https://www.linkedin.com/in/raoul-pal-real-vision/ (Raoul Pal) is a former hedge fund manager who retired at 36 and is co-founder of Real Vision, a financial media company offering in-depth video interviews and research publications from the world’s best investors. He has run a successful global macro hedge fund, co-managed Goldman Sachs’ hedge fund sales business in equities and equity derivatives in Europe, and helped design the BBC TV program Million Dollar Traders, training participants in investment and risk management strategy. Raoul retired from managing client money and now lives in the Cayman Islands, from where he manages https://www.realvision.com/ (Real Vision) and writes The Global Macro Investor, a highly regarded original research service for hedge funds, family offices, sovereign wealth funds, and other elite investors.

“Have a framework, use your framework. But do test your framework because it does change. Your framework will keep you on the straight and narrow.”

- Raoul Pal

Worst investment ever On top of the global macro hedge fund game Raoul started The Global Macro Investor in 2005. He was managing his own money as well as advising many of the world’s top hedge funds, family offices, sovereign wealth funds, etc.

He had a pretty good first year out of the gate. His business did phenomenally even in the second year. He was at the top of his game.

Around 2007, having understood how the market works, he switched from a long emerging market position to a short emerging market position, a decision that scaled his business to success.

By 2008, he had made a huge reputation for himself because his business was thriving and he’d lived and breathed the Asian financial crisis. Where macro is concerned, Raoul had made it.

Surviving the global financial crisis The global financial crisis hit the global markets in 2007 and 2008. Most hedge funds barely made it out alive but Raoul was one of the hedge-fund investors who survived the crisis during these years.

How did he do it?

Raoul has a framework through which he follows and analyzes global economies. It is the framework that allowed him to nail the whole situation going into the crisis.

Most economists build a linear model of GDP, which Raoul believes is ridiculous. He’s more of an applied market economist. Raoul’s framework involves observing markets in conjunction with economies and looking for opportunities between the two.

The framework worked for him because when you look at the yearly rate of change of oil, gold, copper, the stock market or emerging markets, they’re all the same, they’ll go up and down with the US business cycle.

So he’d use something like the Institute for Supply Management (ISM) supply management survey, a poll of purchasing managers in the US, to give him an idea of whether they are more or less confident in the economy. This helped him sail through the storm.

Overconfident, he ignores his faithful framework Come 2009, things were different. No one was sure whether they were through the worst of it or not. At this point, unlike the other times, Raoul ignored his framework, which was suggesting that the business cycle had probably bottomed out. Not certainly, but probably. In his view, some hurdles could worsen the cycle. He believed that it was going to go lower.

While his framework was telling him that the business cycle would not bring him any return, he believed that there would be probabilistic outcomes and that risk would return to the markets and he’d make some recovery. This never happened.

After a series of four years of the best returns he’d ever had, 2009 became by far the worst year he’d ever had investing, and in advising. The market never recovered that year and so his investment didn’t bring him any of the returns he had calculated.

Eurozone crisis comes knocking Raoul was able to recover from the worst investment of his life, but psychologically it took a few years to regain his...