Walk us through Capstone in 2008.
Sure.
So we unfortunately did very well coming out of the gates.
We actually started live trading for investors August, 2007.
And there was a number of events.
So you had the quant crisis of August, 2007.
And then we had made an extraordinary amount of money in January of 2008 through the Soc
Gen meltdown.
And so it gave us such a false belief in ourself, that we really felt that we were exceptionally
better than what we actually were.
And this is 4 or 5 months of managing institutional capital, and
it gave us this, in looking back on it-- reflecting it-- it gave us this false confidence that
we really were better than market.
Come September, October of 2008, I then made a decision based upon my experience of LTCM,
or the Asian crisis of '99, of 9/11 in 2001, that the VIX never really goes much beyond
40 or 45.
So talk about risk-on and risk-off.
We ran a relatively balanced portfolio, and I said, well, why would you ever have any
risk-off strategies in your portfolio?
Why would you have any defensive strategies once the VIX hits 40 or 45, because we all
know that the VIX is going to come back down again.
So I sold all of these strategies out, and essentially made a macro call that the market
was going to come down, and that we were going to be just fine.
We all know that that didn't happen.
And I'm not a particularly religious guy, and I found myself going to a Trinity Church
at the bottom of Broadway by Wall Street literally every day, like begging for forgiveness from
someone in terms of what have I done.
And so I actually built up a rapport with a vicar there.
And I'd only sit there for like 10 minutes to try and collect some of my thoughts.
And this is over like a three or four week period.
Did you tell him about the 45 threshold on the VIX?
At which, he would nod very compassionately and go along with whatever nonsense I was
talking about.
And I then would come back and it wouldn't stop.
And then I ended up buying back all of my strategies around about 65 in the VIX.
So what did it teach me?
It taught me that we certainly were better or smarter than the market.
It also taught me that the events that you think that the market is capable of - you
just don't know what the market is capable of - and that's what makes it so exciting,
in my opinion.
Is you really don't understand what the market is capable of doing to you, and that's why
you need to deliver such a humility and a process to make sure that you are around,
and you're an investor for the long-term.