“The order to abandon ship was given at 5PM.”
-Alfred Lansing
In every book I read, I underline its 1st sentence. Why? I’m big on deliberate study, process, and routine. But I also find it interesting to note what the author wants to say first.
It’s no different than why I write down every market price and Risk Range™ Signal every morning of every market day. The only things that matters to me are the particulars. WHEN something changes, I change my positioning.
The particular order to abandon Endurance came from Irish Explorer, Sir Earnest Shackelton. “For most of the men, no order was needed… because everyone knew the ship was done. They accepted their defeat almost apathetically. They were simply too tired to care.”
Back to the Global Macro Grind…
In markets (especially if you have a boss), you have to care about losses. While a poorly positioned Bull or Bear can get “tired” of losing money, there’s a point (generally called a stop loss) where they must accept defeat.
Since I have as many publicly published #timestamps as anyone on Wall Street, you can see how many times I have been defeated. If someone has more timestamped mistakes than I do, please send me the link to their performance.
And I don’t mean their portfolio’s performance. I mean right down-to-the-screws performance of every single ticker they’ve ever traded. I have somewhere close to 8,000 of those going back to when I started Hedgeye in 2008.
So when do you get out of a position?
A) When you get stopped out?
B) When your process tells you to get out?
C) When you’ve made so much money that you just decide to get out?
For me, the answer is rarely C).
It’s always B) … and if I really screw something up, it’s A).
Getting “stopped out” means you’re losing so much money that you have to stop it. Abandon ship! I used to run with a -12% stop loss rule. Now I use 6%, but that’s AFTER I’ve gone to my MAX position.
In my Macro Long/Short Book, some of my MIN and MAX Short positions, by Asset Class, are:
A) Commodities: MIN 1%, MAX 4%
B) Equities: MIN 2%, MAX 6%
C) Fixed Income: MIN 3%, MAX 10%
In the Single Stocks component of the Long/Short Book:
A) Longs: MIN 1%, MAX 3%
B) Shorts: MIN 0.5%, MAX 2%
Some of the more concentrated Stocks Only investors out there will make fun of how small my MAX Single Stock position is because they’d see that as a “lack of conviction.”
They’re right. Since I can’t buy ANY stock that my Research Team does the real work in, I shouldn’t have any “real conviction” (beyond a 3% position) in ANY Single Stock idea that I come up with on my own.
In Macro Long/Short Positions, however, I’m allowed to buy/sell anything. With our recent Digital Assets Analyst hire, I have 7 analysts + yours truly analyzing those positions and my sizing of those positions reflects doing the real work.
The biggest reason for dropping my stop loss to 6% (after I’ve gone to my MAX) is that I can Go Anywhere.
Yep, anywhere. Since I can buy any Commodity, Country ETF, etc., I don’t have to sit on a sinking ship. My hard-earned capital can just take the tax loss (those are good btw) and move onto a new ship.
While many of you can and do that, many Portfolio Managers can’t. They have a much narrower “universe.”
Getting stopped out is easy to understand. How about WHEN your #process tells you to get out? Since my risk management #process is both disciplined and rules-based, that’s an easy answer for me too:
A) If something signals LHs (lower-highs) in my Risk Range™ Signal, I start to reduce the SIZE of the position
B) If something signals LHs and breaks immediate-term TRADE support, I take the position to my MIN
C) If something signals LHs, breaks TRADE, and then breaks intermediate-term TREND, I’m out
For many, it’s easier to understand what I just explained than it is to execute on it. Why? A: Emotions. This is especially difficult for a certain type of “Retail Investor.” They tend to wear losers and hope for them to get back to their cost basis.
Some Institutional Investors obviously have that problem too. But the best Institutional investors ride their longer-term winners and cut their losers quickly.
That’s why I don’t get out when I’m making money. I often sell-SOME at the top end of my Range. But I never sell a winner below my MIN. And, especially if the winner is signaling HHs (higher-highs), I always buy the damn dips.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 30yr Yield 4.25-4.54% (bullish)
UST 10yr Yield 4.11-4.40% (bullish)
UST 2yr Yield 4.50-4.80% (bullish)
High Yield (HYG) 77.15-77.98 (bullish)
Investment Grade (LQD) 107.27-109.21 (bullish)
SPX 5137-5274 (bullish)
NASDAQ 16,016-16,510 (bullish)
RUT 2039-2111 (bullish)
Tech (XLK) 206-213 (bullish)
Insurance (IAK) 112.39-116.14 (bullish)
S&P Momentum (SPMO) 77.65-81.11 (bullish)
Healthcare (PINK) 29.70-30.57 (bullish)
Shanghai Comp 3022-3096 (bullish)
Nikkei 38,828-40,956 (bullish)
BSE Sensex (India) 71,723-73,951 (bullish)
DAX 17,792-18,246 (bullish)
VIX 12.43-15.02 (bearish)
USD 102.90-104.75 (bullish)
EUR/USD 1.080-1.095 (bearish)
USD/YEN 147.94-152.94 (bullish)
GBP/USD 1.253-1.277 (bearish)
CAD/USD 0.733-0.742 (bearish)
Oil (WTI) 78.89-83.91 (bullish)
Oil (Brent) 83.24-88.46 (bullish)
Nat Gas 1.60-1.88 (bearish)
Gold 2141-2199 (bullish)
Copper 3.94-4.19 (bullish)
Uranium (URA) 27.01-29.25 (neutral)
MSFT 412-435 (bullish)
AAPL 167-177 (bearish)
AMZN 172-181 (bullish)
META 479-513 (bullish)
GOOGL 137-152 (bullish)
NFLX 599-632 (bullish)
TSLA 159-184 (bearish)
NVDA 854-935 (bullish)
Bitcoin 61,193-72,816 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
