I (Matt) feel very fortunate that I have been able to work at some of the best hedge funds in the world. After reflecting back on my experience, I wanted to share some observations.

Matt’s 10 Market Observations from the Hedge Fund World:

1. Predicting the future is very difficult. Humility and objectivity are vitally important.
2. Negative/bearish arguments tend to sound smarter and more convincing than positive/bullish arguments. This must be kept in mind when reading headlines that sound scary.
3. The best investment results are achieved when action plans are established ahead of time with predetermined steps for several potential future outcomes.
4. Diversification is essential for survival because even the best investors are wrong very frequently.
5. Every stock price can be broken down into two basic components: (1) an estimate for how much money the company will make in the future and (2) a multiple of those future earnings that investors are willing to pay today. For example, AAPL’s current stock price of roughly $250 is a function of the market’s expectation for earnings per share in 2026 ($8.20 per Yahoo Finance) and a multiple of those earnings (30x)… $8.20 EPS times 30x P/E = $246 stock price. Any movement in a stock is driven by one or both of these components.
6. Owning a diverse basket of stocks works over time because your maximum potential downside with any single stock is 100% (i.e. the value of your investment goes to zero) while the upside potential is infinite (i.e. NVDA is up 350,000% since 1999).
7. Human nature is often our biggest enemy when it comes to investing. Loss aversion, overconfidence, recency bias, and herd mentality must be acknowledged for what they are (enemies of investing success) and are best replaced with objective assessment of factual information.
8. Good companies run by good management teams continue to find ways to create more value for shareholders. The importance of this dynamic for long-term returns is hard to overstate.
9. Compounding is truly an incredibly powerful force but patience is essential for it to work.
10. Given how often things play out differently than we expected, we must forgive ourselves for mistakes that we make because everything is obvious in hindsight. As an old mentor of mine likes to say, “Hindsight Capital never misses a trade.”