Is Sophistication wearing Brunello Cucinelli sweaters while drinking sparkling water… Well, yes… but that’s not all.

In a Bloomberg interview, Bill Gates speaks on Elon Musk making more money from his 2021 bitcoin investment than Tesla’s profits in 2020. His response was that Elon has:

“Tons of money and very sophisticated” and that he doesn’t worry about whether Elon’s bitcoin will go up or down.

So… why isn’t he worried and what does “sophistication” actually refer to?

It’s not just projecting forward market value though DCF and estimating business cycles. Bill is saying that Elon understands two things:

1. Group psychology
2. Mimetic Desire

Industry players have access to debt instruments and capital allocation to that takes advantage of the fallibility of retail. Or as Bill puts it:

“If you have less money than Elon you should watch out”

Playing the game means dropping red herrings to manipulate markets. There’s often extreme dissonance between the seemingly banal actions of these agents and what they actually want. It goes beyond algoristmic capital flows.

George Soros exhibited the same sophistication when he devalued the pound sterling. His understanding of reflexivity made it so he was able to leverage his institutional position in the market.

Soros wasn’t making a bet against the banks, but human fallibility — it was on reflexivity, and mimetic desires. This was THE SAME sophistication Bill alluded to for Elon.

Elon and Soros have a holistic understanding of group psychology, business, and their position at the poker table. David Einhorn outlined this in Chapter 21 of Fooling Some of the People All of the Time. He talks about event-driven investors placing a bet then altering the future. The hedge fund game. It’s nonlinear complexity being used to this end.

Once you know the game that you’re playing, you can push beyond the boundaries and color outside of the lines.

All this is to say that there’s a reason analysts Elon or Soros get paid differently. Even expensive-looking prices for companies can be justified if there are qualitative aspects of the market you can manipulate.

There’s more to sophisticated analysis than a company’s IRR, cap tables, and unfortunately… wearing Brunello Cucinelli. Sign up for our newsletter today!