Investing can be a perilous activity. Navigating the ups and downs of market volatility is challenging to say the least. Investors can learn a lot from the experience of top-performers in other high stakes activities. The stakes don't get any higher than high-altitude mountain climbing.
Ed Viesturs is widely regarded as America's foremost high-altitude mountaineer. Viesturs capped his climbing career by reaching the summits of all fourteen of the world’s 8000-meter peaks without supplemental oxygen.
What can would-be risk managers learn from Ed Viesturs? Here's the mountaineer's 2 Rules of Summiting at the highest level:
via a recent Early Look by Hedgeye CEO Keith McCullough |
In mountaineering, the alternative is literally death.
For investors, the higher your portfolio climbs, the further you have to fall.
Make all of this more tangible by considering what this means for your portfolio. The larger your allocation to a single asset or single position... the higher your gross exposure... the bigger your conviction in some unchanging thesis/narrative ... the more underlying risk you take on in your portfolio (and life).
Many of us haven't climbed a mountain and peered over the edge like Ed Viestur, but the majority of us rode the 2020-2021 record bull market to its peak.
Snake oil salesman and storytellers, disguised as sherpas, took advantage of the Fed-fueled excess and charmed unsuspecting investors up an even higher, infinite-money mountain, by convincing them no cliff existed on their newfound peak.
These unscrupulous actors assured their investors/cult followers that the asset they peddled would serve as a parachute amid a collapsing Dollar/Market Environment/Global Economy (take your pick). Grasping to their drug/coin/stock of choice, many investors have fallen to financial nothingness. What was sold to them as a safe-haven, became a heavy bag propelling them downwards faster than gravity.
But if you're taking to Twitter (or CNBC) to call 'bottom' after every down day, we wish you the best of luck. You'll need it.
To be clear, #Quad4 (i.e. an environment of slower growth and disinflation) isn't going anywhere any time soon. Risks are only rising from here.
"Quad 4 this, Quad 4 that. What the hell are the Hedgeye guys talking about??"
We've been banging the drums on #Quad4 all year, making asset allocation pivots starting in January and continuing every single day since, as we risk manage one of the hardest markets many macro unaware investors have experienced.
Hedgeye CEO Keith McCullough even began signaling the impending Quad Shift back in September 2021.
If you're still in the dark on #Quad4, we're here to help.
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#Quad4 is one quadrant of Hedgeye four quadrant Growth, Inflation, Policy (GIP) Model. In #Quad4, economic growth and inflation decelerate at the same time. It’s also when story-telling, narrative-driven, ‘stock pickers’ with no repeatable investing process get absolutely blown up as risk assets get smoked. Defensive positioning like being long the U.S. Dollar (which Hedgeye has been long since January 3, 2022 and is up +5.55% since) works. High-beta growth stocks and tech, don't (the NASDAQ has crashed -29.5% just this year.) In simple terms, #QUAD4 IS WHEN $H*T BREAKS. |
But risk continues to build in the background
Euribor-OIS (which measures counterparty risk in the Eurozone) is up +22 basis points just this year, a rapid rise as it pushes towards Covid (May 2020) levels.
Counterparty risk rising means financial conditions are worsening, meaning stocks go down as the economy weakens.
And this weakness is not isolated to Europe, by any means.
High Yield OAS (the spread of low credit quality bond yields over U.S. Treasuries) continues to rise, widening +80 basis points in just the last two weeks.
That's been good news for our HYG and JNK shorts, bad news for pie-in-the-sky perma-bulls.
Like Ed Viesturs climbing Mount Everest his seventh time, it pays to have an experienced Sherpa leading the way and helping you avoid the pitfalls of a high-stakes climb.
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