There's a fascinating section in the book A Brief History of Everyone Who Ever Lived, on the origins of eye color. Originally, homo sapiens were only brown-eyed resulting from the dominance of the pigment melanin within the iris. This distribution of melanin lessened over tens of thousands of years, evolving into blue and green (green eyes being the rarest, with ~2% of people globally sharing the color).
What's interesting is that all blue-eyed individuals share the same genetic mutation - meaning that they descended from a lone blue-eyed ancestor somewhere between 6 and 10,000 years ago. This makes blue-eyed people arguably unique amongst other eye colors.
With an inordinate amount of overlap within the current asset management industry I thus thought to explore any unique investment philosophies amongst the plethora of firms - the ones with blue eyes.
There is arguably no shortage of self-proclaimed Bloomberg experts, price prediction charts, macroeconomic factors and forecasts. Most if not all investment research reports involving future price predictions are in fact quite easily replicable and provide information that ultimately leads to overconfident (read expensive) investment decisions (we would know).
I did not begin reading in-depth finance books until my mid-20s, as my prior literary experience with "wealth management" were the novels Treasure Island and The Count of Monte Cristo. The finance books that stood out most of course, were by Nassim Nicholas Taleb, specifically his turkey metaphor in his masterpiece, The Black Swan. For those that are unaware, see here for a brief primer. (Long story short, the turkey is asked to predict his life span based on "past data" - then all of sudden on Thanksgiving he winds up dead.)
The point of NNT's turkey metaphor, is that in our search for yield, predictions and forecasts are useless. What we can do is simply account for tail-risk (i.e. black swans). There are a plethora of ways to do this in the traditonal equity markets - simply by going long the VIX (for a general hedge) or by purchasing puts on each individual equity position (more capital intensive but a direct hedge).
(In the realm of Digital Assets, achieving portfolio insurance is obviously more complex due to the nascent nature of derivatives. Thanks to the Austere team though, you can rest easy.)
Which asset manager spurns the idea of forecasts/predictions as well as marketing timing and espouses the importance of risk control above all else? This one, it would seem. (They are also keenly aware that the success of any company depends ultimately on the people that run it.)
Elsewhere, BTC spot is currently taking a hit, as is volatility with IV dropping to ~80% for ATM Dec '19 calls (Mar 2020 options were also just recently released on Deribit).
Lastly, we also are of the opinion that any shouts of an impending US recession are overblown - the latest contraction in PMI numbers as well as the barest hint of a yield curve inversion not withstanding. It would be wise of Fed Chair Powell however to hold strong against our President's rhetoric, as the Fed requires rates to be high enough in order to provide any sort of monetary easing should GDP growth indeed begin to contract and ultimately negate.
Until next time.
Brian Koralewski is the Founder and Managing Partner at Austere Capital.
You can reach him directly at email@example.com
*(The information within this email is NOT investment advice and is our opinion ONLY)*