The Macro Trader
Here is an update on my primary business The Macro Trader. I continue to get new subscribers which is a good thing and our performance has been far better than most, which is an even better thing. As opposed to most subscription based products which are available to retail investors we do not advertise how you could have made $123,000 on this one trade or some other bullshiz like that. Instead we show our model portfolio performance as a whole. We have some great trades, but like every trader ever in the history of the world no matter what some may say, we also have our share of losses as well. If you can’t tell we hate marketing that involves lying/misleading and the investment newsletter industry has more than its share of liars.
Anyways here is our performance year to date. We are up as of tonight 7.59% with a worst drawdown of -2.29%. This compares very well against the HFRXM Hedge Fund Research Macro Index which is down -1.56% and has a worst drawdown of -4.76%. Of course if we are beating any benchmark then we are also beating the SP500. Why people continue to believe in buy and hold is beyond us but if you are a believer then you are down -6.09% for the year and are currently down -13.97% from the high for the year. Yes, that means that we are ahead of the SP500 by almost 14% and with far less risk.
YTD Perfomance vs Benchmarks
To get a better picture of how we are doing and how our returns have been far less volatile than the SP500 here is a chart showing $1,000 invested in our model portfolio, SP500, and the HFRXM. As you can see we have been fairly consistent with low drawdowns and little volatility.
YTD $1,000 Investment
We have never been really big fans of the buy and hold as it always leaves the door for devastating losses that you may or may not ever come back from. Many people fail to realize that a 50% loss requires not a 50% gain but a 100% gain just to get back to breakeven. Think about it if you have $100 and lose $50, the remaining $50 needs to double to get back to $100. Looking at the past 10 years we have had two instances where the SP500 tanked by 50%. The 2000-02 crash took it down 47% and the 2008 crash took it down 57% from the high to the low. Despite the monster rally of 2009 that took the SP500 up 67.45% from its lows investors were still down -29% from the 2007 highs.
We bring all of this up in our update to highlight one thing that we do, and do quite well. That thing is risk management. We are only right a little more than 55% of the time but our losses are far smaller than our gains. We strive to never risk so much on a trade that if we are wrong we cant climb back out of the hole. We do this by using tools like stop losses on both a position and portfolio level, position sizing on both a position and asset class level, correlation studies to see if we are too concentrated, diversification across asset classes, by going long and short, by hedging, etc. Basically we cut our losses short and try to let our winners run.
We have found that in any business and even in life that risk management is one of the things that really separates the winners from the losers. If you do everything in your power to control your downside then you will be in a lot better position to capture the upside in any endeavor. The Scouting motto was not just for camping “Be Prepared” is the correct way to invest as well.
Happy Trading,
