
The Zipper
April 17, 2025
I had a neighbor come over to watch me trade this week. I don’t have the craziest trading rig in the world, but it’s still pretty impressive. Four huge monitors with Bloomberg charts and futures ladders all over them, along with a fancy chair I got from Office Depot. Sometimes, I still think I need more screens.
Anyway, this was a heck of a time to visit a trader—he’s sitting there looking at the S&P 500 futures ladder, which is whipping all over the place like it’s on crack, and he says, “Wow, this is really volatile!” I always love it when people see how the sausage is made the first time. There was an old guy (since passed away) in Myrtle Beach who read Street Freak and fancied himself an amateur stock trader, and he allegedly told someone about the book. “These guys are nuts!” Yes, Wall Street is nuts. And you have to be nuts to work there.
A wise man said to me once, “Bear markets are capital-destroying machines.” It’s a common misconception that all you have to do is be short in a bear market. Au contraire. Bear markets destroy the bulls’ capital, they destroy the bears’ capital, they destroy everyone’s capital.
If you weathered the last two weeks and made money, you’re one of the lucky few. If you did it with my help, you should buy five copies of my next book.
What You Can Expect Next
I want to just write down some opinions about what we can expect in the coming weeks and months. The opinions are opinions, subject to change after I hit “save” on this Word document:
Don’t think we’re entirely out of the woods yet with stocks.
The dollar is getting down into the buy zone. Give it one or two more weeks, and you can play for a bounce.
The bond market is massively mispriced. I’m bullish.
Don’t be scared to buy gold. It is still not a bubble.
Could this be the time for small-cap value?
One of the things I’ve been writing about in The Daily Dirtnap is the idea that the closest analog to what is going on right now is 9/11. In both cases—today and in 2001—you had an exogenous shock, and the market was down 12–15%. Then, stocks rallied back quickly almost to the highs. Then, they consolidated for a period of months. And then, you had a vicious bear market in the summer of 2002. Am I saying we will have a vicious bear market in six months? I am saying that is a possibility. This could just be the starting gun.
Remember those carnivals that used to come to town when you were a kid? We used to have the Coleman Bros. carnival come to Taftville, Connecticut every year. Amazing that my mom let me go unsupervised. All the ramshackle rides, the ex-cons running them, the fried dough, the freakshows—there was a whiff of death in the air. My favorite ride was The Zipper. You’d have to be out of your tree to get on that thing. But I would, and I would scream my head off—better than any Six Flags ride I have ever been on. Inevitably, someone would puke, and you’d see it dripping out of one of the cars above.
Kind of reminds me of this week.
And guess what? The ride was so much fun, you wanted to go on it over and over again!
The Importance of Correlation
Last week, we talked about the concept of financial stress, about how all the ding-dongs loaded up on stocks and then whined when Trump tanked the market with tariffs. These people do not have a sophisticated understanding of risk.
After 26 years of doing this, I like to think I have a pretty sophisticated understanding of risk, but occasionally, my portfolio will go to rho = 1, and I’ll be up or down 5% in a day. Rho = correlation, and correlation is the most important concept in finance. Correlation is what caused the financial crisis, by the way—not many people understand this.
Let’s say you have two stocks: Stock A and Stock B. They have a correlation of 0.3. When stock A goes up $1, stock B usually goes up 30 cents. Easy enough to understand.
So, you build a portfolio of Stock A and Stock B and Stock C and Stock D, whose correlations are pretty low, and you have a portfolio without a lot of volatility. Then, whammo—something happens, like the tariffs, and all the correlations go to 1, with your portfolio down 6% in a day.
That is the thing to remember about correlations—they aren’t always stable. The portfolio that you think is “safe” may not be safe.
Correspondingly, everyone thought mortgage-backed securities were safe in 2007 because New York had a low correlation with Houston, which had a low correlation with Seattle. Then, suddenly, correlations went to 1, and the entire housing market went down at once.
“This isn’t supposed to happen!” the quants said. No, it isn’t supposed to happen—but it happened.
Now, a lot of people build a portfolio of stuff that has a very high correlation to begin with. I met with a former student last week, and his portfolio consisted of two stocks, Nvidia (NVDA) and Broadcom (AVGO).
“You have a diversified portfolio!” I said, sarcastically. But every once in a while, you build a portfolio of NVDA and PM and XOM and ANF and TGT, and correlations still go to 1. Which means you have to look outside the stock market for stuff that is not correlated to your stocks. Like bonds, commodities, gold, real estate, or cash. Yes, I am on the hobby horse again.
And guess what? Last week, stocks and bonds were correlated again! Stocks went down, and bonds went down. Now, bonds went down for completely idiosyncratic reasons—it was China selling and/or the basis trade blowing up, but nonetheless, if you just had stocks and bonds (which most people do), you were hosed.
Meanwhile, if you had gold, which was up about $100 three days in a row, you were happy. And if you had cash, you were also happy. And if you had international stocks, you were happy—the dollar went down about 3–4% in a week.
People get used to a stable correlation environment. Then they increase their risk (like the bond basis traders). Then something happens—and they get blown up.
I think I will do some writing about correlation when I finish The Awesome Portfolio book next month.
Never Fall in Love with Your Stocks
Let me share with you something I tweeted last week:

I bought two stocks, and they essentially went bankrupt. You probably think I am a dingus. I am not a dingus. I made lots of money on these stocks.
Here’s a piece of advice: Never fall in love, get married, have kids, and move into a house with your stocks. I was a big fan of Beyond Meat. Used the product all the time. My wife is a vegetarian, so we were super excited about plant-based meat.
Bought the stock, noticed that sentiment was starting to turn, the stock was acting a little funny, and sold it. Part of this game is having the ability to change your mind—to go from “this is the best company in the world” to “this company is screwed” in the span of a couple of months.
When politicians change their minds, they are pilloried. You’re not supposed to change your mind. But changing you mind is a good thing, no? You change your mind with the arrival of new information. This is why traders typically make terrible politicians… and why politicians make the worst traders.
In the financial pundit world, you have ideologues. You have people who are always bullish on stocks. You have people who are always bullish on bonds. You have people who are always bullish on gold. Etc. These people are fun to follow for a while, until the trend reverses and everyone is holding the bag. I can name a few people off the top of my head. I’m sure you can too.
I will probably change my mind about something in this newsletter by the time it is published.
Just Enough to Be Dangerous
Anyway, we’re getting down to tag ends on the Options Masterclass. Close to a thousand people have taken it so far. I am being honest with you that I have heard exactly no negative feedback.
If you know just enough to be dangerous—which I suspect describes a lot of people here—you need to take the class. A few hundred bucks can save you thousands. And maybe you take the class and are like, “Yeesh, this is way harder than I thought it was!” Well, that also saved you thousands of dollars.
Price is going up soon. Get it here and save 50% before April 22.
Jared Dillian, MFA
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