A Forecast Is Not a Position

A forecast is cheap. You can hold a hundred of them at once, keep the ones that came true, quietly drop the ones that did not, and never feel the difference. There is no carry on an opinion. Being wrong about where rates go, in your head, costs nothing and leaves no record unless you choose to keep one.

A position is the opposite. It has a size, it has a price, and it charges you when you are wrong. The moment you put something behind the view, the question changes. It is no longer “what do I think will happen” but “how much am I willing to lose to find out, and over what horizon.” A forecast answers the first question. Only a position answers the second, because only a position is exposed to the answer.

This is why a confident forecast and a small position are not a contradiction. They are answers to different questions. You can believe something is likely and still size it for the case where you are wrong, because conviction does not pay your losses and the market does not care how sure you were. The forecast is the easy part. Everyone has one. The position is where you actually decide what you believe, in the only units that bill you for it.

So when someone tells me their call, I have learned to ask the cheap-versus-costly question: is this a forecast or a position. If there is nothing at stake, it is an opinion, and opinions are free. The size is the part that tells you what was real.

[McKinley: insert the specific call where the forecast and the position diverged.]