In this world, most people play one of two roles: 

• Realists:  pride themselves on seeing the world as it is, and having the stomach to accept it, even if it comes with dose of cynicism and a chaser of hard liquor

• Idealists: live in the world of ‘should’ and feel pain of moral outrage/indignation when the real world disappoints

A million pub arguments and a billion heated social media exchanges pit the realist versus the idealist. 

The realist sees the idealist as lost in the clouds, unable or unwilling to accept how things are.  The realist may be a little cynical, but better that than self-deluded.

To the idealist, the realist has given up hope – their world weariness is tantamount to surrender.  Moral indignation at least means that one has a conscience that can be inflamed.

Common ground between the realist and idealist is hard to find.  The difficulties are not only experienced in the pub - a million failed IT projects cannot reconcile ‘as is’ and ‘to be’.  Too many times, we look in the middle for a way forward, but the road to hell is paved with compromises.

Don’t Meet Halfway

Realists can become cynical and dismiss the possibility of change.  Idealists can fall into the trap of becoming ‘holier than thou’ and lack practical execution.

If you expect this article to suggest a meeting in the middle, you would be wrong. If we try to balance the two, we don’t get the best of both, we get the weakest of each. 

• Realism tinged with a hint of idealism means low expectations, settling for compromises, playing small.

• Idealism tinged with a hint of realism can become delusional optimism with no clear path forward. A fantasy destined to collapse.

This is why organizations, institutions, and people find themselves in the dead middle, a space of endless inertia, incrementalism, and self-doubt. The weak compromises that we make between realism and idealism end up in the endless hell of “should.” Things should be better, but they aren’t. Things should change, but they don’t.

To see the alternative, we need to distinguish between two types of trader.

Conviction versus Momentum

There are two types of traders in the world:

• Momentum: look to what others are doing and follow the crowd

• Conviction: chart their own path and put their money where their mind is

Conviction traders do not wait for the world to validate their vision. They move first, act decisively, and force reality to bend to their will. Their method is what we might call Normative Realism – see the world as it is and bend it towards their ideals.

 Normative Realists are more realistic than anyone else because they see the world with absolute clarity, without illusions, wishful thinking, or delusion.

At the same time, they are more idealistic than anyone else because they refuse to accept that what is, is the same as what must be or what can be.

Conviction traders are hyper-realists and hyper-idealists - operating at the outer edges where real change happens. They do not ask for permission. The trend is not their friend.

That is not to say that they are more successful than momentum traders on average. They have more spectacular successes and more spectacular failures. All we can say with certainty is that they are more entertaining than momentum traders, and much better company at dinner parties.

The 2016 Trump Trade

During the US presidential election 2016 I saw Hillary Clinton fall over when getting into a limousine. In that instant I knew with certainty that the American electorate would not choose her as Commander-in-Chief.

I am not a gambler by nature, but sometimes I bet on the outcome of boxing matches. Often, I bet on the fighter that I don’t want to win – that way I either get the result that I want, or the cold comfort of money.

I downloaded a betting app and made the biggest bet available: 1000 pounds on Donald Trump to win. After the election result, I collected the winnings – the in no way symbolic or portentous amount of 666 pounds. 

This would be a lesson in realism were it not for what I did next. I took then stake and winnings and donated them to a cause that I was sure the new President would approve of: the St. Martins in the Field homeless charity appeal in London.

This is Normative Realism – accepting the world for what it is then applying a judo move to make it better, however small the inflection.

The 2024 Trump Trade

The 2024 US election brought another wave of clarity and conviction. I realised that the 20^th Century rules-based order that I had grown up in was over and we were back in the 19^th Century, a beggar-thy-neighbour world of might is right.

On a more parochial career level, I realised that the thesis I had been working on was dead. My attempt to promote the adoption of private-permissionless ledgers in traditional financial services was over because going forward, banks would be able to use public-permissionless blockchains. The route forward was perfectly clear.

 I further realised that stablecoins would become the dominant form of digital money on the planet in a few short years if the market structure could be fixed. A form of payment that I had strenuously resisted would become inevitable, were I to switch sides.

These convictions were a test of objectivity and realism – how fast could I updated my theses in the face of a reality that I might not like? Quickly, as it turned out.

Conviction led me to resign from a 30-year career in traditional finance, give up my bonus, and make a significant bet on the future being radically different from the past.

Moral Judo

Where does the idealism come in? Kurt Lewin said, “there is nothing so practical as a good theory.” One can face stark reality with despair, or with high concept. I choose the latter. 

If my trade is successful, temporal power and resources may appear that enable good to be done in the world. In my worldview, money is merely a technology to stimulate others to action. It can be charged with good intentions as well as bad. I have no desire to hoard resources, but to put them to good use.

Alternatively, my trade could fail in several ways, but there are two sources of comfort in literature:

• Zorba the Greek – at the end of the book, Zorba’s money-making scheme to transfer wood from the interior to the sea fails spectacularly. He dances.

• The Imitation of Christ – a phrase to live by is given to us by the Christian mystic Thomas a Kempis, ‘Man proposes, God disposes.’ Let us not take the plans of mice and men too seriously.

To the Normative Realist, either outcome is okay – success and failure are both imposters. The streak of hyper-idealism makes us live in a world of platonic forms where perfection rules. Our hyper-realism allows us to accept that we are computationally bounded, unable to anticipate every possible outcome and subject to universal entropy – everything falls apart.

Your Choice

In life, you can be a successful momentum trader - passively following trends, waiting for permission, adjusting to the whims of others. Passive investing beats active investing on average, so feel free to live your life like an index fund.

Or you can be a conviction trader - seeing clearly, acting boldly, and betting on the future before the rest of the world realizes where it’s heading. The outcomes are wilder on both sides of the distribution.

The one thing that you should not do under any circumstances is short sell humanity. If you see self-interest in continued chaos and disorder, you are lost. If you sow fear and discord to generate eyeballs and advertising, you are empty. If you peddle hatred of the other to gain power for yourself, I pity your nihilism. If you play 19^th Century games, you will win 19^th Century prizes – you can take that to the bank of Karma.

You can be a realist, an idealist, or seek a compromise in the middle. But there is another way.

Normative Realism is hyper-realism and hyper-idealism playing in your head at the same time. A rock band can have a drum solo and guitar solo in the same kicking tune. This is where power resides. Not in the middle, not in moderation, but at the extreme edges of clarity and vision. I want Foo Fighters, not lift muzak.

If we bend the knee now, we never get up. If we stand, we must go somewhere. Stay real and stay ideal. We can do both.