Uncertain Markets and Future Returns

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Volatile stock and bond markets are not going away anytime soon, and investment strategies focused on discipline, market-tested algorithms, and the patience to withstand near-term turbulence will continue to deliver better results. As US stocks have dropped about 25% and US long-term treasuries dropped nearly 30%, specific strategies that combine futures, derivatives, and other securities along with market-neutral equity trading have produced superior returns. This impressive overall performance can be expected to profit from market movements and even market shocks that, while specifically unpredictable, will be inevitable from now on. In the face of dismal predictability and lack of confidence, it is discipline, time-tested algorithms, and a multi-strategy perspective toward broad market sectors that have outperformed and will continue to deliver superior risk-adjusted returns and better overall performance.

Digital Assets, Central Banks, and Regulators

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The collapse of FTX shows how easily crypto is manipulated and the “crypto ecosystem” is fundamentally driven by centralized players and not any true form of decentralized or digital assets. Cryptocurrency is a sideshow and benefits no one other than speculators hoping for a greater fool. However, the combination of digital asset regulation, central-bank cooperation, and distributed assets via decentralized platforms still represents one of the most intriguing opportunities, and, with the potential disruption of global finance, one of the most exciting investment areas today.

The Next Ten Years

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The onslaught of market-making bad news seems almost a daily event. A gloomy picture of slowing economic growth, elevated inflation, and confusing fiscal and monetary policy has added a lethal mixture to the market’s performance. Fiscal stimulus is sidelined, and monetary policy is constricting economic growth and entrepreneurial innovation. It makes for a gloomy outlook and an even more depressing long-term perspective. The next 10 years look more like a lost decade. High-growth company valuations have been significantly discounted, and over time as discount rates drop, their valuations are likely to increase substantially. Higher-yielding fixed income securities will be a standout performer as interest rates are reduced, the higher-yielding BDCs, REITs, leveraged loan securities, and high cash flow instruments, along with high-dividend equities, will prove extremely attractive and are currently available at bargain prices. Providers of value and users of value will be the winners for the next decade. Those generating real cash flow and disruptive innovation will define the next decade.

Predictions and Nonsense

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Predictions usually end up being nonsense. We simply draw a trajectory from what we know today. But innovation is a discontinuity. Things are unpredictable because innovation does not come from consensus thinking. It comes from small groups and individuals with a spark of entrepreneurship, intelligence, and vision.
One of the fundamental tenets of predicting technology is that most forecasters get things spectacularly wrong.

A Monster Is on the Loose

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The rewards for innovative success have become enormous and unpalatable, especially among the five technological giants (Amazon, Apple, Facebook, Google, and Microsoft) forcing these firms to spend absurd amounts of money on lobbying in Washington DC. It’s an expensive and wasteful distraction, but essential in this brave new world. If nothing else, it clogs innovation. It is to our detriment – and the world is literally burning while politicians fiddle – and even more disastrously – impede innovative activity. Applying friction to free thinking and new ideas never ends well.

Does the Future Need Us?

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Brilliance combined with quirkiness and rule-breaking perpetuates an image of daring entrepreneurs and risk-taking capitalists generating outsized wealth. This simply doesn’t happen unless what is created matters. While we might question how much one needs to play a videogame or interact with social media, an advanced society needs advanced solutions to the intractable problems it faces. As John F. Kennedy said, “Our problems are man-made, mankind can solve them, as well.” Perhaps. The harsh reality is that brilliant, hard-working entrepreneurs and thoughtful investors lose much more often than they win. We need their risk-taking and willingness to lose. It’s how we win. We need the benefits technological innovation delivers even if we don’t understand that innovation’s ultimate purpose.

A Solution and a Sideshow

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Innovation is unpredictable and astonishing – it can address the world’s most critical issues today, from hunger to efficient energy, to devastating diseases. It is also too often misguided, inefficient, and meaningless – creating nothing more than distractions and wastes of time cloaked in an image of technological wonder. Misguided and manipulative business plans sit side-by-side with the groundbreaking disruptions that may address society’s greatest problems.

Innovation is Essential and a Misguided Sideshow

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Remarkable things can happen. Or not. Can we solve climate change, food shortage, limited healthcare, and other global stresses – all with TikTok videos? Innovation is unpredictable and astonishing – it can address the world’s most critical issues today, from hunger to efficient energy, to devastating diseases. It is also too often misguided, inefficient, and meaningless – creating nothing more than distractions and wastes of time cloaked in an image of technological wonder. Misguided and manipulative business plans sit alongside the groundbreaking disruptions that may address society’s most significant problems. We don’t have time. Even though there is no clear argument for resources going to a new video-sharing platform or immersive game, that is beside the point. Technology delivers something, nothing else can. It is the only way to find solutions to otherwise intractable and potentially devastating global crises. . The freedom to pursue solutions is the essential first step. Letting the best people do their best is still the best policy. It will also generate the best outcome.

Think Differently and Better

Think Differently and Better

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The market is consensus thinking. Performing above average means being different. Simply being different doesn’t define success. Success means understanding what it takes to not only think differently but understand when consensus thinking is wrong and executing and implementing those choices effectively. Doing better (generating superior returns with less overall risk) is difficult. Understanding “what’s really going on” is not a simple formula. It requires different, deeper, and better thinking. Depart from the investment crowd, focus on the factors that are necessary and, in combination, sufficient to make a difference, sustain performance and manage risk. It’s not easy or obvious, but it is superior.

Better Investment Strategy

A Better Investment Strategy – Data, Discipline, and Rigor

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Let the data tell the story. Remove human bias. Intuitive investment ideas may seem compelling, but more often, these ideas are time-consuming, inefficient, and inferior.

Diverse thinking, innovative approaches, and a willingness to be wrong and start over typically bring superior results.

Trust the model. Data, discipline, and rigor win more often.