Are there are some quick ground rules that we can follow to track market excesses?

There are some excesses you catch and some you mess up. But the key lies in making up. In 1998, David Tepper lost a whopping $80 million in Russian debt. But that was made up in 1999 by buying out Russian debt after the crisis at almost a throwaway price of 5 cents to a dollar. Missing one market excess is ok; but missing two is atrocious. You have to bounce back.

In the words of Jim Chanos, catchy phrases like “Too big to fail” or “This time it is different” are pure shibboleths which detract from your ability to identify and profit from market excesses. At the end of the day, nothing is too big to fail and history always repeats itself. We have seen that in the case of Bear Sterns, Lehman Brothers and AIG. You have to combine guts and incisiveness to identify market excess. Of course, you can also pray for some divine intervention.