In this edition of Macro Mentoring, Hedgeye CEO Keith McCullough takes pen to paper to discuss his experience as a portfolio manager.
McCullough explains what he’s learned about portfolio sizing, modeling economies and intellectual honesty in interpreting data.
Here’s a brief synopsis of what is covered in the video above:
1. How to Size A Portfolio Position
“There are more than 10,000 hedge fund managers out there and they’re all trying to beat you… So you have to decide for yourself exactly what you’re trying to accomplish. You have to commit. And then you strike your portfolio every day with the same commitment and activity. You want to be able to do things with a consistency and within a framework of rules that you’ve made up.”
2. How We Model the U.S. Economy
The three factors we look at are economic growth, inflation, and aggregate corporate earnings. Interpreting whether each of those factors is accelerating or decelerating drives portfolio performance. “There’s nothing in there that says Donald Trump. Separate your politics from your research outlook.”
3. Quad 1 & 2
In our modeling of the U.S. economy, we see growth accelerating and inflation decelerating (what we call Quad 1) heading into the second quarter to the end of 2017. “That’s the mecca. Imagine that you get paid in dollars and the value of those dollars is going up and commodities or anything that you pay for is going down. That’s awesome. Your purchasing power goes up. This is history, not an opinion.”
4. Focus on the Data
Why were we the long bond bulls from late 2014 until late-2016? From the first quarter of 2015 to the second quarter 2016, U.S. GDP slowed from 3.3% year-over-year to 1.3%. “That’s why we’ve been on the right side of this equity market boom, I would not be setting up for a correction until I see growth data slowing.” And it’s not.