How Fat Tony Got Rich (and Fat)

Category: mental_model Secondary: ['heuristic'] Difficulty: intermediate Domains: economics, finance, psychology, business

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How Fat Tony Got Rich (and Fat)

Fat Tony got to become (literally) Fat Tony, rich and heavier, in the aftermath of the Kuwait war (the sequence was conventional, that is, first rich, then fat). It was in January 1991, on the day the United States attacked Baghdad to restitute Kuwait, which Iraq had invaded.

Every intelligent person in socioeconomics had his theory, probabilities, scenarios, and all that. Except Fat Tony. He didn’t even know where Iraq was, whether it was a province in Morocco or some emirate with spicy food east of Pakistan—he didn’t know the food, so the place did not exist for him.

All he knew is that suckers exist.

If you asked any intelligent “analyst” or journalist at the time, he would have predicted a rise in the price of oil in the event of war. But that causal link was precisely what Tony could not take for granted. So he bet against it: they are all prepared for a rise in oil from war, so the price must have adjusted to it. War could cause a rise in oil prices, but not scheduled war—since prices adjust to expectations. It has to be “in the price,” as he said.

Indeed, on the news of war, oil collapsed from around $39 a barrel to almost half that value, and Tony turned his investment of three hundred thousand into eighteen million dollars. “There are so few occasions in one’s life, you can’t miss them,” he later told Nero during one of their lunches as he was convincing his non–New Jersey friend to bet on a collapse of the financial system. “Good speculative bets come to you, you don’t get them by just staying focused on the news.”

And note the main Fat Tony statement: “Kuwait and oil are not the same ting [thing].” This will be a platform for our notion of conflation. Tony had greater upside than downside, and for him, that was it.

Indeed many people lost their shirt from the drop of oil—while correctly predicting war. They just thought it was the same ting. But there had been too much hoarding, too much inventory. I remember going around that time into the office of a large fund manager who had a map of Iraq on the wall in a war-room-like setting. Members of the team knew every possible thing about Kuwait, Iraq, Washington, the United Nations. Except for the very simple fact that it had nothing to do with oil—not the same “ting.” All these analyses were nice, but not too connected to anything. Of course the fellow got subsequently shellacked by the drop in oil price, and, from what I heard, went to law school.

Aside from the non-narrative view of things, another lesson. People with too much smoke and complicated tricks and methods in their brains start missing elementary, very elementary things. Persons in the real world can’t afford to miss these things; otherwise they crash the plane. Unlike researchers, they were selected for survival, not complications. So I saw the less is more in action: the more studies, the less obvious elementary but fundamental things become; activity, on the other hand, strips things to their simplest possible model.