The Truth Always Shows Up Early

I was the first person in line for the iPhone. Period. Nobody was in front of me.

In June 2007, most of Wall Street thought the Apple iPhone would be a flop. One analyst forecasted that the company would ship maybe a million units that year.

Back then, I worked for SAC Capital – one of the largest hedge funds in the world at the time. And I was pushing Apple relentlessly...

"Do you have any other ideas?" they'd ask.

"No," I said. "Apple is my only idea."

I walked into a meeting and said Apple wouldn't sell 1 million iPhones, but 1 billion. I was laughed out of the room.

But I had stood in that line. I had watched a hundred people queue up behind me. And I had seen their faces when they held a smartphone for the first time.

This device was going to consume everything in its path.

And I knew it well before Wall Street – because I understood a truth about investing that even big institutions often miss...

Recognize Advancements Before Wall Street Does

Three years earlier, I predicted the iPhone's existence while testifying before Congress...

I knew there'd be a convergence – that cameras, music players, phones, and computers would collapse into a single device.

It wasn't a prophecy. It was observation.

I had felt the friction of five devices in my pockets. I knew someone would solve it. The numbers came later – the signal came first.

And this principle has driven every great trade of my career...

Truth reveals itself in behavior, long before it's seen in reports.

Almost every investor waits for the financial results. But that's almost always too late. It comes down to the natural sequence of events...

1. Something shifts in the real world.
2. People behave differently.
3. Observable signals appear.
4. Institutions notice much later.
5. Financial results confirm what was already visible.
6. Markets adjust.

You don't have to wait for Wall Street to confirm what you see on your own.

The Advantage of Observable Signals

I learned this firsthand at SAC Capital...

Before the iPhone, I was tracking gaming consoles in 2006. Sony had just sold 100 million PlayStation 2 consoles... So it priced PlayStation 3 developer kits at $15,000.

A dev kit is a type of gaming console that developers use to create and test their own video games. More dev kits mean more games on the way... And more games mean more console sales.

But while Sony was charging developers a premium, Nintendo priced its Wii dev kits at a fraction of that total after its GameCube console flopped.

We monitored every online message board, tracking developer interest. The signal was unmistakable: Developers were flooding to the Wii.

By the time Wall Street figured out Sony was in trouble, we had already positioned ourselves.

The developer kits told us the truth months before the earnings reports did.

It was the same as the iPhone in 2007. And I used this principle again in 2020...

Before the world had fully shut down from COVID-19, analysts were still debating whether home fitness was a fad. So I bought a Peloton – not to trade it, but to ride it.

With each delivery, Peloton sends someone to set up your new equipment. Before the installer left, I asked him, "What's your day like?"

He told me, "I'm installing all day for weeks."

One sentence told me more than any earnings model could. I bought the stock at $19 and held on as it soared to more than $130 per share.

The signal changed each time – from game-developer web posts, to a line outside the Apple store, to an installer's calendar. But the principle stayed the same.

The Market's Blind Spot Is Creating New Opportunities

So why doesn't everyone use behavioral signals?

First, institutions are built around reporting, not observation.

They need documentation, process, and committees. They can't act on someone's impression from standing in line for a product release. And by the time their spreadsheets are ready, the trade is over.

Second, interpreting behavior requires knowledge.

Signals only matter when you understand the world they come from. That's why investing legend Warren Buffett always advised, "Invest in what you know." And it's why institutions don't often stray outside their comfort zone.

Third, deep observation doesn't scale.

A portfolio manager keeping track of 40 stocks can't afford to watch Reddit boards for hours. This approach works best for independent thinkers – not industrial analysts.

For all these reasons, you can use behavioral analysis to your advantage. It's a paradox of today's investing world...

Thanks to the Internet, behavior leaves more breadcrumbs than ever. The volume of observable information is exploding... But people are still overlooking it.

The information edge no longer comes from access. It comes from attention. And the gap between what's visible and what's actually analyzed will create a new generation of investment opportunities.

The signals are public. The interpretation is the craft... And the opportunity belongs to anyone willing to look closely enough.

Good investing,

Josh Baylin