Despite this year’s unprecedented volatility, there are some investment strategies that are proving to be top performers. The 50% year-to-date return in the Toroso Investments ATAC Rotation mutual fund [ATACX], which positions itself depending on how the S&P 500 utilities sector and US Treasuries are performing, is using one of them.
Michael Gayed, an investment manager with over 15 years of experience, manages the fund. He takes a truly unique approach to interpreting market movements, which is chronicled in his daily output on the critically acclaimed Lead-Lag Report. Gayed has co-authored four award-winning research papers on market anomalies and investing. He is also an active contributor to MarketWatch and Seeking Alpha.
Inspired by the work of scholar Nassim Nicholas Taleb, Gayed developed a tactical risk on, risk off strategy that he uses alongside a quantitative mindset. In this week’s episode of Opto Sessions, he explains how he gives a voice to the math.
Listen to the interview:
What is the top mistake traders make?
“Giving up. And I say that because if you give up too early, when you're in these false positives or whatever signals you're tracking, you've just invalidated all of your work in analysing that signal.”
Where do you go for investment and economic insights?
“Personally, I go directly to the market. There’s a lot of content and research out there, but I'm always sceptical of most of the things that I read because when I test them — which I do because I’m a natural sceptic — it ends up not really working. I'd rather focus on the areas that matter the most, which are these intermarket relationships documented in these white papers, which is all driven by market forces — not by somebody's opinion.”
“I'd rather focus on the areas that matter the most, which are these intermarket relationships documented in these white papers, which is all driven by market forces — not by somebody's opinion”
What is your top tip for your younger self?
“Have more fun. There’s this line that goes ‘you can't get the gold without the dragon’, so if you want to be ambitious you have to work very hard and you have to get very lucky. Time is a limited resource, right? Fortunately, everything I've worked towards has really mattered. Things are picking up from business and personal perspective, but I did sacrifice a lot of years to get to this point. I think in hindsight, I should have enjoyed the journey more, as difficult as the journey was to get that gold and to fight that dragon. I think it's important to enjoy what you're doing rather than just focusing on the end game.”
What is an investor’s best source of alpha?
“I think, unequivocally, it's the risk-off. I know I have an incentive to say that, but I've always made the point that alpha doesn't come from being up more — it comes from being down less. Which is hard to do because markets go up more often than not.
“This is why I think it's very hard to beat the market because when you're in an environment where the rising tide is there, everything has a moment where it's performing well and it's hard to find alpha. Remember, even the definition of alpha is tricky because it's alpha against beta too. But I think in general, the real legendary traders, allocators and investors, a lot of them mean short bets or things of that nature. The reality is that it's the downside where the alpha comes from and I think if you keep that in mind that's how you can really generate significant wealth longer term.”
“The reality is that it's the downside where the alpha comes from and I think if you keep that in mind that's how you can really generate significant wealth longer term”
To hear more from Gayed on how he developed his investment strategy and how he interprets the stories around the numbers, listen to the full Opto Sessions episode here.
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