(This is an excerpt from an article written on Substack by Mark Bunting. You can read Mark's full bio below).
One of the best things an investor can do when learning the Hedgeye Risk Management investing process is to read the books by “financial market founding fathers” that Keith McCullough recommends because he owes them a debt of gratitude and they are essential pillars in his approach to investing.
The Misbehavior of Markets by the late mathematics legend Benoit Mandelbrot is one of three foundational books Hedgeye’s Founder and CEO cites on the company’s website as, “somewhat of a Bible to me.”
“I learned a ton from this guy, if only what not to do,” McCullough said. “It’s an alternative to establishment economics. It’s an alternative to how people think about markets relative to economic data.”
In a message to McCullough a couple of years ago after I interviewed him for the first time, I told him I was planning to read Mandelbrot’s book. McCullough responded, “Mandelbrot will blow your mind.”
Reading the book definitely expanded my mind and Mandelbrot’s concepts changed the way I understood how markets work.
I used to think the stock market was a massive, chaotic system that was unknowable because how does one ever understand the actions of millions of global traders, investors and programmed machines?
Mandelbrot helped me see order in the chaos and fractal symmetry in that all trades are part of a unified, connected whole. Mandelbrot’s work discovered fractal geometry patterns and relationships within the market amid bursts of turbulence.
These concepts were essential for McCullough in devising his process, which uses fractal math at its core and measures and maps nothing but numbers - price, volume and volatility, and the volatility of volatility. This approach results in a repeatable, rules-based process to help investors get ahead of the next big macro trend and better risk manage their money.
Perfect Quad 4 Record
Hedgeye’s track record proves the process works. McCullough’s signals have correctly identified several major market phase transitions, including every major downturn, or Quad 4, since 2008.
But he’s no permabear having gone bullish in April 2009, and riding other bull markets, including the “everything” rally into November 2021 before his signals told him to turn cautious, which allowed Hedgeye clients and subscribers, who listened and acted accordingly, to avoid a terrible year for stocks in 2022.
The latest example of the Hedgeye “Go Anywhere” global strategy working started in mid-July this year when McCullough’s signals indicated a phase transition from Quad 4 in the U.S., where both economic growth and inflation are decelerating, to a global Quad 2, growth and inflation accelerating, and a Quad 3 in the U.S., with growth slowing and inflation rising.
This transition had McCullough recommending to get out of the U.S. dollar, buy various foreign currencies, stay invested in gold, utilities, and REITs, add consumer staples, various commodities, technology and emerging market equities, and to reduce exposure to various types of bonds and health care.
CLICK HERE TO CONTINUE READING on substack
|
ABOUT MARK BUNTING This is a Hedgeye guest contributor piece written by Mark Bunting and reposted from his Substack publication. Mark is a seasoned financial journalist with 25 years of experience in the industry. His career includes 15 years as an anchor and reporter for Business News Network (BNN Bloomberg), where he also served as London Bureau Chief for three years. He currently is the host of RCTV for Red Cloud Financial Services, focusing on interviews with CEOs and leaders in the metals and mining sector. Mark also plays a significant role at Red Cloud’s conferences, where he conducts keynote interviews and moderates panels. Additionally, he is an on-air host of sponsored content for BNN Bloomberg Brand Studio and has previously been the publisher and host of Uncommon Sense Investor and Capital Ideas Media. Mark started his career with The Sports Network (TSN). He has been a Hedgeye subscriber for three years.. View all posts by Bunting on his Substack. X (Twitter) handle: @MarkBunting_ LinkedIn: Mark Bunting |
