The Philosophical Investor: Mercor's Framework for Navigating Uncertainty

At Mercor Capital, our investment process is deeply informed by a few key philosophical frameworks that help us navigate the complex and often counterintuitive world of global markets.

Fallibilism: The Art of Being Wrong

"I know that I am intelligent, because I know that I know nothing." - Socrates

Fallibilism, in essence, is the recognition that our beliefs, no matter how well-researched or strongly held, could be mistaken. It's the understanding that what seems true today may need to be discarded tomorrow in light of new evidence. As the famous investor Ray Dalio puts it in his book Principles, "The ability to deal well with not knowing is more important than anything you could possibly know."

In practice, this means we must be willing to ruthlessly abandon investment theses when the facts change. We cannot afford to become emotionally attached to our ideas, no matter how much time and effort we've put into developing them. The market doesn't care about our egos or our desire to be right - it only cares about what is true.

A classic example is the story of Julian Robertson, the legendary macro investor behind Tiger Management. In the late 1990s, Robertson was convinced that the dot-com boom represented a massive bubble. He positioned his fund accordingly, shorting high-flying internet stocks. For a time, this trade moved sharply against him as prices continued to soar. Lesser investors might have doubled down out of stubbornness. But Robertson, demonstrating true fallibilist thinking, recognized that his thesis, though logically sound, was not being validated by the market's actual behavior. He closed out his shorts, even as it meant enduring a 19% drawdown, and refocused his energies elsewhere. That humility and adaptability allowed him to fight another day and cement his legacy as one of the all-time greats.

At Mercor, fallibilism keeps us intellectually honest. We don't just pay lip service to the idea of being wrong - we actively seek out evidence that contradicts our views. We continuously stress-test our assumptions, knowing that overconfidence is the enemy of good investing. By staying open to new information and alternative perspectives, we give ourselves the best chance of aligning our strategies with the ever-shifting contours of the market.

Perspectivism: Through a Prism, Smartly

"There are no facts, only interpretations." - Friedrich Nietzsche

Closely related to fallibilism is the notion of perspectivism - the idea that there are multiple valid ways of interpreting the same reality. Just as a prism refracts a single beam of light into a rainbow of colors, the lens of our unique experiences, knowledge, and biases can cause different people to draw very different conclusions from the same set of facts.

We see this all the time in macro investing. Take the perennial bull/bear debate over China's economic prospects. One analyst, focusing on the country's rising debt levels and demographic headwinds, foresees an inevitable "Minsky Moment" and painful deleveraging. Another, looking at its high savings rate and productivity gains from urbanization, expects China to power global growth for decades to come. Neither view is necessarily wrong - they're simply emphasizing different pieces of a complex puzzle.

As George Soros, the dean of global macro, writes in his book The Alchemy of Finance, "Statements that purport to be true are reflexive and can be self-validating. Reflexive statements have an effect on reality and can change reality." In other words, because markets are driven by human beliefs and behaviors, those beliefs - even if initially unfounded - can become self-fulfilling prophecies as people act on them and reshape the fundamentals.

At Mercor, we don't arrogantly assume we have a monopoly on truth. Instead, we seek to understand and weigh different viewpoints, carefully evaluating the logic and evidence behind them. This perspectivism leads us to think in terms of probabilities and develop multiple scenarios for how the future could unfold.

For example, when analyzing the potential outcomes of a major election, we wouldn't just consider which candidate we think is most likely to win. We would map out the implications of each candidate's victory, assigning probabilities to various policy paths they might pursue and modeling how those choices would ripple through the economy and markets. By gaming out these alternate realities in advance, we prepare ourselves to act swiftly and decisively as events actually play out.

Stoicism: Focus on What You Can Control

"You have power over your mind - not outside events. Realize this, and you will find strength." - Marcus Aurelius

Finally, the ancient philosophy of stoicism teaches us to focus our energies only on what we can control, accepting that much of life is uncertain and unpredictable. As the Serenity Prayer of Reinhold Niebuhr goes, "Grant me the serenity to accept the things I cannot change, the courage to change the things I can, and the wisdom to know the difference."

In investing, we cannot control the vagaries of the market or the actions of other participants. Exogenous shocks like natural disasters, political upheavals, and sudden shifts in sentiment are simply part of the game. What we can control is our own behavior - our ability to prepare for various contingencies, to stick to our strategies in the face of adversity, and to act decisively when opportunities arise.

Paul Tudor Jones, the billionaire macro trader, exemplifies this stoic mindset. In the documentary Trader, he outlines his mental approach: "Where you want to be is always in control, never wishing, always trading, and always, first and foremost, protecting your butt." For Jones, the keys to long-term success are stringent risk management, emotional discipline, and the willingness to adapt to changing market conditions - all factors entirely within his own power.

At Mercor, stoicism keeps us level-headed and even-keeled, regardless of market turbulence. We don't waste energy worrying about the uncontrollable or bemoaning our losses. Instead, we channel that energy into refining our process, sharpening our edge, and capitalizing on the opportunities that volatility inevitably creates.

Putting Ego Aside

"The Ego is the Enemy." - Ryan Holiday

One common thread running through these philosophical frameworks - fallibilism, perspectivism, stoicism - is the subjugation of ego. To truly embrace the idea that we could be wrong, that there are multiple valid perspectives, and that much of the world is beyond our control, we must put aside our innate human desire to be right.

Ego is the enemy of good investing. It blinds us to our own mistakes, makes us overconfident in our abilities, and keeps us from learning and adapting. As the Nobel laureate Daniel Kahneman showed in his book Thinking, Fast and Slow, we are all prone to cognitive biases that distort our perceptions and lead us astray. The only defense is a relentless commitment to self-awareness and intellectual honesty.

At Mercor, we strive to create a culture of humility and open-mindedness. We encourage our traders and quants to question their assumptions, seek out dissenting views, and own their errors. We don't just accept that we'll be wrong sometimes - we embrace it as an opportunity to learn and improve.

This is why we place such a strong emphasis on continuous improvement. We know that our edge comes not from some innate genius or secret formula, but from our ability to consistently refine our process, incorporate new insights, and adapt to changing conditions. We're not trying to be the smartest guys in the room - we're trying to be the most disciplined, the most rational, the most attuned to reality.

As Soros writes, "To others, being wrong is a source of shame; to me, recognizing my mistakes is a source of pride. Once we realize that imperfect understanding is the human condition, there is no shame in being wrong, only in failing to correct our mistakes."