“Tilt is the poker player's worst enemy.”
As Annie goes on to explain in a risk management book I’ve often cited this year (Thinking In Bets), the word tilt “instantly communicates to other poker players that you were emotionally unhinged in your decision-making.”
Especially when running money, you do not want to be on tilt! If you’re running some of my money, I don’t want to hear anything about what you’re “feeling.” I want to hear all about what your decision-making #process is signaling.
In Hedgeye vernacular, when something A) breaks out above or B) breaks down below my @Hedgeye TREND signal level, I also want to hear about you making moves in your portfolio. Use math to trump your emotions.
Back to the Global Macro Grind…
A very different definition of “tilt” is tilting your portfolio’s:
- Asset Allocations
- Sector Styles
- Factor Exposures
When A) economic data and B) market signals change, I change my portfolio’s positioning from both a gross and net exposure perspective too.
Let’s use my recent Tech Tilt (selling Tech) as a working example:
A) Tech (XLK) is a core LONG Sector Style when the US economy is squarely in Quad 3
B) Tech (XLK) is a core SHORT Sector Style when the US economy is squarely in Quad 4
So, on last week’s US stock market bounce, I sold Tech (see Real-Time Alerts for my #timestamp) in my p.a. AFTER the probability of a Quad 4 in Q3 scare rose.
No, I didn’t sell Tech (XLK) at the low-end of my @Hedgeye Risk Range (at last Monday’s lows). That’s basically like hitting on a 6 in Blackjack. “Tilting” that way (selling low and chasing high), is not a smart way to play The Game.
If you’re playing the “longer-term” game and you want to stay put with your Long Tech (XLK) position because we have the US economy squarely back into Quad 3 in Q4, that’s fine. But you’re making that decision consciously.
What could the decision to hold Tech into a Quad 4 scare entail?
A) Another 5-10% (or worse) draw-down (read: loss of capital) in your Tech holdings
B) Sideways, Brownian Motion, where nothing really happens to your Tech holdings
What could a decision to Sell Tech and repurpose your capital into larger Quad 4 positions do for you?
A) Utilities (XLU) are a core LONG Sector Style when the US economy is in both Quads 3 and 4
B) Treasuries (SHY, TLT, EDV) are a core LONG Asset Allocation when the US economy is in both Quads 3 and 4
A) Utilities (XLU) were up both last week (+1.5% absolute in a down tape) and yesterday (+0.1%)
B) Tech (XLK) was down hard last week and down another -1.7% yesterday alone
#Cool. I made a good short-term decision that was based on a dispassionate #process and not my emotions.
Unlike in Poker or Blackjack, there are no “rules” on timing in this game. Some people (read: those who aren’t good at it because they don’t have a multi-factor decision making process for it) really don’t like market-timing, whereas I love it.
With no emotion whatsoever, I love that they hate what I love ;)
The way I see my net worth is to never voluntarily accept probable and/or avoidable draw-downs of my capital. There’s no law that says I can’t come back an buy all the Tech (XLK) I sold at some point in July, August, or September.
In the meantime, my p.a. didn’t have to take on losses on this recent 2-day Tech selloff either.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND signals in brackets) are now:
UST 10yr Yield 2.33-2.47% (bearish)
UST 2yr Yield 2.12-2.28% (bearish)
SPX 2 (neutral)
RUT 1 (bearish)
Utilities (XLU) 56.89-59.53 (bullish)
VIX 14.05-21.97 (bullish)
EUR/USD 1.11-1.13 (bearish)
AAPL 178.64-191.96 (bearish)
FB 177-192 (bullish)
GOOGL 1112-1186 (bearish)
NFLX 339-362 (bearish)
TSLA 198-242 (bearish)
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer