Our Core Principles
You must approach markets in an unconventional way if you want to earn superior, risk-adjusted, returns. You cannot make decisions in the same fashion as the herd and expect your portfolio’s performance to deviate from the average.
Focusing on the present
Most investors spend their time focused on what’s already happened and economic data that is months old or focused on forecasts 3 months in the future, or further.
Paying attention old data is as risky to your portfolio as driving while only looking in the rear-view mirror. As for forecasts, with all of the technology we have available, weather can’t be accurately predicted beyond 72 hours, some would say getting it right today is a stretch. If this is true, what makes us think that anyone can accurately predict something as complex as the global economy 3 months from now? The simple answer is they can’t.
In sharp contrast, our research is focused on better understanding what is happening right now. We certainly keep an eye on what’s already occurred and pay attention to potential future developments. However, our experience tells us that if you understand what’s happening right now, it gives you keen insight into the risks and opportunities that most investors miss.
Focusing on slopes
In order to be successful in this business it is imperative to remain data-dependent, which means you let the data alone drive your decisions, not the narrative being told about the data.
Most investors focus on media headlines, or the top line number of a particular economic data set to drive their decisions.
Our research focuses on what’s happening at the margin of economic and financial market data. The trend in data, or the slopes, is what matters most not a single data point. More importantly, we focus on the slope of the annual growth rate of economic data, rather than the top line number. This is an important distinction because most economic data is not reported in “year-over-year” terms.
Focusing on Extremes
Most investors focus on averages. When it comes to economic data they focus on how the data performed versus the “consensus expectation,” which is the average opinion of a group of economists. When it comes to financial markets, they focus on average returns and moving averages to help guide their decisions.
We monitor the trend of economic and financial market data to alert us to extreme measures of fundamental, quantitative and behavioral factors because averages don’t provide any guidance.
In the same way biologists study disease to better understand the healthy body or meteorologists study hurricanes to better understand every day, local weather.
When studying economies and markets, its understanding the abnormal and irregular, the Extremes, that provides the greatest insight into risks and opportunities.