John Burbank, CIO of Passport Capital, joins Michael Green of Thiel Macro to discuss how he utterly changed his thesis on the global markets. Burbank sold every position he had and did an about-face with his fund’s strategy in 2012. Shifting from investing in commodities to investing in human capital at the perfect time was a bold call for Burbank to make, but the move has paid off handsomely. This video is excerpted from a piece published on Real Vision on June 1, 2018 entitled “John Burbank’s Bullish Views on Crypto, Saudi Arabia, and Tech.”
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Betting Big On A Secular Shift (w/John Burbank)
For the full transcript: https://rvtv.io/2VA05vj
It wasn't easy. I didn't actually have an answer for what should I be doing. But
a couple months later, I came up with a, not that I knew it was right, but was like I think the
structure of technology being surrounded by it here and investing in some of it at that point, I
thought the structure of technology, which does not mean revert, it's like a very fast changing
thing with a lot of non-linear outcomes, I thought the structure of technology was favoring the
highest quality, human capital, which is essentially the opposite of commodity.
In 2011, after being invested over 10 years in, 10 years in energy and eight years in mining.
Gold, I've been invested for nine years. I had this weird experience where the three commodities I
was long all went up, but the equities associated with those commodities, all were down. Like gold
was up 17% in 2011, and the gold equities were down 17%. Just don't make any sense.
And the top I remember, was I think Osama bin Laden was killed, I believe. And I also remember
reading a Wine Spectator, I think the top in Bordeaux prices was April of 2011. But what
happened was, there was a top in sort of things associated with growth. And I guess you could
say there was a risk that was removed.
But the spot commodity actually acted quite differently from the equities. And equities were
discounting the future or perceptions of the future, it was almost like Chinese were sellers in 2011
or something, but the market didn't know. And anyway, but after 10 years and evaluating postcrisis what the macro situation was and how much growth could we really get out of the world,
Europe was a challenge.
I just came to the conclusion, we weren't going to get enough growth in the world. Not enough to
support it. And actually, I should trust the equities and not the commodities that I was long. If
you're long in on commodity equity, you're really long with commodity equity, you know? You
think you're long with commodity, but you're really long the pricing and liquidity in the equities.