“The result is fertile and untrodden turf in the middle of the two polarized camps.”
- D.K. Willardson
In case you’re looking for ideas on how to employ quantitative tools to augment your fundamental Full Cycle Investing #process, Willardson’s Quantitative Hitting book is a good one. He’s an investment analyst who turned into a baseball swing coach.
“Willardson pointed out an intellectual divide that’s stunted progress in player development even since the game got smart about stats. He points out that the “analytical side” focused on the data has steered clear of mechanics, while the “traditional” coaching and player development side has steered clear of the data.” -The MVP Machine, pg 126
This is how I think about the once in a career-making opportunity to combine the analytical weaponry of A) data-driven fundamental rate of change research and B) quantitative risk management tools & signals. Since at least 2013, being Quantamental has been crushing it.
Back to the Global Macro Grind…
As I like to tell the analysts I coach, ‘crush or be crushed.’ There’s always a particular time (and Quad) to make “calls.” It’s all about using a Quantamental #process to up their probability of being right. I like high slugging percentages, but I love consistently high batting averages.
That’s definitely NOT how many people still think about analysts and PMs who play this game.
Particularly in the hedge fund industry, there’s still a CNBC premium put on the “big call” someone makes on a “stock.” Pre-Reg Full Disclosure, there used to be significant alpha in that game.
That’s when I started in this business. That’s partly why stock pickers had uncorrelated returns to the market.
Today, there’s been a much higher INVESTOR premium placed on consistent, beta and volatility adjusted returns that not only beat the “market” over time, but don’t suffer the crashes and draw-downs that those who are levered long beta do. I’m here to help you as best I can with that.
Q: Does Macro Market and Cycle timing matter? A: Absolutely.
Before I run through a recent example of how betting against the “fundamental” consensus of pro-cyclical, low VIX, stock pickers, I just wanted to thank all of you for the kind compliments you’ve been sending me in the past few weeks. I can’t reply to all of them, but I’m grateful.
Example: Timing Tech (XLK):
A) After covering my Tech Short on Friday (4/3) into a red US stock market close…
B) I said I was going to re-short Tech (XLK) at the top-end of my @Hedgeye Risk Range yesterday…
C) So, at 9:33 AM EST I did that on a bright green US stock market open yesterday
#Timestamped
I know. Transparency is so bloody rare in this profession that is makes some people cringe when they actually see someone executing on their process. Every single mistake I have made in Real-Time Alerts is there for everyone to see since 2008.
When I’m not ice-cold (like I was in January of 2020), I have tendencies to get hot:
A) Yesterday was the 9th straight successful SELL signal for me in Tech since the beginning of March 2020
B) In March I had 90 at bats (closed positions) with 5 LONGS and 85 SHORTS
C) 88% of at bats got me on base (gains) and 12% were outs (losses)
My MAX gain was 16.2% (home run in a crashing stock market). My Average gain was +3.0%. My MAX loss was -7.1% (I felt shame) and my average loss was -2.9%. The numbers are what they were. Next time I’m cold I’ll run that for people who want to see that too.
Am I maniacal about both my process and the results born out of it? You’re damn right I am. My whole life I’ve been told I’m not as good as some people think. And, in hockey, they were ultimately right. I didn’t make it to the NHL. In this game, I’m driven to prove I can do better.
No offense, but I’m not trying to prove that to you. When I get up every day at 430AM, I’m trying to prove that to myself. Can I make money when the consensus crowd on Wall Street loses theirs? Historically, the answer (especially at big Cycle Turns) has been yes.
But I am only as good as the next “call” my market-timing and signaling process makes.
In Chapter 8 of The MVP Machine titled “Perfect Pitch”, the co-authors (two young and thoughtful new-era baseball analysts by the names of Lindbergh and Sawchik) use a great quote from Malcolm Gladwell for all of us who are driven to pursue perfection:
“What’s a perfectionist? Someone who puts the responsibility of mastering the task at hand ahead of all social considerations, who would rather be right than liked.”
I’m far from perfect. I’m well aware that not all of you like me. If you did, I’d be the “top ranked” yes-man of the year on Old Wall TV and I’d absolutely hate my life. What I love isn’t the idea of being loved. I love playing The Game. And I love keeping score.
Again, a sincere thank you to all of you for putting up with my rants and writing/tweeting style. I am who I am and I’ll continue to focus on results. As the Full Cycle Investing bull markets in both Gold and Treasuries continue alongside a bear market in Tech, its next batter up!
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.55-0.83% (bearish)
SPX 2 (bearish)
RUT 1030-1191 (bearish)
Tech (XLK) 74.21-86.39 (bearish)
DAX 9186-10385 (bearish)
VIX 40.46-68.97 (bullish)
USD 98.25-101.34 (bullish)
Oil (WTI) 17.55-29.65 (bearish)
Gold 1604--1718 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
