April Investment Strategy: Q2 Will Be The Most Pivotal Quarter of 2023. Be Prepared for Violent Episodes This Quarter.
Premium Investment Strategy (Big Preview Included): I expect Risk-Off to eventually return in a violent manner. Critical earnings season approaches.
Note: This Investment Note will provide an important updated view on fundamentals, macro, and technical opportunities. Additional follow-ups in April will be provided based on market context - do not worry! I will take care of you.
This investment note has educational elements as well for both beginners and advanced investors alike.
I believe this will be one of my most impactful letters written to Members so far in 2023.
Members,
Welcome back to another Strategy update where I will share updated insights and observations on the latest in markets.
Given that I now send (many) more than just 2 Bi-Weekly reports per month, I will also make this note concise. By doing so, I can make my notes time-efficient & actionable, while allowing myself time to craft timely updates for you when there are opportunities in the market.
I know that timely updates are very much appreciated by the Community, so that’s what I will do!
Here’s the agenda for today:
Fundamental backdrop in U.S. and China markets - my fundamental interpretation of WHY the markets have risen so strongly in the context of a weakening economy. My view on the current market setup.
Technical Assessment of U.S. & China markets - risk/reward update
Stocks/Themes/Opportunities of interest at today’s key levels - this will be exciting - I’m talking about a select few ideas/setups outside of my U.S. coverage universe in a way that I believe will add diversification benefits once levels come back to us.
Quick commentary on Q1 2023
Q1 has come to an end and I’m most proud about my risk management and my ability to kill drawdowns before they have a chance to diminish my alpha.
Thoughtful Thematic selection of course played a role, but I ultimately believe that execution is a skill that I have taken many, many years to harness.
And I’m still working on it every single day.
Execution is personal to my own methodology. I do not discuss my own setups in detail.
All the strategy, all the views, and all the sentiment I share in Substack/Patreon - I follow my own strategy provided to readers. My community’s content is my personal investment journal.
Just so that Members understand my objective, here’s my goal:
My longer term goal is NOT to beat the index. My goal is to generate INCOME/Gains using a systematic approach. This means my style is that I’m trying to target a 1% gain on average every month. Might not seem like a lot, but I do plan to scale my strategy with more capital, and it becomes quite meaningful/additive when markets do nothing or are falling. From my experience, targeting for more than 1% gain a month at the portfolio level almost always requires a materially higher level of risk-taking. For me personally, I am very happy with ~1% per month.
As you can see from the chart below of my methodology (in green) against the S&P 500 (in blue), most important to me is not that I outperformed the index. I do care about that, but not as much as my objective to smooth out risk and variance.
My goal is to generate returns/income in different market environments (up/down/choppy/flat). This means in general, I manage positions from an Intermediate-Term perspective and do close out positions when I have gains that I’m happy with.
The strategy that I employ today is not designed to “get rich” from the market using concentrated bets. It’s designed to make money month after month, quarter after quarter, year after year in a systematic way. In other words, I have a System. And all companies/key levels/opinions shared in my Community are part of this system.
The only thing I don’t discuss is what exact quantity and when I exactly I buy - that’s personal to me.
Generally this means I will trail large massive bull markets, but may outperform during bear markets.
If you have a reasonable portfolio size, you may agree with me in that capital preservation is more important than anything else!
My personal strategy continues to be the same:
Look for Singles, not home runs.
When VIX is high, Shorten my Duration (holding period)
When VIX is low, Lengthen my Duration
Prioritize preservation, rather than high-risk/high-reward scenarios
Heavily employ Technical Analysis in conjunction with my fundamental/macro assessment to cut losers fast to prevent sizable drawdowns, while holding onto winners as long as it’s rational to do so.
As always, I will continue to share ideas/opportunities that come across my own radar with the good folks.
Long-time members who have followed me for quite some time may have witnessed that my approach now heavily integrates technical analysis into my fundamental/macro work.
This is because I am hyper focused on identifying regions with the best risk/reward and helping folks to mitigate risk as much as possible.
My goal is to construct setups to capture upside while smoothing out risk (in the way that the market will allow me).
Also, another goal of mine has been to simplify the language of my content, so that all investors of different experience levels can benefit.
Just because I’ve made it more simple, however, doesn’t mean that advanced folks can’t benefit as well. :)
If that sounds like that gets you excited, read on.
In Q1, we witnessed the fall of several major banks, hundreds of thousands of Layoffs, the prelude to a Fed Pivot, and markets priced back near to 2023 highs.
Q2 has begun, and while I believe the worst is yet to come for the outside world, my private Community here is going to do (more than) okay.
I believe a significant Risk-Off event could be coming, and at this stage, protecting this year’s advance is far more important than chasing what’s left of this current rally.