My schedule the next few days has me bringing this week's main message to you early, and keeping it relatively brief.
I can't tell you how many times, since late-summer 2019 I've been labeled a "bear" by clients and associates. All the while, when you consider our core asset mix, in late-'19, and since -- while it's evolved notably to comport with our general view of the world and concerns over certain areas of the stock market -- you certainly wouldn't say we've run for cover, we're just not all-in the stock market like we were, say, from the bottom in '09 to December '19.
You see, that 10-year stretch just mentioned notwithstanding, we're anything but a stock market-centric firm: Fact is we are relentlessly macro (globally and across all asset classes) driven. I.e., as our current asset mix -- probably the most diversified it's ever been -- attests, in our view there's much more to managing client assets than throwing everything at the stock market and hoping enough of it sticks.
Note: We've recently added an additional analytics platform to our tool kit. This one's quite robust, and gets us even deeper (and/or easier) into the weeds of the risk scoring, the back-testing, the attribution metrics, an so on, of our strategies. In the training session we had the provider's rep score our core portfolio from a risk/return standpoint.
On a 0 to 100 scale, it presently scores an 85 in terms of the historically-tested risk/return profile of our positions in the aggregate, however, the relationships (correlations) among them bring the overall risk score down to 69 (which was atypically impressive according to the rep). Which more or less jibes with our own assessment. Except, that is, for the hedging. Our options hedges were not included in the analysis; which of course add another meaningful layer of downside protection against a major market collapse.
Now, any such analysis is dependent upon the history of each and every position in our portfolio. And while history often rhymes, it doesn't always repeat. I.e., there's no guarantee that today's portfolio will deliver similar results during similar (to the time period(s) tested) circumstances.
Besides, as for our new vendor's data, it merely takes us back 17 years, which only captures the bull market that split the two recent (tech and real estate) bubble bursts, the '07/'08 massacre, the ensuing bull market, last year's 35% stock market drubbing, and what we've experienced since.
I.e., while it's nice to see that our core portfolio's diversification, by itself (even w/out hedging), scores impressively from a risk/return standpoint, note that our analog for the current monetary and fiscal policy setup is the 1940s. I.e., the top-down dynamics that impact markets will be notably different going forward -- they virtually have to be -- than anything today's investor has had to navigate.
Thus, while all the analytics, the back-testing, the risk-scoring, etc., tools are nice to have, and to work with, they're in no way to be taken for granted.
Humility, open-mindedness and unrelenting diligence are, I'd say, always requisites to responsible asset management, but, frankly, now more than ever...
Julian Brigden is on my very short shortlist of today's best macro strategists. In the intro to his firm's piece titled Debt/GDP: The Infinite Horizon, he speaks to how approaching the investing process through a macro lens can have one sounding bearish at times, while in reality taking the bigger-picture, top-down, multi-asset approach simply has one aware of inflexion points, risks and opportunities that the equity-centric practitioner is more likely to miss.
And, yes, per the second paragraph, seeing/assessing macro trends is one thing, having the patience to allow them to play out is another, altogether:
"When we discuss the importance of developing a macro framework with our retail clients, we emphasize that while at first glance, it appears that macro devotees are contrarians, party poopers etc., that's not really the case. Rather this jaundiced view is a function of the role the strategy plays in broad portfolio management, i.e. identifying the conditions that have contributed to a prevailing trend and looking for potential inflexion points.
As long-term practitioners know, this can take an awfully long time. But when Godot does eventually arrive, the rewards can be profound, because like a perfectly set up domino run, once events start to fall into place, they become self-reinforcing."
Or, to repeat for the umpteenth time herein, the great one’s declaration:
"...the big money was not in the individual fluctuations but in the main movements—that is, not in reading the tape but in sizing up the entire market and its trend.
And right here let me say one thing: After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight!"
Thanks for reading!
Marty
No comments:
Post a Comment