“The inside of the stock market is the best economist I know, and which I’ve used every cycle when I have invested.”
– Stanley Druckenmiller
Totem Macro – Wealth Preservation (13 pages)
Whitney Baker’s April research piece focuses on the big picture portfolio questions investors face today. She explains why she’s beta-bearish & alpha-bullish, why she expects real wealth destruction, and what assets she believes will do well (or not) from here. Some key takeaways
Regime Change – We have no good historical analogs for financial and geopolitical regime change of this scale happening simultaneously…let alone after the biggest asset bubble ever relative to world GDP, topping off fifty years of hyperfinancialisation. The period of building paper claims on “real things” is over, and the period of calling in those claims has begun.
What Went Up Now Goes Down – The assets that suffer the most from structurally tighter liquidity and global balkanisation are the same ones that benefited the most from the old regime. Since the last five years was such a grotesque climax of this secular regime, they’re also the assets that are cyclically priced to perfection.
Lenders over Borrowers – If the world is pulling apart, we’ll take the lenders over the borrowers, who have more financial cushion to deal with stress, and also happen to be the majority of the world’s suppliers of “real things”, including commodities.
Bridgewater on the challenges for beta in the context of today’s market conditions.
Goldman Sachs covers fundamentals driving battery metals and walks through key points shaping the market.
Antti Ilmanen, Principal and Global Co-head of the Portfolio Solutions Group at AQR, recently released a book on how investors can handle the low expected return environment going forward. He shares what empirical research says on portfolio construction, risk management, and cost control practices.
You can hear Antti discuss the book and current events on The Meb Faber Show podcast here.
Why value investing works – Structural changes can break historical regularities or imply a change in a long-run mean, thus weakening the usefulness of trusted fundamental anchors. However, financial markets seem to succumb to “new age” or “this time is different” beliefs more often than is warranted, which has been a source of long-run gains for the value strategy.Focus on the process – Investing with serenity is about investors and managers accepting what cannot be changed – that the outcomes over short and even quite long horizons are dominated by luck or randomness. Instead, judgements should focus on what can be controlled: improving expected returns by improving the investment process and decision-making quality.
Performance Chasing – many investors…demand more performance consistency than is realistically available in financial markets. Many also believe that past performance contains more predictive information than it does. Too-easily disappointed investors may “misbehave,” impatiently churning their portfolios and hurting their long-run performance prospects.
The origins of 2 & 20 – The first hedge fund manager, A.W. Jones, argued to his investors in the 1940s that his 20% share of the upside of investment returns (apart from fixed fees) was inspired by ancient shipping practices where Phoenician merchants kept a fifth of the profits from successful voyages, leaving the rest to the capital providers.
Janus Henderson fund manager Aneet Chachra walks through his role running flow-based strategies, what opportunities exist today given the current market structure, and his framework for tail risk strategies.
From The Episode:
“Signal turns to noise because of arbitrage, but noise turns to signal because of reflexivity.”
Chhabra is the CIO of Jim Simons family office. He discusses chaos theory & markets, how he developed the Wealth Allocation Framework, and how he thinks about wealth preservation.
From The Episode:
“You start seeing someone stand up and say, ‘oh, we’ve had a 1 in 100-year, 15 standard deviation collapse of markets, and how could we have anticipated this?’ Then a part of you would say, this doesn’t make sense from a pure scientist point of view, I know better.”
Fun episode that looks at 40 years of teamwork and traveling around the world (and Internet) to find and exploit opportunities at casinos, winning millions of dollars along the way.
From The Episode:
“For some reason people hate risk. And they would rather give up the vast majority of their EV (expected value) to lock in a win, which is for us, that’s just crazy talk.”
The Idea Farm Team
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