Just Do Your Thing

Last weekend, I was DJing at a club in Nashville, and after my opening set, I was in the green room with the club owner. I told him that I got booked to play a festival in Seattle and showed him the flyer on my phone. He sat there, looking at it, trying to make sense of all the different names and genres on the flyer. Finally, he said, “Just do your thing,” which to me means playing melodic beat-heavy organic and progressive house at about 122 beats per minute. I’m a bit of a Swiss army knife, and I can shapeshift depending on who I’m sharing the lineup with, but sometimes it’s best to just be yourself. So, that is what I’m going to do.

I’m also going to suggest that you just do your thing in the investing world. For example, some people are natural short sellers, and while short selling really only pays off during bear markets, the talented short sellers have a knack for making money in bull markets too. It can be done. 

Some people’s brokerage account balances are dictated by the fortunes of gold miners. That is another way to make money. Some people day trade currencies with leverage and do it well. That is another way to make money. The reality is that there are a million ways to make money in the markets, and nobody has a monopoly on good ideas, so when you go around saying that your way is the right way and everyone else is a fool—that’s when you start to get in trouble. 

I find this sentiment to be particularly concentrated in the bulls and optimists, who think they have the market cornered on good ideas and that the 11% returns they’ve gotten for the last 50 years are unbeatable when, in fact, they are not. I’d say that there are a million ways to skin a cat, but I’m sitting here on the couch with Wendy and Xenia, and they probably wouldn’t appreciate it.

Old Habits Die Hard

At the time of writing, it looks like Trump erred in judgment, thinking that the Iranians were trustworthy, rational actors, and now the war is spiraling out of control. Also, that chart of the S&P 500 looks very scary. Just do your thing, unless that involves buying MU or SNDK. 

I’m not going to tell you what to do, but chaos and uncertainty are expanding here, and the VIX is upticking. Someone sent me a chart of flows into stocks—they are 3.5 times higher on down days than on up days, which means that for the last year, people are aggressively buying the dip. Way more money comes into the market on down days than up days. If you could make money by pushing a button, how many times are you going to push the button? The Skinner box. People will do it until it doesn’t work anymore, and then they will regret it.

I’ll tell you some other factoids: Leveraged ETF assets are now 4.5 times higher than they were in 2020. The average days to expiration for an option traded is now three days. And you’ve seen the charts of margin debt as a percentage of GDP, which is at all-time highs and then some. There is a lot of speculation out there, to say the least. And old habits die hard.

No More Bond Bulls Left

My guess is that most readers of this newsletter are long-only investors. Shorting is hard, and so are options. Can I convince you to peel off some of your stock portfolio and put it in bonds, which everyone hates? We have near-unanimity that inflation is going to spiral out of control and yields are going to skyrocket higher. There are no more bond bulls left. Undiversified and stupid is no way to go through life, son. I’m a big fan of selling stuff that everyone loves and buying stuff that everyone hates. 

A word on bonds: They don’t like the war—because war is inflation—but I assure you that if the war started to have some measurable impact on confidence, bonds would rally, not sell off. We may be getting to that point soon.

Good luck out there. The first quarter was pretty fun for me, the second quarter not so much. I tend to do well in vol-expanding environments. I like it when there is chaos and disorder. My wife knows this about me—she’ll look on the news and see that the Dow is down 1,000 points, and say to me, you must have done pretty well today. Yup. If you want to know why I do this, read THE AWESOME PORTFOLIO.

And if you want to see me play at Soundwavs in Seattle, details are below.

Jared Dillian, MFA