capital Management) and prepared a list of possible surprises for the coming year.
"I'm astounded by people who want to 'know' the universe when it's hard enough to find your way around Chinatown." -- Woody AllenThe real purpose of this endeavor is to consider positioning a portion of my portfolio in accordance with outlier events, with the potential for large payoffs, and to disprove Nietzsche, who said that we live the same life over and over again. After all, Wall Street research is still very much conventional, almost universally bullish and consisting of nonvariant "groupthink" despite the attempts of reform over the past several years. Mainstream and consensus expectations are just that, and, in most cases, they are deeply imbedded into today's stock prices. If I succeed in at least making you think about outlier events, then the exercise has been worthwhile. As a perspective our surprise lists for both 2007 and 2008 were our most accurate ever. As successful as the 2007 surprise list was, our 2008 list proved to be even more accurate. As I previously wrote, like The Dark Knight's newest Batman, there was a touch of demon in the market's stealthy menace and engrossing tragedy over the first six months of the year. As it is said, action is the antidote of despair, and attention to the 2008 surprise list could have saved investors quite a bit of money (especially by avoiding the finance sector). It wasn't the quantity of the correctly predicted surprises that made 2008's list a remarkable success; it was the quality, as I hit on nearly every major variant theme -- the severity of the housing depression, the turmoil and writedowns in the credit markets, the curtailing of private equity deals and the reawakening of equity market volatility.