Martin Stephen Hawley - Messengers: Who We Listen To, Who We Dont and Why

O N THE SURFACE SHE POSSESSED many of the characteristics of an effective messenger. The daughter of Priam, King of Troy, and his second wife Queen Hecuba, Cassandra had status. She was beautiful, too: tall and elegant, with dark-brown curly locks of hair that coursed gracefully over her slender shoulders. Her eyes, similarly russet in colour, captured others attention with such a piercing force that they would often be overcome with wonder. But perhaps her most impressive feature was one most people only dream of possessing: the gift of prophecy.

It was said that Cassandras ability to interpret and communicate the will of the gods was a gift from Apollo, as part of his attempt to seduce her. She predicted soldiers hiding inside a huge wooden horse left outside the gates of Troy. She foretold King Agamemnons demise. She prophesied that her cousin, Aeneas, would establish a new nation in Rome. She even foresaw her own death. But Apollos gift to Cassandra was a cursed one that caused her much anguish and, ultimately, led to insanity and death. For although she agreed to pledge herself to Apollo in exchange for this precious gift, Cassandra then rebuffed his advances, so she was punished in the most merciless way. Forcing his lips upon hers, the god spat into her mouth and

Cassandra may be a mythical character, but she represents a fascinating paradox. She possessed knowledge and shared it with people who stood to benefit from listening to what she had to say, yet no one paid her any attention or believed her. It is a paradox that we encounter every day. There are plenty of people around who make accurate predictions, whose proposals are carefully based on the evidence available or whose points of view are eminently sensible, but who have the misfortune to go unheeded even to be mocked. They suffer from what has become known as The Curse of Cassandra.

In the late 1990s the US stock exchanges were a positively bullish place to be, with financiers shovelling seemingly bottomless pits of cash into dot-coms. It seemed everyone on Wall Street had bought into the idea that riches beyond compare were waiting to be made. Everyone, that is, except for one investor the highest-profile investor. Warren Buffett, the then sprightly sixty-nine-year-old founder and chairman of investment behemoth Berkshire Hathaway, was unyielding in his disdain for what he described as the irrational exuberance of the market. After a heady experience of that kind, normally sensible people drift into behavior akin to that of Cinderella at the ball Overstaying the festivities, he remarked, will eventually bring on pumpkins and mice.

Many chastised Buffett for his gloomy commentary and his ominous warnings of a bubble about to burst. The champions of dot-com companies claimed that Berkshire Hathaways chairman, a well-known technophobe, would miss out on the oceans of profit that stood to be made. For a while the markets agreed. In the late 1990s the companys shares fell. But Buffett remained steadfast, adding a mid-sized energy supplier and a furniture rental business to his companys portfolio, further reinforcing the markets perception that he was a Luddite. Drawing parallels between his pessimistic prophecies and those of Cassandra, investors dubbed Buffett the Wall Street Cassandra.

Of course the markets did eventually pop, with the previously dismissive investors and not Buffett suffering the reputational damage. Their Wall Street Cassandra sneer proved unwise. In the long term it also turned out to be inaccurate. Ultimately, Buffett was publicly vindicated and his credibility soared to a level that has remained largely untouched ever since. He ceased to carry the curse of the Wall Street prophet who goes unheeded in their own lifetime.

That dubious distinction belongs elsewhere to a true victim of the Cassandra Complex whose name almost no one would have heard of, had it not been for the investigative skills of the savvy journalist Michael Lewis.

The real Wall Street Cassandra was a man named Michael Burry, who was born in New York in 1971. He studied medicine at the University of California, Los Angeles, before earning his MD in Nashville, Tennessee. While working as a resident at Stanford he found time to start his own hedge fund and quickly developed an aptitude as a shrewd and successful investor. In 2001, shortly after the dot-com bubble burst, the S&P 500 fell almost 12 percent. That year Burrys investments were up more than 50 percent. Beginners luck maybe? Yet the following year when the S&P fell by 22 percent, Burry returned more than 15 percent. And even when the stock market began to register a positive turn, in 2003, Burry beat the market hands-down. By 50 percent to 28 percent.

During the mid-2000s Burry shifted his investment focus. He started taking positions against subprime mortgage bonds, at a time when there was no formal way to bet against them (he had to invent his own method). Burrys genius lay in spotting the under-recognised, perilous fault lines underpinning the subprime mortgage market. And shorting them. The message he seemed to be sending to the market was one of an impending apocalypse. It was a message that seemed credible and evidence-based, and it was made with conviction. Burry had skin in the game. He was putting his own money on the line.