Run Into Fires
Prepare defensively, then deploy into technically driven market dislocations
- Difficulty
- Advanced
- Time to result
- ~months to results
- Steps
- 5
- Confidence
- 96%
Run Into Fires is a crisis-investing framework built on preparation rather than impulsive contrarianism. Before volatility appears, the investor maintains enough defense, liquidity, and historical awareness to avoid becoming a forced seller. During a shock, the investor separates technical pressure—such as deleveraging, indiscriminate selling, or temporary liquidity stress—from permanent impairment. Opportunities are then sized and added deliberately while portfolio-level protections remain intact. The mechanism exploits a recurring behavioral pattern: most investors are wired to avoid pain precisely when dislocations can offer exceptional prospective returns and improved access to managers. Experience with earlier crises helps the investor recognize familiar structures without assuming every crisis will resolve identically.
Origin
Paul Zummo described this lesson after observing hedge-fund opportunities across the 1998, 2008, and 2020 crises on Masters in Business.
Core principles
- 01Human loss aversion creates poor crisis decisions
- 02Dislocations can improve both prices and manager access
- 03Defense before a crisis creates offensive capacity during it
- 04Historical crises rhyme even when their catalysts differ
- 05Technical selling can separate price from fundamental value
How to run it
- 1
Prepare Before the Shock
Maintain liquidity, diversification, and risk limits during normal markets. Build a watchlist of assets and managers that would become attractive at better terms.
Pro tip Define deployment ranges before fear affects judgment.
Watch out An investor already overextended cannot act offensively during a crisis.
- 2
Diagnose the Fire
Determine whether falling prices reflect technical selling, temporary uncertainty, or lasting economic impairment. Identify who is forced to transact and why.
Pro tip Look for a mismatch between price movement and changes in fundamental value.
Watch out Not every collapse is a temporary dislocation.
- 3
Compare Historical Rhymes
Use previous crises to recognize patterns in liquidity, positioning, policy response, and recovery. Preserve room for differences in the current event.
Pro tip Compare mechanisms rather than surface-level headlines.
Watch out Treating history as an exact template can create false confidence.
- 4
Deploy Deliberately
Lean into the strongest opportunities through staged, appropriately sized commitments. Preserve enough capital to act if conditions worsen.
Pro tip Prioritize technical dislocations with identifiable catalysts for normalization.
Watch out Deploying everything at the first decline converts opportunity into timing risk.
- 5
Reassess Through Recovery
Track whether liquidity, fundamentals, and positioning are normalizing as expected. Exit or reduce positions when the original dislocation closes or the thesis breaks.
Pro tip Separate the crisis-entry thesis from a permanent holding decision.
Watch out A successful rebound can encourage investors to overstay the opportunity.
In the wild
A diversified fund enters a volatility spike with cash and a prepared watchlist. It finds a fundamentally sound security being sold by leveraged holders for liquidity reasons rather than because its business deteriorated. The fund buys in stages, preserves additional reserves, and exits part of the position as the liquidity discount closes.
→ Prepared defense enables an outsized return from a temporary technical dislocation.
Common mistakes
Being Contrarian by Default
Buying solely because prices have fallen ignores the difference between temporary pressure and permanent loss.
Arriving Without Liquidity
Investors cannot exploit a crisis if prior positioning forces them to defend or sell.
Ignoring Position Size
Even an attractive dislocation can worsen before normalizing, so premature concentration can be fatal.
Is it for you?
Best for
It is best for experienced investors with liquidity, predefined risk limits, and the ability to distinguish temporary dislocation from fundamental damage.
Not ideal for
It is unsuitable for investors who lack loss capacity, dependable liquidity, or the expertise to evaluate distressed situations.
From the transcript
“Don't be afraid to run into fires.”
“Some of the greatest investment opportunities and manager access are sourced during this location.”
“if you're playing appropriate defense, like you should afford yourself the opportunity to really lean into where you think there is dislocation, especially a technical…”
From the episode
How to Think About Alternatives with JPMorgan's Alternative Asset Management CIO Paul Zummo
Paul Zummo