All News Is Bad News

“Every time you buy something, somebody’s selling it to you…” – Stan Druckenmiller

Year-end always brings a mix of emotions for market participants. As the saying goes, you’re only as good as your last trade. So as an investor, year-end is a milestone of sorts, providing a time stamp to benchmark your performance against all of your peers doing the same thing you are. If you’ve been sitting on your hands all year, or have been underperforming the market, it’s easy to fall into the trap of trying to hit a home run in the eleventh hour to make up for it.  If you’ve been successful as an investor, you probably will have shut down most of your risk right now and are off in some expensive foreign country skiing and enjoying the holidays.

This year I’ve ended up somewhere in the middle.  It’s been a tough year, make no mistake. Our long/short portfolio has found it particularly challenging as we essentially saw the market peak earlier in the year and begin it’s multi-month downdraft thereafter.  Our macro book has outperformed significantly because we pivoted hard out of equities and are sitting mostly in cash, bonds, and gold. But I’m also not the type of person to say “I can’t wait till this year is over” because it’s not like once the year is done you stop trading.  Investing is a full-time gig, and it doesn’t matter if it’s December 31st or January 1st, I simply love the markets and looking at money making opportunities year round. So year end is just a formality to me really. It doesn’t help that it’s 75 degrees and sunny in Hong Kong right now. It really does not feel like Christmas…

I usually do a year-end review type piece outlining all the outlandish things that happened in the markets each month and they follow that up by trying to somehow postulate how I can best position myself for the coming year. I could spend the rest of this piece talking about the Fed’s most recent dovish hike or the trade wars with China after the Huawei debacle or Trump’s outlandish tweets about firing Powell or building his wall.  Or maybe I could talk about how we are on the brink of a recession or about the Uber vs. Lyft race to IPO and how that forebodes a massive private equity bubble…

But I’m not going to do that this time around. Call me lazy, or exhausted or maybe simply outright clueless…whatever it may be, this year I’m just not feeling it. Not only do I genuinely not know what to make of 2019, but I’ve also come to an almost esoteric appreciation of the fact that my view doesn’t really matter in the grand scheme of things. The only thing I have control over is how I manage my risk.

As far as markets go, if I could leave you with one “gem” for 2018, here it is. Take some time to watch this. I’ve watched it twice now already, and it will without a doubt be the best and most insightful 1-hour use of your time over the remainder of the holiday season.

The CliffNotes version of this gem of an interview is the simple fact that one of the greatest money managers of our generation Stanley Druckenmiller, who has an unprecedented track record of earning a 30% annual return over 30 years with no single money-losing year on record (Buffett has made 19% over 50 years and Klarman is at 20% over 34), has no f-ing idea what to make of the markets. So neither should you or I. This is something to take comfort in.

All you need to know is that we are in a bear market and in bear markets, all news is bad news.

Being a student of history is essential to being successful in the markets but on the same token, I always hate dwelling on the past.  Instead of investment predictions which will most certainly be proven wrong, why don’t we just end the year on a positive note? The markets are behind us and your performance is what it is. Don’t try to be a hero right now, instead, let’s focus on what you can do better next year.

The one activity I do enjoy during the year-end festivities is the reflection.  Reflection on the year behind us and reviewing “lessons learned”. I use this to build an actionable framework to take advantage of beginning the New Year with a clean slate.

If you are anything like me, you’ll be going over your New Year’s Resolutions soon, executing the time-honored ritual of goal setting and habit formation (or breaking) and forecasting just how many days into January you can actually stick to them.

Gyms are always packed for the first two weeks of January for this very reason. But as time goes on, and human laziness (and life) kicks in, slowly but surely the fair weather resolutioners start to sift away and by end of Jan you are back to a nice quiet gym with no waiting around needed for the squat rack.

In the very same way, it pays to take some time to prepare for the new year. Investors who try to “wing it” in the New Year will find themselves poorer for it. Take a moment this holiday season, after you finish being grateful for all that life has given you, and outline your objectives for 2019.

Most importantly, figure out what micro-habits you can implement to actually accomplish those goals. Goal setting is a fun theoretical exercise but the only real way to get from point A to point B is by implementing small, actionable micro-habits that you can execute day in and day out.

I wish you all a very Happy Holidays. Let’s hope 2019 ends up being more favorable than 2018 has for investors, but even if it isn’t we’re going to enjoy the ride either way and make it a great year.