Test from the plugin aaaa
Test
Hosting platforms
Alitu
Captivate
Buzzsprout
Libsyn
Blubrry
Spreaker
Spotify for Podcasters
Megaphone
Transcript
You're about to join Niels Kaastrup-Larsen on a raw and honest
Speaker:journey into the world of systematic investing and learn about
Speaker:the most dependable and consistent yet often overlooked investment
Speaker:strategy. Welcome to the Systematic Investor Series.
Speaker:Welcome and welcome back to this week's edition of the Systematic
Speaker:Investor series with Graham Robertson and I, Niels Kaastrup-Larsen,
Speaker:where each week we take the pulse of the global market through
Speaker:the lens of a rules-based investor.
Graham,it is wonderful
Speaker:to be back with you this week. How are you doing?
Speaker:Very well, Niels. Great to be back. Yeah, I had a couple of busy
Speaker:weeks traveling around, talking to lots of clients about
Speaker:trend and outlooks. Hopefully something we'll be discussing in
Speaker:a bit more detail today.
Speaker:Yes, absolutely.
Itseems like, because I've been on the road
Speaker:as well for quite a few weeks by now, it seems like we're certainly
Speaker:in the busy travel season, which actually does lead to some
Speaker:interesting observation about what our prospects and clients are
Speaker:thinking about.
Andspeaking about thinking about, Graham, I’d
Speaker:love to start with this question, which has nothing to do
Speaker:with really the topics we're going to talk about because I think
Speaker:we have a great lineup of topics that we're going to be tackling.
Speaker:But I would love to hear, sort of from maybe your own personal point
Speaker:of view, what's been on your radar the last few weeks?
Speaker:Well, I guess it's hard to pass up what's going on geopolitically,
Speaker:particularly what's going on in, in Ukraine and Russia and the
Speaker:dynamics of the new president. And all that is happening, and I'm
Speaker:sure we'll cover that and its implications for markets.
WhatI
Speaker:found particularly fascinating is just how engaged people have become,
Speaker:particularly, you know, my kids, for example. My kids are 20
Speaker:or late teens, early 20s. And everybody's engaged, everybody's
Speaker:interested. And I think that's a healthy thing. You know, it, it
Speaker:may not be… It's controversial. What is happening
Speaker:in the world is interesting. Things are happening. The new president
Speaker:in the US is going about things in different ways and people
Speaker:are looking at it and discussing it and I think that's
Speaker:a good thing.
Speaker:Yeah, I couldn't agree more.
Itwas also the thing that I had
Speaker:put on my little radar was just the fact that the world is changing
Speaker:in front of our eyes and it's changing a lot every single day.
Speaker:I also have kids in their early 20s, both studying in Copenhagen.
Speaker:And when you mentioned that, what it made me think about is kind
Speaker:of two things.
Oneis that I'm kind of curious to know if they're
Speaker:old enough to know the difference, if you know what I mean,
Speaker:because they kind of grew up in a period where, I feel personally,
Speaker:a lot of the changes in the way things work, not necessarily
Speaker:relating to the new administration, but just things have
Speaker:changed is really in the last couple of decades. I mean, after
Speaker:the great financial crisis, both politically and so on, and so
Speaker:forth, we don't need to go into all the details about that.
Speaker:So, I was kind of thinking, do they really know the difference?
Speaker:Do they understand the gravity of the change we're seeing in front
Speaker:of our eyes?
Andthen the other thing I thought of and love
Speaker:to hear your view on this, and that is, are we scaring them, so
Speaker:to speak, are we making them...? I mean, because the youth
Speaker:has been through a tough time with COVID, in many respects. Certainly,
Speaker:in Denmark, where I follow the news flow probably a little bit closer
Speaker:still, there's a lot of attention on sort of emotional health
Speaker:and so on and so forth, especially among the young people.
Speaker:AndI was just wondering whether this news flow coming out,
Speaker:and certainly Denmark is very. The whole discussion about Greenland
Speaker:and all those things, there are a lot of things going on where
Speaker:let's say the noise is coming from the political scene is worrisome,
Speaker:let's put it that way. So, I was just wondering, actually, how
Speaker:they may be affected by all of this. I don't know if there's an
Speaker:answer to it, but is that something you're concerned about,
Speaker:your kids being worried about what's going on?
Speaker:I think they should be worried about it. But the key thing to me
Speaker:is that they're engaged, you know, it's not just passing them
Speaker:by. And that to me is fundamentally important and good.
Speaker:Whatelse I've found interesting is the way that this
Speaker:information is now disseminated. It came up on a number
Speaker:of occasions recently where historically you might look at some
Speaker:interview of a politician where you'd get the message in whatever
Speaker:way was being portrayed according to the party line. But
Speaker:these days, it seems to me that the information is coming through
Speaker:the medium of podcast.
Lookat the way, in the lead up to the elections,
Speaker:that it was the podcast, it was the bros that were the medium,
Speaker:and that really got across. And what's interesting there is that
Speaker:the message is unfiltered, it's less disguised, it's less kind
Speaker:of roll your eyes at what the politician is saying over, and over,
Speaker:and over again. And I think that it's probably a good thing too.
Speaker:We're getting to hear what people really think.
Speaker:Yeah, that's true, that's true. Although, I will say also,
Speaker:even in the podcast space, I am seeing some worrying signs that
Speaker:it's just being taken over by certain interest groups, let's put
Speaker:it that way, and losing a little bit of that kind of raw independent
Speaker:voice which at least we try to keep up here on Top Traders Unplugged.
Speaker:But there we are anyways.
Allright, so of course everybody
Speaker:knows we're completely biased when it comes to trend following,
Speaker:but at least they know that before they sign up for the episodes.
Speaker:Speakingof trend following, it's been a little bit of a mixed
Speaker:start to the year, I would say. There were opportunities in
Speaker:some sectors for sure, like equities, but then kind of those
Speaker:opportunities have been somewhat canceled out in other sectors.
Speaker:Currency springs to mind, and maybe we see fixed income bonds being
Speaker:caught somewhere in the middle.
IfI look at it from my vantage
Speaker:point. Love to hear yours afterwards. I would say that, of
Speaker:course, gold has been quite an interesting market, good for trend
Speaker:followers, to some lesser extent silver. And, of course, now
Speaker:there is a bit of interesting chatter around the shiny metal gold,
Speaker:including suggestions that the US administration could reprice the
Speaker:gold reserves.
Ithinkthey have like 8,000 tons of it and if
Speaker:they mark to market that instead of the $42 per ounce which
Speaker:I think is the official price, they are on the books for, of course,
Speaker:whoopty, you would have billions of dollars that you could
Speaker:lend against should you want to do that, like build a sovereign
Speaker:wealth fund or something else. So that's kind of one thing that
Speaker:I find interesting, and I'm sure trend followers have enjoyed
Speaker:that.
Wehave a new ‘cocoa’, because last year it was all about
Speaker:cocoa. This year it's all about coffee. So, we see some challenges
Speaker:with the crop coming out for next year. I think the estimates
Speaker:I saw were that it’s probably going to be lower by 4% or 5%, and
Speaker:that's obviously sending prices somewhat higher as far as
Speaker:I can tell.
Thenwe have the widow trade which is interesting
Speaker:as far as I can tell. For those people who may not know what
Speaker:I mean by I say the widow trade. The widow trade is something
Speaker:that has been used to describe trying to go short Japanese government
Speaker:bonds for a long time, because every time you tried the BOJ would
Speaker:basically make you pay through its central bank policy. But there
Speaker:are some signs that things are changing.
Yieldson the Japanese
Speaker:10-year bonds have gone up from being negative 25 basis points
Speaker:to now positive 1.44%. And we've seen an interesting push higher,
Speaker:since around September of last year, in terms of yield, which means
Speaker:that being short JDPs, now, is actually something that has made
Speaker:a little bit of money for trend followers as far as I can tell.
Speaker:And, of course, depending on what kind of exposure the manager
Speaker:would have.
Andthen within equities, even within equities, it's
Speaker:also been, I think, a little bit concentrated in just a few markets
Speaker:as far as I can tell. The DAX has done well, which may come as
Speaker:a surprise because people think of Germany struggling, which
Speaker:is true, but actually the DAX index is made up, as far as I know,
Speaker:of a lot of multinational companies that are making money at
Speaker:the moment.
Andalso, things like Hang Seng seem to have had an
Speaker:interesting move, a bit of noise in the last couple of months,
Speaker:but also a bit of movement that could be captured from a trend
Speaker:following perspective. So, those are some of the things that
Speaker:I'm seeing at the moment.
Graham,love to hear what your observations
Speaker:are on trend.
Speaker:The gold one is a fascinating one. The gold story is one side,
Speaker:but of course the other consequence is what happens to the
Speaker:treasury market as a result of an issuance in the treasury market.
Speaker:And again, that's where trading all the different markets
Speaker:that we do globally is particularly interesting.
Youlook
Speaker:at the effect of one market and what should that do to another
Speaker:market and you can capture trends in lots of different ways.
Speaker:So, you mentioned a few. There's a couple of other ones I
Speaker:would mention as well.
Imean,to me you covered equities,
Speaker:the fact that European equity markets are on fire this year is
Speaker:amazing given the noise that's coming out of all the tariff talks
Speaker:and whatever. Again, breaking this link between economic news and
Speaker:market prices. It’s fascinating.
Andthen there's the
Speaker:European energy markets. It’s very difficult for traders like us.
Speaker:Last year they were quite range bound but you've got very low
Speaker:inventories, you've got very cold weather. I mean, certainly,
Speaker:as I found out this week, traveling in the Nordics and Holland,
Speaker:you know that very, very cold weather coming through. Low inventories
Speaker:plus little wind means little supply from the German renewable
Speaker:networks.
Andthat just pushes up the price of European energy markets,
Speaker:whether it's natural gas or power. There are hugely different
Speaker:dynamics going on, which is music to our ears in a sense. Lots
Speaker:of things going on is good for us, I would argue.
Speaker:Over at our firm, we don't trade European energy other than
Speaker:Dutch nat gas. Tell me a little bit, if you could, just tell
Speaker:me a little bit about some of the opportunities that we now have
Speaker:today, as managers, to capture some of these moves in European energy
Speaker:markets. What kind of markets are you thinking of here and how
Speaker:do you even access them? Because I imagine they're not really
Speaker:futures based just yet. Or maybe they are.
Speaker:Some of them are futures based. What I guess you find with
Speaker:some of the futures based markets is if you look at an exchange,
Speaker:the liquidity perhaps doesn't look great, but there's liquidity
Speaker:off exchange that you can potentially capture. Some of it is
Speaker:OTC, over the counter which, on first sight, people think OTC
Speaker:equals a liquid. That's not necessarily the case. The way I like
Speaker:to think about it is you just have to work a little bit harder,
Speaker:roll up your sleeves in order to trade it. So, you might need a
Speaker:little bit of human intervention to execute it.
Youmight
Speaker:need to have some kind of ISDA arrangement perhaps in the background
Speaker:to trade it. So, it's a little bit harder, but you can still trade
Speaker:it. But there are some big liquid markets out there that you
Speaker:can capture.
Historicallyyou've seen some quite
Speaker:independent behavior from some of these markets. When we know the
Speaker:effects, someday a central banker stands up can affect big liquid
Speaker:macro markets, but you'll have a situation with some European markets.
Speaker:NordPool, I think I've mentioned, is one of my favorites
Speaker:there where the thing that drives the price of a Scandinavian
Speaker:hydroelectric market is weather patterns. It's how much rain
Speaker:is falling. So, the trends you get in those markets are just completely
Speaker:diversifying to what you get elsewhere.
Soagain, if diversification
Speaker:is the name of the game, and I think it really is for a trend following
Speaker:strategy, the more diverse price sources, price drivers you
Speaker:can get, the better potentially it is for a trend following
Speaker:strategy.
Speaker:Now I know you guys have been, and when I say you guys, for those
Speaker:who don't know, but I refer to AHL as one of the pioneers, not just
Speaker:in our industry, but also in the alternative market space, you
Speaker:have a very successful fund in that space. Can you, I know we didn't
Speaker:prepare for this, but I'm just curious because I don't have any
Speaker:firsthand experience with this, can you talk a little bit about
Speaker:maybe some of the other alternative markets that have been
Speaker:interesting as well? If so, because again, it's not really something
Speaker:I follow to a great extent.
Speaker:I can give you a couple of examples there. So, the thing about
Speaker:the alternative markets, it's a Very broad term. But essentially
Speaker:you could view it as not a classic futures and FX market, which
Speaker:are relatively straightforward to trade from a trend following point
Speaker:of view.
So,you might be talking an OTC market, an interest
Speaker:rate swap for example. One that maybe immediately springs to
Speaker:mind is something like Swiss interest rate swaps. So, there isn't
Speaker:a Swiss fixed income futures market, it’s certainly not big enough.
Speaker:But last year, for example, the Swiss national bank opened up
Speaker:the prospects of going subzero rates again. And that's something
Speaker:that of course would drive up the price of those instruments. And
Speaker:that's something you could potentially capture if you're able
Speaker:to trade, let’s say, interest rate swaps relative to the classic
Speaker:futures markets.
Soreally, it's about just allocating or getting
Speaker:markets in there that you can't particularly trade anywhere
Speaker:else. Opening up your price sources, opening up diversification,
Speaker:really was something I always find (I think I said this when we
Speaker:previously chatted) that the diversification or the spread in
Speaker:returns you can get from trend following managers, despite us all
Speaker:really trading trends. Right? Theoretically, it’s quite a simple
Speaker:thing to do. You buy something that's going up and you sell something
Speaker:that's going down.
Butwhen you start to figure out, okay, how
Speaker:long does it have to go up, how long does it have to go down,
Speaker:which markets are you talking about, how are you measuring it?
Speaker:These things introduce huge variations in trend following strategies
Speaker:and you can get some up and some down over the same kind of timescale.
Speaker:Andthat's been quite evident, I would say, this year in particular,
Speaker:if I look at… We're fortunate at AHL, we trade a range. We trade
Speaker:anything from, you know, tens of markets all the way to kind of
Speaker:hundreds of markets and all have different characteristics.
Butwhat
Speaker:was very evident, particularly post the US election, let's say December
Speaker:last year and January this year, the very biggest liquid markets
Speaker:really nicely trended, particularly in a relatively slow
Speaker:point of view. So, they've been doing relatively well.
Morerecently,
Speaker:and I'm going back over the last couple of years, diversification
Speaker:hasn't necessarily played out. That was certainly the case, I would
Speaker:say, in 2022 when we had some big moves in markets. But year to
Speaker:date that diversification has a little bit…
We'vetalked about
Speaker:the European energy markets and those three factors coming together,
Speaker:the low inventories, the cold weather, and the lack of wind to
Speaker:power the renewables has really driven those markets higher.
Speaker:So again, it's been fascinating to see what differences
Speaker:those different effects can play.
Now,we know in the long term,
Speaker:when we run a simulation, diversification tends to play out
Speaker:in the short term kind of anything goes, which can present
Speaker:a few problems to those of us who are explaining the strategy to
Speaker:investors, but it keeps us on our toes.
Speaker:Just staying at this theme just for a second more, some of our
Speaker:good friends in the industry, and I think I'm referring mainly
Speaker:to Florin Court here because we had them on the podcast a few
Speaker:years ago. They obviously came from AHL and were kind of one of
Speaker:the pioneers to go and say we exclusively focus on alternative
Speaker:markets. And so that was very interesting.
NowI remember, well,
Speaker:I think I remember from the conversation that there was some
Speaker:suggestion that maybe, at least back then, alternative markets
Speaker:in their view were trending better. And I've always had a little
Speaker:bit of a struggle with that concept because I was thinking, why
Speaker:would they necessarily trend better? And when I looked at the
Speaker:data, it didn't look to me like performance was better in the
Speaker:long run, but it was different.
Andthen I know some of
Speaker:our other friends, who I probably can't name right now because
Speaker:I haven't had their permission and they haven't been on the podcast,
Speaker:so, I can't use the source, but what I can say is that they did
Speaker:a presentation a while back, because they also trade alternative
Speaker:markets, and they concluded that actually they don't trend better,
Speaker:they just trend at different times.
I'mcurious as to how you
Speaker:think about alternative markets from your side. Do you think
Speaker:that they have some inherent benefit or advantage to developed
Speaker:markets or whether it's kind of more, what I believe, that they
Speaker:just tend to do things differently at different times and
Speaker:therefore they can add some diversification?
Speaker:Great question. So let me answer it in a slightly different
Speaker:way. To me, performance of a trend following strategy is a lot
Speaker:to do with the diversification that you can get out of the individual
Speaker:markets.
Themaths basically says all things being equal, if everything
Speaker:is completely uncorrelated, your Sharpe ratio increases with
Speaker:something like the square root of the number of markets. You can
Speaker:get a 0.1 Sharpe up to 1 Sharpe by trading 100 completely
Speaker:independent markets.
Onthe face of it, if you can access a broader
Speaker:range of price drivers from alternative markets, you should be
Speaker:able to get a higher Sharpe ratio in the long term. And then
Speaker:if you look at the futures and forward side of things, you do tend
Speaker:to see a bit higher correlation, particularly with macroeconomic
Speaker:events. It seems to be the case that the big liquid futures
Speaker:markets were more susceptible to, let's say, what a central banker
Speaker:might say. These two observations kind of come out, I
Speaker:think, when you look at the properties of them.
So,I guess where
Speaker:your question comes from, if you look at the Sharpe ratio of alternative
Speaker:markets, it tends to look better in the long term, I would
Speaker:argue, because the diversification is better. And that's
Speaker:me kind of dodging your question about do they trend better,
Speaker:but the performance tends to be better in the long term.
Butthe
Speaker:classic futures markets seem to have a lower long-term Sharpe
Speaker:ratio. But that crisis alpha property for which people really
Speaker:look to are strategies that tend to come out stronger.
Andif
Speaker:you look at the big sell-offs in risk assets in 2008, and even
Speaker:more recently in 2022 when we had the big inflation spike, you
Speaker:know, it was evident to us that that was really coming through
Speaker:in traditional markets. And what we think is relatively appropriate
Speaker:here is asking investors the question, what are you trying to
Speaker:do?
Areyou looking for something that has perhaps a long-term
Speaker:Sharpe ratio, a steady performance independent of markets,
Speaker:or are you looking to trend crisis alpha properties?
Andspecifically,
Speaker:with regard to the latter, you could make the case of well, if I
Speaker:want to insulate my risky asset portfolio to a crisis, you
Speaker:probably won't be trading the kind of instruments that you'd have
Speaker:in that risky asset like S&P is a classic example. Treasuries
Speaker:is an example.
Goingback to my case of Nord Pool, you're not
Speaker:intuitively going to be insuring yourself or protecting yourself
Speaker:from a sell-off and risk assets by investing in something
Speaker:like a Scandinavian hydroelectric power contract. I think
Speaker:the intuition is there. So, it kind of depends what you do.
AndI
Speaker:think it might be a case of greater diversification with alternative
Speaker:markets as opposed to they intuitively innately trend better.
Speaker:I've heard it both sides, but that's probably the way I would look
Speaker:at it.
Speaker:Okay, very good actually.
So,my follow-up curiosity about
Speaker:that would be given the fact that there are these benefits that
Speaker:you mentioned, and obviously not just you, but other people as
Speaker:well, alternative markets in the CTA world have been around now
Speaker:for a few years, right? It's not ‘new new’ anymore. You were the
Speaker:pioneers as far as I remember, but others have joined since.
So,my
Speaker:question is, do you see any signs of an area which, I assume,
Speaker:liquidity is obviously not going to be the same as on the developed
Speaker:markets. Do you see signs of some level of crowding?
Crowdingis
Speaker:not exactly the word I'm looking for, but let's go with crowding,
Speaker:that there are simply maybe a few too many people trying to extract
Speaker:that benefit now using more or less same techniques, and in a world
Speaker:where liquidity could be a challenge from time to time, not
Speaker:in all alternative markets. I'm fully aware of that but it may
Speaker:also have a little bit more cost associated with it now than
Speaker:compared to when you guys were doing it more or less on your own.
Speaker:Great question. So, let's see if I can remember them all so I can
Speaker:unpack them.
Sofirst of all, I think we need to be careful in
Speaker:terms of liquidity and the connotations of that. So, the alternative
Speaker:markets, if you look at them on a market-by-market basis, they're
Speaker:not necessarily smaller than futures markets. They're harder to
Speaker:access, but not necessarily smaller. So, I think that's an important
Speaker:point.
Andcertainly, we view the trading or the size that we would
Speaker:have in any one market for an alternative market in exactly the
Speaker:same way that we would do a futures market. So, I think that
Speaker:would be the first point to make. It's not necessarily giving
Speaker:up liquidity.
Imean,even outside of alternative markets, a
Speaker:smaller futures market will probably get a smaller size within
Speaker:your portfolio, all things being equal. So, that'd be one thing.
Speaker:Thesize of the industry. I think you were right with your question.
Speaker:If that was becoming an issue, you might pick it up in terms of
Speaker:transaction costs increasing, but you don't necessarily see that
Speaker:and you get independent…
Weobviously measure internally the
Speaker:size of a market in which we gauge our position. But there's also
Speaker:independent surveys that you have on credit derivatives and interest
Speaker:rate swaps, and they showed that these markets are actually growing
Speaker:as well. So, you can kind of glean from those whether or not perhaps
Speaker:the space is getting too big. And we certainly don't think that's
Speaker:the case.
Andmaybe the final point, and again, your question alluded
Speaker:to it. Does liquidity necessarily dry up in times of stress?
Speaker:I mean, CDS is almost the poster child for that not being the
Speaker:case. A credit derivative, when times get stressy, what you
Speaker:often see is the demand for insurance. And credit derivative,
Speaker:to some extent, is insurance from your credit risk.
Thatdoesn't
Speaker:dry up. If anything, the size of that market tends to grow at that
Speaker:point. All good questions, and it's something we actively monitor,
Speaker:but we don't think these are significant causes at the moment.
Speaker:Final question on this, and I really appreciate you sharing your
Speaker:insights here because we didn't specifically plan for this,
Speaker:but in the alternative space, at least in my view, you would include
Speaker:crypto. And I get a lot of questions personally from people
Speaker:who ask whether we are considering crypto. And, of course,
Speaker:you could say from a return stream point of view it's an interesting
Speaker:non-correlated market, and so on, and so forth.
ButI did notice
Speaker:that even at this stage, where some of the cryptocurrencies have
Speaker:become very well established, you have even got ETFs on those markets,
Speaker:we had a little bit of a crypto crash earlier this month where
Speaker:Ether dropped like 20% or more over the weekend in one day.
So,to
Speaker:me, the exit liquidity risks that, what if you had to trade on
Speaker:that day? I know you couldn't even trade futures on that day, but
Speaker:some people may trade it in other ways. Is this something you
Speaker:just simply…
AndI don't know if you can answer this question,
Speaker:of course it's more of a research question, but I'm sure you
Speaker:could. Is this something that you just simply have to kind of take
Speaker:into your analysis saying yeah, this could happen. So, we take
Speaker:that into consideration when we price positions or calculate positions.
Speaker:Or is this something that may even surprise, a little bit, your
Speaker:research team when they see that in a relatively established
Speaker:crypto market like Ether, that suddenly you have a 20% drop in a
Speaker:day.
Speaker:Great question. I guess as always you just have to weigh up
Speaker:the risks with the opportunities as well.
We'vegot
Speaker:fairly well established futures markets on I guess Ether
Speaker:and Bitcoin 2017, off the top of my head, something like that.
Speaker:So, fairly big and fairly liquid. What's certainly apparent
Speaker:to us as traders, and this is not us expressing any fundamental
Speaker:opinion either way, which I'm sure Rob Carver would be very happy
Speaker:to hear about. But you know, you just have this complete missing
Speaker:idea of value within there. It's been, you know, over the years.
Speaker:You know, obviously we're, we're bounded at zero on one side,
Speaker:but where's the other end of that spectrum? Is it, it used to
Speaker:be 100, and I hear people talking about 200, who knows where
Speaker:it is.
Butthat is, to a trader, particularly a trend following
Speaker:trader, that is just a wonderful thing to hear. Trend following
Speaker:strategies love bubbles. And anything where there is just very
Speaker:little idea of fundamental value has this propensity to form
Speaker:bubbles.
Andthat's something that we absolutely love. So yes,
Speaker:there's definitely opportunity there and risk there as well. So,
Speaker:I guess your classic way to look at the risk side is well, how
Speaker:do we diversify?
Andof course you diversify across as many future
Speaker:strategies, futures markets as you can, I mean broadly too their
Speaker:investor appetite comes into it as well. Even though we can say
Speaker:we think it's potentially a great opportunity set, some people
Speaker:just don't want to trade it and that's fine. We have to accept
Speaker:that.
Butyou know there are other options too. You can, you know,
Speaker:there's decent liquidity in a lot of the coins now, as well. And
Speaker:that's something that we can, we can look at and try and diversify
Speaker:some of this idiosyncratic risk that you mentioned. But I think
Speaker:to us the opportunity set is fabulous there, but very cognizant
Speaker:of the fact that some people just don't want to be exposed to
Speaker:that, and that really limits where you can put these things into.
Speaker:Yeah, no, absolutely, great stuff. Thank you so much for playing
Speaker:ball on these questions. It’s very, very helpful and I'm sure very
Speaker:interesting for our listeners.
Nowlet's get back to the normal
Speaker:programming and that is talk a little bit about what trend following
Speaker:is doing at the moment and then we're going to get into a question
Speaker:which actually I think will be quite interesting for people to hear
Speaker:and then we'll get into some topics that you brought along.
Froma
Speaker:performance point of view, first of all, my own trend barometer
Speaker:finished at 30 yesterday which is weak, on the weak side. But I
Speaker:think also, people should always remember that it is using
Speaker:somewhat shorter term timeframes so it's more in line sometimes
Speaker:with the Short Term Traders Index which is pretty week so far
Speaker:this year. But still, anyways, it can be tracked every day on the
Speaker:website. But it's at 30 right now.
Performancewise, and this is
Speaker:as of Tuesday since we're recording Thursday so we don't have
Speaker:the Wednesday numbers yet, but I think yesterday was a little bit
Speaker:of a down day for the industry. But as of Tuesday BTOP50
Speaker:was up 56 basis points for the month, up 1.78% for the year. SocGen
Speaker:CTA index pretty much flat, up 11 basis points for the month, up
Speaker:73 basis points for the year. Trend index making 41 basis points
Speaker:in February, up 56 basis points for the year. And the Short
Speaker:Term Traders Index, as I mentioned, struggling a bit, down
Speaker:30 basis points and down a quarter percent so far this year.
Speaker:Comparingthat to the traditional world, MSCI World up
Speaker:1.83%, very strong despite everything that's going on in the
Speaker:world, up 5.37% so far this year. Even 20-year bonds, the S&P
Speaker:US Treasury bond index for 20-year plus is up 68 basis points
Speaker:so far this month. That surprises me a little bit actually.
Speaker:It's up 1.15% so far this year. And the S&P 500 Total Return
Speaker:up 1.8% in February, up 4.64% this year.
Allright, let's move
Speaker:on to a question that came in from Rick and it goes I think a little
Speaker:bit into sort of the structure of how the trend following managers
Speaker:look to extract the trends, so to speak. How do we do it? And I'll
Speaker:read the question in a second. But also, I think it allows us to
Speaker:talk maybe a little bit about the history of how some of this may
Speaker:have evolved.
AndI will say to you, Rick, appreciate the question,
Speaker:but of course I don't think Graham and I can claim that we know
Speaker:enough about what our competitors are doing to give you
Speaker:any reliable data in terms of the breakdown. But let's deal with
Speaker:it one by one.
Youwrite, “The SG trend index (and I think it's
Speaker:the trend indicator that you're referring to), utilizes the
Speaker:20 and 120 day crossover as a trigger and has some nuance sizing.
Speaker:Here are my high level questions.
Isa crossover system
Speaker:typically the primary tool for trend?” (And when I read this as
Speaker:moving average crossover, that's how I read the question.)
Speaker:So, I'd love to hear your thoughts about this because from
Speaker:my memory, I think actually that AHL in terms of the CTA, (here,
Speaker:I'm going back to the original, so to speak, AHL with David,
Speaker:Marty and Mike) they were maybe some of the first people to
Speaker:use moving average crossover.
Idon'tknow if you know this or
Speaker:not, Graham, but that's just how I remember my conversation with
Speaker:them many years ago. What would you answer, whether it's the
Speaker:typical primary tool for trend following?
Speaker:So, I guess back in the very early days, I think the original
Speaker:signals were kind of binary. It's on if it's going up, or it's
Speaker:off, or it's minus one if it's going down. And I think the natural
Speaker:progression from that kind of binary signal is something that's
Speaker:a little bit smooth, something that moves gradually into positions.
Speaker:And I think a classic moving average crossover will give you that
Speaker:kind of response.
Yousaid it in your introduction. We don't necessarily
Speaker:know what everybody's doing, but I'd be surprised if that wasn't
Speaker:happening in a lot of trend vol managers analysis. And the indicators,
Speaker:as far as I can remember, uses one crossover, the 20/120 day to
Speaker:represent the index or it best fits the index over a number of years.
Speaker:So, I think that's where that comes from.
Interms of what I said
Speaker:earlier, we need to be a little bit careful there in terms
Speaker:of the huge dispersion we get in trend following managers who are
Speaker:using all these different techniques for looking at trends
Speaker:in all these different markets. Even with a consistent approach,
Speaker:trend following approach, that dispersion is absolutely huge. So,
Speaker:we need to be a little bit careful if we're boiling it down
Speaker:to one tool this 20/120 day. But more broadly I'd say moving average
Speaker:crossovers or something similar. They're one of many tools
Speaker:that we use to look for trends.
Othersinclude, you know,
Speaker:breakout models where you effectively form a channel around
Speaker:a better price and then if the price moves upside, on the upside
Speaker:you go long, if it moves in the downside you go short. People
Speaker:also look at back returns. There's lots and lots of different
Speaker:ways to do it.
Evenwithin moving average crossovers, for example,
Speaker:there's lots of design choices you can use. Do you use a fixed window,
Speaker:you know, that 20/120 day that the trend indicator uses, you know,
Speaker:is that just a constant window constant, 20 day constant, 120 day
Speaker:average? Or is it some kind of weighting towards more recent observations
Speaker:which might make more sense to make you a little bit more reactive.
Speaker:Whateverthe case though, the beauty of a system like that is that
Speaker:they're smooth, they're incremental and any kind of positions
Speaker:that you put on through moving average crossover type models they
Speaker:don't hit the markets hard and they incur relatively small transaction
Speaker:costs. So, they have lots of advantages.
Speaker:Yeah, no, definitely, because actually Rick goes on to ask whether
Speaker:the breakout models are also used and what's the typical split
Speaker:of crossover versus breakout models, so on, and so forth. So,
Speaker:of course, you and I don't know the split. We can certainly
Speaker:confirm that they're both used.
ImeanI can say from my point,
Speaker:at Dunn, we actually started using volatility breakout. That's
Speaker:back in the early ‘70s. We never used moving averages. But then
Speaker:later on we added, as you say, more continuous systems like a lot
Speaker:of people would call time series momentum, which by the way
Speaker:AHL has a wonderful YouTube video called AHL Explains.
Andit's
Speaker:very well explained, actually, by one of Graham's, I think maybe
Speaker:former colleagues now, about how time series momentum and other
Speaker:of these signal generation methods are used. So, Rick, maybe
Speaker:you want to go and check that out as well.
Butthen I dug a little
Speaker:bit into sort of the archives and I found, from books, and I don't
Speaker:necessarily agree with the timing of this, but it was interesting.
Speaker:So, some people would say that breakout systems can be dated back
Speaker:all the way to the 1800s with David Ricardo and his kind of rules.
Speaker:There are some quotes that we've used in the trend following
Speaker:industry for many years about, ‘let your winners run and cut your
Speaker:losses short’, dating back to that era. I think it was like 1789
Speaker:or something like that.
So,some people claim that breakouts
Speaker:have been around for a very long time. It may be true, I don't
Speaker:know. Then there were people talking about sort of Dow theory
Speaker:as also a kind of a breakout dating back to the 1900s, which may
Speaker:be true.
Thereis this article, I think actually it's something
Speaker:I came across on Michael Covel's podcast many, many years
Speaker:ago. I think he had an article of this show dancer called Darvas,
Speaker:I forget his first name, who made a lot of money, not from dancing,
Speaker:but actually from using what became known as the Darvas box. So,
Speaker:when prices broke out of this box or range, I guess, he would follow
Speaker:them and apparently made a lot of money there.
That'sback from
Speaker:the 1950s, this article. So, that's been around for a while. Then
Speaker:you have these channel breakouts that you refer to Donchian
Speaker:Four-Week rule as a concept. I found some references back to 1960
Speaker:about that. Something called the Dreyfus 52 Week Rule, also 1960.
Speaker:Andthen of course the Turtle Traders, which most people listening
Speaker:to us will probably be aware of, which started out, I think in
Speaker:1984 and lasted for a few years. Later on, according to the
Speaker:sources I could find, you had Bollinger Bands, which is more volatility
Speaker:breakout and average true range.
Butall I can say is that
Speaker:at least at Dunn, and I think also maybe people like Campbell and
Speaker:others, who date back to the early ‘70s, this was volatility breakout.
Speaker:So, that certainly came before what these sources had found.
AndI
Speaker:also think that there are fractal, Bill Driess who also had
Speaker:been on the podcast and who's unfortunately retired now, good for
Speaker:him. He was using some fractal analysis, I'm not entirely sure how
Speaker:to describe that. But he also dates back to the mid to late ‘70s.
Speaker:Sothat's kind of what I found in terms of the history of these
Speaker:things. Feel free to add anything, Graham.
Speaker:The only thing I'd say is one, I'm incredibly impressed about your
Speaker:expansive knowledge about the history there.
Speaker:Well, I've been around for a long time, unfortunately. I date
Speaker:myself, Graham.
Speaker:Well, I was going to say, I mean, I remember reading, I think
Speaker:it was Reminiscences of A Stock Operator, which I've just been
Speaker:looking up Lefevre. I mean, that to me was one of the earliest
Speaker:instances I saw of people talking to me. It didn't say trend,
Speaker:I recall, but it was clearly what it was. And that was absolutely
Speaker:spot on. It’s just really interesting to see how people got
Speaker:it from very early days.
Speaker:Reading the tape, I think is how they described it.
Speaker:Great book, well worth the read. And also, Anthony Ledford,
Speaker:who is the author of our little videos that you mentioned.
Speaker:He's still around, actually. Still around, still going strong,
Speaker:and still very able to get across relatively complex ideas in
Speaker:a nice easy manner.
Speaker:Yeah, they're wonderful. They're absolutely wonderful. I think
Speaker:I had them in my resource section for a while on the website,
Speaker:linking to you guys, because I thought there was no point in trying
Speaker:to replicate that because they were done so well.
Anyways,now we're
Speaker:already 42 minutes into our conversation, and only now we're
Speaker:going to get to the best part, which is your topics, of course,
Speaker:Graham. So, I'm going to let you lead the way. I know you've got
Speaker:a few sort of big ones. And feel free to dive as deep as you
Speaker:want and then I'll try to keep up with you.
Speaker:Right, okay. So, I think there were two predominantly on my agenda.
Speaker:Thefirst one, which I'm calling ‘the taxi driver problem’,
Speaker:and then the second one, which we'll touch on later, talks about
Speaker:the recent events around DeepSeek and implications on defensive
Speaker:equity strategies. But let's talk about ‘the taxi driver problem’.
Speaker:Asyou're probably aware, when you travel a fair bit, you get to
Speaker:hear, you get to talk to a lot of people, and it's a really good
Speaker:way of finding out what's on people's agendas. And clients, at
Speaker:the moment, it's very difficult to beat a dominant performer
Speaker:in an index.
So,the Mag 7 being the classic case in the US
Speaker:driving everything. So, you might hop into a cab in the US and
Speaker:they'll tell you how well they've done being long the Mag 7.
Speaker:And of course, they were in there before they took off.
Andif
Speaker:you were in Copenhagen, you might have the same issue with your
Speaker:cab driver talking about Novo Nordisk and how they've been in there
Speaker:since they've exploded, and done really well. So, you know, you've
Speaker:got these classic problems where very well-known entities do
Speaker:basically make the average man in the street do very well. And it
Speaker:presents problems for investors who try and diversify across
Speaker:lots of different assets to try and protect themselves in the
Speaker:long term.
It'svery hard to get it right in the very short term.
Speaker:So,I guess the most often question, the most popular question
Speaker:we're getting from clients at the moment is kind of, I'm underperforming
Speaker:the Mag 7, for example, what can we do about it? I mean, to be
Speaker:clear, it's a very tough problem.
Hereis a very large component
Speaker:in a very large index, already overweight, that's performing ridiculously
Speaker:well. And it's very hard for a stock picker to beat that. You know,
Speaker:the largest components are the ones that are performing best. It's
Speaker:very hard to figure out how you beat that.
Andone thing that
Speaker:people are gravitating towards is a portable alpha solution. I know
Speaker:lots of people call it different things, but essentially
Speaker:what we're doing here is saying, okay, well let's separate
Speaker:our stock pickers problem into a kind of beta part. You're just
Speaker:trying to perform in line with the index; with an alpha part, which
Speaker:is a kind of long short stock pickers problem.
Andthe stock picking
Speaker:aspect of that is very hard because the largest components are
Speaker:doing well. So, I guess the portable alpha framework would say,
Speaker:well, let's separate the two. Let's accept that you want your equity
Speaker:beta in there, but can we port that alpha problem somewhere else?
Speaker:Can we take it potentially out of that pure equities domain, and
Speaker:can we put it somewhere else?
Iguessthe obvious area, particularly
Speaker:with this podcast and the subject matter is, can you put it
Speaker:in quant strategies? Can you put it in multi strategy funds? Can
Speaker:you put it in trend following just to diversify away from that
Speaker:pure equities framework and diversify your alpha sources?
So,we
Speaker:see portable alpha strategies coming back on people's radars. It's
Speaker:something that you have to think about very carefully. Margin
Speaker:management can be very tricky. You've got to make sure that your
Speaker:alpha strategy isn't drawing down at the same time as your beta
Speaker:strategy, clearly, which I guess from a trend following context
Speaker:at least should be beneficial. Typically, when your beta portfolio
Speaker:is drawing down your alpha, if it's trend following, tends to do
Speaker:quite well via this crisis alpha property.
Soanyway, it's an
Speaker:avenue that we're seeing increasing interest from clients
Speaker:and it really is started quite often from a Mag 7 type problem.
Anddoyouofferstandardizedsolutionsforthatorisitalwaysacustomizedsolutionifpeoplecomeandsay,yeah,Ineedyoutohelpmesolvethatproblem,ordoyouhaveproductstodaywherepeoplecanjustsimplybuyfrom,youknow,anequityindexplussomekindoftrendontop?
Speaker:And do you offer standardized solutions for that or is it always
Speaker:a customized solution if people come and say, yeah, I need
Speaker:you to help me solve that problem, or do you have products
Speaker:today where people can just simply buy from, you know, an equity
Speaker:index plus some kind of trend on top?
Speaker:We've certainly found it to be fairly bespoke problems from some
Speaker:larger clients. As it stands, that's the kind of problems that
Speaker:we're solving. But clearly there are potentially opportunities
Speaker:there to look for commonality across other investors to see what
Speaker:might be more broadly acceptable.
Speaker:So, when I think about that, because obviously it's also something
Speaker:that I come across, and this portable alpha, although it has found
Speaker:itself getting a lot of publicity in the last couple of years,
Speaker:it's certainly not a new concept. I remember working on this
Speaker:back in the ‘90s. So, it just comes and goes.
Funnilyenough, it
Speaker:always comes back when equities are doing really well. And
Speaker:we have to come up with a solution as to why we're… How can
Speaker:you participate in trend and not feel you're underperforming all
Speaker:the time?
Butseriously, it also obviously has a very important
Speaker:function because it is a way for giving people the solution they
Speaker:need in a package that they want, essentially. And so, I do think
Speaker:it's very valid. And often, I'll come to my question, because
Speaker:often we think about this as, oh, trend should be combined with
Speaker:equities. That we can help you diversify away from equities.
Whatabout
Speaker:bonds? What about trend as a, I wouldn't call it a bond replacement
Speaker:because in Europe… So, you and I deal with, well, I don't know about
Speaker:you, but I deal with mostly European and non US investors.
Andso,
Speaker:for them it's not necessarily the S&P they're worried about or
Speaker:the DAX as such, but it's the 80% or the 60% bonds they have in
Speaker:their portfolio. And of course, we don't know what's going
Speaker:to happen in the future, but it sounds like what's happening in
Speaker:this new world order, that it's not going to be cheaper for
Speaker:countries to defend themselves. So, you would think that
Speaker:there's a lot of bond issuance coming one way or the other.
So,maybe
Speaker:the real risk is not being invested in private companies, but
Speaker:it could be being invested in government bonds, to some extent,
Speaker:from a yield perspective. I'm not talking necessarily about a default
Speaker:perspective, but just from a yield perspective.
So,is that something
Speaker:that comes up in your conversations of saying, well, Graham,
Speaker:could you help me find a solution where I could maybe replace
Speaker:some of my fixed income exposure with something that could
Speaker:work well regularly?
Speaker:Yes. So, the crisis alpha framework is typically referred to
Speaker:in terms of equities. And I think the reason for that is you've
Speaker:had some very well-known equity market falls in the last 25
Speaker:years. I mean equities, you look at MSCI World has lost about
Speaker:half their value, twice since 2000. You know, the tech bubble bursting,
Speaker:2000, GFC 2008 and then, of course, you've got Covid. MSCI World
Speaker:I think was down about 30% in that period.
So,you've had a few
Speaker:instances where trend following has been able to shore
Speaker:those credentials in fairly recent memory. Certainly, as long
Speaker:as I think Dunn has one of the longest track records around, we've
Speaker:been around for a few decades as well. We can see that in the track
Speaker:record.
Theproblem with bonds has always been, at least until recent
Speaker:memory, you've had to go back an even further time period to see
Speaker:it. You need to go back to the ‘70s to see inflation really taking
Speaker:off. Bond crises have been relatively few and far between, with
Speaker:one exception, the recent one, 2022.
AndI think that really has
Speaker:been, from talking to clients, that's been the kind of wake-up period
Speaker:where people have thought of bonds as, oh yeah, as soon as equities
Speaker:go down, bonds will go up.
Well,: Speaker:the case, and it's definitely rekindled interest in a dynamic strategy
Speaker:like trend following where you can be short bonds, you can be short
Speaker:equities. And if you're looking to bonds as defensive, or
Speaker:as you quite rightly said, if you're slightly worried about the
Speaker:US repricing its gold and all of a sudden not needing to issue
Speaker:any Treasuries and what happens to treasury markets? I think
Speaker:it's quite possible that people might be looking for alternatives
Speaker:to that and I think trends and other strategies with defensive capabilities
Speaker:could step in and fill that hole.
Speaker:So, I have another related question to that. Obviously, we know
Speaker:that interest rates came down for about 40 years from ‘81 through
Speaker:2020, thereabouts there. Of course, bond yields have picked up
Speaker:after Covid. Now they've come off again to some extent, but they're
Speaker:a little bit higher than they normally were.
Now,my recollection
Speaker:is that after the financial crisis and when rates were really
Speaker:low and short-term interest rates were about, you know, zero
Speaker:or negative in Europe at least, investors weren't really looking
Speaker:for double digit, mid double digit returns or volatility for that
Speaker:matter. Now that it's changed, do you think, I mean from trend followers,
Speaker:that they were quite happy for lower volume type strategies?
Andso,
Speaker:I think there was a general deleveraging in our industry compared
Speaker:to say the ‘90s and the ‘80s leverage and volatility came down.
Speaker:And if you look at, say, the UCITS space, there is a little bit
Speaker:of a range in terms of volatility. But I'm just curious
Speaker:whether you think, now that we have a little bit more volatility
Speaker:in say fixed income markets, we have higher rates, do you think
Speaker:that investors are actually now looking to their trend followers
Speaker:to also deliver a bit more. They want a little bit more juice
Speaker:from what we do and they're not really looking at these low vol
Speaker:alternative products, so to speak?
Speaker:I think that question really depends an awful lot on individual
Speaker:investors. I hear some people will be dyed in the wool. Something
Speaker:that's low volatility is all that we're looking for.
Imetan
Speaker:investor yesterday who had completely the opposite view to that,
Speaker:actually. You know, given what you said, given what's happening
Speaker:in the world now, we want a little more juice out of this. And
Speaker:I guess, from my point of view, the beauty of a trend, but
Speaker:quant strategies in general, is their flexibility. You can do
Speaker:a 5 vol strategy, you can do a 10 vol strategy, you can do a 20
Speaker:vol strategy. It's just the turn of a dial. It doesn't really
Speaker:change anything.
Thevolatility of markets doesn't
Speaker:scare us. I'll go back to Bitcoin as an example again. You've
Speaker:got an asset class that trades on or around about 100 vol. It doesn't
Speaker:bother us at all. It just means that we need a smaller amount
Speaker:of it to generate a certain level of risk.
Andthat's just the
Speaker:way that we look at markets in a day-to-day basis anyway.
Speaker:Yeah, absolutely.
Now,in the interest of time, of course, I know
Speaker:you're a busy man, you had one other sort of main topic you wanted
Speaker:to discuss and maybe we'll have time to. I'll throw in a couple
Speaker:of thoughts at the very end but I certainly don't want to miss
Speaker:your last topic for this conversation so, feel free to take
Speaker:over again.
Speaker:Great, thank you, Niels.
Yes,so the second topic was about
Speaker:defensive equities and explicitly about the news that we
Speaker:had on DeepSeek that came out on the 27th of January. So, just
Speaker:to recap, this was a Chinese company coming up with a new large
Speaker:language model which could be done much cheaper than previously
Speaker:thought.
DonaldTrump called it a wakeup call for US companies.
Speaker:Marc Andreessen, who was the co-founder of Netscape, referred
Speaker:to it as a Sputnik moment.
I'mgoing to go off on a tangent
Speaker:given that you've displayed your knowledge on history there.
Speaker:So, I looked that up. It was a lovely analogy. So, the Sputnik moment
Speaker:goes back to 1957 when the USSR launched Sputnik 1 and showed
Speaker:the US just how far ahead they were. And it turns out that NASA
Speaker:was founded the following year. So, things happen on the back
Speaker:of that. So, I thought that was quite a cool link there.
Butcertainly,
Speaker:judging by subsequent price moves, I think a lot of the Mag 7
Speaker:components there just bounced back. That Sputnik moment doesn't
Speaker:seem to be playing out too much at the moment, but the context
Speaker:that was particularly interesting for us was regarding
Speaker:defensive equities. By that, I specifically mean long/short quality
Speaker:or QMJ as our friends at AQR first talked about it in 2013.
Speaker:Ithinkin previous chats that we've had, Niels, I've mentioned
Speaker:that that worked particularly well in recent years when trend has
Speaker:struggled in typical flights to quality like the Silicon Valley
Speaker:Bank Crisis 2023, and we had Yenmageddon when that big carry unwind
Speaker:happened in Q3 last year. Long/short quality a cash equity
Speaker:strategy, where you go long high quality stocks and short low
Speaker:quality stocks, that did remarkably well.
So,we've seen it
Speaker:as a really nice partner for trend following strategies. Trend,
Speaker:I always think about lines of defense. Trend requires sustained
Speaker:sell-offs, typically, to work, to exhibit these crisis alpha periods,
Speaker:typically, I guess, of the order of weeks to months. I think
Speaker:long/short quality stocks tends to be a bit more immediate
Speaker:and sits in the middle of something like let's say a long volatility
Speaker:strategy.
So,it's something we've been looking at quite closely
Speaker:to sit alongside trend following strategies. But I guess
Speaker:why it's relevant is that a few people have said, well, if you
Speaker:look at quality stocks at the moment, you tend to find that they're
Speaker:often dominated by technology stocks, software and services, semiconductors
Speaker:and equipment. What would happen in an environment where the
Speaker:tech sector sells off? Is a long/short quality stock strategy
Speaker:going to struggle as well?
AndI guess this links into the DeepSeek
Speaker:episode the 27th of January. That's clear that was linked to a
Speaker:fairly big sell-off in tech stocks, but we didn't necessarily
Speaker:see a sell-off in that factor. So, that was reassuring. I think
Speaker:that was on our radar in the last couple of months. But it kind
Speaker:of makes sense as well.
Evenwhen the tech bubble burst,
Speaker:2003, you saw long/short quality strategies, at least in simulation,
Speaker:do okay. So, it's kind of nice to see, more recently, in a very
Speaker:sudden market move, like we saw on the 27 January, that this,
Speaker:at least for now, doesn't seem to have been an issue. So, I think
Speaker:that was the main point I wanted to raise with that one.
Speaker:Yeah, it's funny, the whole DeepSeek event obviously happened,
Speaker:as you said, the first Monday of the week of the big alternative
Speaker:investment conference in Miami that I was attending, actually. And
Speaker:there were a few nervous faces in the morning of that day when you
Speaker:looked around, but it all turned out not to be too big of an
Speaker:issue.
Thiswas great.
There'sone thing I maybe wanted
Speaker:to sort of leave people with as a thought because you mentioned
Speaker:it already when you talked about this thing about value. Now,
Speaker:I forget the exact wording you were using earlier, but the way I
Speaker:think about it is that we do live in a time right now where there
Speaker:is, in my view and others, there is a disconnect between the
Speaker:price and what we define as value or what we used to think about
Speaker:as value.
Andyou talked about it in terms of Bitcoin, where value
Speaker:is very subjective. What is it worth? Some people say it's going
Speaker:to be worth millions and some people say it's going to be worth
Speaker:zero. So, value has become very subjective in many ways. And
Speaker:I completely agree with that, I think we live in a world where
Speaker:we see some crazy price moves and crazy assets, as well, being
Speaker:priced.
AndI was thinking about this, and I think, well, if
Speaker:we're in a world where there is less of a connection between value
Speaker:and price, wouldn't it be a good idea to just focus on price?
Speaker:Because that's the one thing we do know, because we have it in
Speaker:front of us on our screens every second.
Andso, in an odd way,
Speaker:because of what's happening, even though it's not good news necessarily,
Speaker:what's happening around us, but in an odd way I think it might
Speaker:present more opportunities for strategies that are just focusing
Speaker:on price, like trend following. But there may be others
Speaker:as well.
So,it's not always nice to be optimistic at a time where
Speaker:the world seems to be falling down around you but I do feel that
Speaker:there are some opportunities for these type of strategies. And
Speaker:maybe more so, that there is a bigger understanding, and recognition,
Speaker:and acceptance, by investors that maybe they need some of this
Speaker:in their portfolios if they haven't got anything. And maybe they
Speaker:need a little bit more than what they have right now.
Notthat
Speaker:I think that there is a lot of massive changes in inflows to our
Speaker:industry right now, but I certainly feel, from my travels,
Speaker:that there is a bigger openness to have these conversations
Speaker:compared with a few years ago. Don't know what your thoughts are
Speaker:because you travel as much as I do.
Speaker:I would agree. I think maybe, to quote a friend of the pod, Andrew,
Speaker:who says about trend following, Mr. Market is your portfolio
Speaker:manager. You know, let's see what's happening in the price, not
Speaker:necessarily what's in the value. And there's just as, at least,
Speaker:if nothing else, a different way to look at things. And I think
Speaker:that's really quite relevant right now.
Speaker:Yeah, it is indeed.
Allright, well, great stuff. Thank you so much,
Speaker:Graham, for preparing, and coming on, and sharing your knowledge.
Speaker:We'll, obviously, have you back in a few months when the weather
Speaker:is a little bit warmer. And so, I already look forward to that.
Speaker:Ofcourse, for those of you listening and you want to show a
Speaker:sign of appreciation to all the prep work that Graham did, go
Speaker:to one of your favorite podcast platforms, leave a rating,
Speaker:a review of this episode, and give him some nice feedback.
Wetalked
Speaker:about crisis alpha a fair bit. I'm glad to say that next week I'm
Speaker:joined by the queen of crisis alpha, namely Katy, who'll be here
Speaker:to talk about maybe even a new paper she's been working on. So that's
Speaker:very exciting news, I think, for all of us.
Andif you have some
Speaker:questions that you want to ask Katy, you can email them to info@toptradersunplugged.com
Speaker:and I'll do my very best to, one, remember them and also make
Speaker:sure I put them in front of her as best as I can.
FromGraham
Speaker:and me, thanks so much for listening. We look forward to being
Speaker:back with you next week and, in the meantime, as usual, take care
Speaker:of yourself and take care of each other.
Speaker:Thanks for listening to the Systematic Investor podcast series.
Speaker:If you enjoy this series, go on over to iTunes and leave an honest
Speaker:rating and review and be sure to listen to all the other episodes
Speaker:from Top Traders Unplugged.
Ifyou have questions about systematic
Speaker:investing, send us an email with the word question in the subject
Speaker:line to info@toptradersunplugged.com and
Speaker:we'll try to get it on the show.
Andremember, all the discussion
Speaker:that we have about investment performance is about the past, and
Speaker:past performance does not guarantee or even infer anything
Speaker:about future performance. Also, understand that there's a significant
Speaker:risk of financial loss with all investment strategies, and you
Speaker:need to request and understand the specific risks from the investment
Speaker:manager about their products before you make investment decisions.
Speaker:Thanks for spending some of your valuable time with us, and we'll
Speaker:see you on the next episode of the Systematic Investor.
