I recently read a book on daily fantasy sports. You know, DraftKings. The goal is to make the best lineup you can for a group of games or event. That kind of stuff.
One of the main takeaways was the biggest opportunities lie where there is a difference between the perception and reality of the upcoming game.
That is absolutely the case in trading and investing as well.
Over the past couple of months the perception-to-reality spread has substantially widened.
Since the U.S. Election, a group of large consensus views has built around Trump and a D.C. run by Republicans.
You know the drill: higher rates, less fiscal stimulus, lower taxes, increased infrastructure spending, less regulation boosts small businesses, the healthcare system gets a huge makeover, old energy is good, new energy is bad etc.
Talented investors will make a killing using second level thinking around these consensus opinions as the perception-to-reality spread is arbitraged away.
It’s amazing how the perception of Green Energy got so negative once Trump was elected. The morning after the election, TAN gapped down 10%. At that point TAN was down 65% in 20 months.
That low was never violated. Although the perception is negative, we have some things working in Green Energy’s favor.
Today China’s President Xi Jinping is at Davos touting green energy investment.
Xi said China’s green development investments were already “paying off” and urged other countries to support international cooperation to solve the world’s most urgent challenges.
“We should join hands and rise to the challenge,” he said. “Let us boost confidence, take actions and work together for a bright future.”
Also, the cost of solar keeps falling: Solar is now cheaper than wind
De-regulation may actually help the green energy transition more than a potential negative Trump policy would hurt it.
“What Trump is trying to achieve is to show business in a lot of this country they aren’t going to be ruined by absurd regulation by bureaucrats” – Carl Icahn
Of course there are negatives, but at this point how aren’t the negatives priced in?
Trade ’em well!