“So why are you so excited about China, Steve?” talk-show host Buck Sexton asked me this week on the Stansberry Investor Hour podcast.
It is actually my biggest edge in investing.
But almost nobody does it…
My answer applies not only to China, but to basically every successful investment I have ever made. It is this:
Whenever you find a big gap between perception and reality, you can often make a lot of money.
The American perception of China versus the reality on the ground is as big a gap as I have ever seen in my investing life.
As that gap closes, someone is going to make a lot of money. And I believe it will be my subscribers. (That’s why I launched my True Wealth China Opportunities service… And it’s why I’ve urged my readers to invest in China here in DailyWealth.)
The thing is, most investors don’t invest this way. They might think that they do… but they don’t.
Instead, most investors look for the best horse in the race – based on their investing criteria – and then they bet on it.
Sounds sensible. But there’s a BIG problem with doing things this way…
Investors forget that other investors – using the same criteria – are betting on the same horse. They’re all betting on the odds-on favorite at the Kentucky Derby. If it wins, you don’t make much. If you are wrong, you lose it all.
In investing, you will never dramatically outperform if what you’re doing isn’t dramatically different from your peers. I believe the perception-versus-reality gap is an even more important criterion for success than the value of whatever it is you are betting on.
As horse-betting legend Steven Crist says, “The issue is not which horse in the race is the most likely winner, but which horse or horses are offering odds that exceed their actual chances of victory… Under this mindset, everything but the odds fades from view.”
According to him, all you need to look for is “an attractive discrepancy between his chances [of winning] and his price.”
Legendary hedge-fund manager Michael Steinhardt has a term for this type of thinking. He calls it “variant perception.”
Variant perception, according to Steinhardt, is “holding a well-founded view that was meaningfully different than the market consensus.” It is understanding that market expectations are “at least as important as – and often different from – the fundamental knowledge.”
If you want to dramatically outperform… yet you are using the same analysis tools as everyone else… then you are doing it wrong.
Instead, think of variant perception. Think of horse race betting – look for “an attractive discrepancy” between the chances of winning and the price. And think of my China idea – where the gap between perception and reality is huge.
If you want to outperform, you have to work on ideas that are “meaningfully different than the market consensus.”
All of my own really big investment successes have happened specifically because of this way of thinking.
I urge you to try this way of thinking about your investments too…
Source: Daily Wealth