Tourist vs Local Markets

A mental model comparing different types of market participants and their behavior during market cycles, focusing on the difference between those who understand cycles versus those who don't.

Core Framework Categories

• Tourist

  • Panic when seasons/cycles change
  • Leave/exit when things get difficult
  • Don't understand market cycles
  • Make emotional decisions
  • Lack historical context

• Local

  • Understand there are natural seasons/cycles
  • Stay through difficult periods
  • Aware of the environment
  • Make calculated decisions based on experience
  • Can "stick it out" through downturns

• Stubborn Local (Warning Category)

  • Refuses to acknowledge real fundamental changes
  • Stays too long despite clear warning signs
  • Like "the guy that lives in coastal village saying global warming isn't real as he drowns"
  • Fails to adapt when actual structural changes occur

Key Application Principles

• For Startups

  • Hard to know if you're being appropriately persistent or stubbornly wrong
  • Must distinguish between being "right kind of stubborn" versus "banging head against wall"
  • Example: Pinterest had no traction for over a year before success
  • Need to balance between determination and data-driven feedback

• For Investing

  • Ask yourself if fundamental beliefs about investment have changed
  • Evaluate if new information requires updating thinking
  • Consider if holding position just to avoid being wrong
  • Example: Crypto market changes required reassessing previous assumptions

Framework Application Process

• Evaluate your position

  • Are you reacting emotionally or rationally?
  • Do you understand the cycles in your market?
  • Are you ignoring fundamental changes?

• Make adjustments

  • Adapt to real changes while maintaining core principles
  • Don't abandon strategy just because of temporary setbacks
  • Be willing to admit when you're wrong

• Stay balanced

  • Avoid both tourist panic and stubborn local denial
  • Maintain perspective while being open to new information
  • Make decisions based on fundamentals, not emotions