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The key to investing success is being wrong a lot, says Rob Isbitts and Matthew Tuttle (0:35). Dead money and lost opportunity costs (2:20), S&P 500 + NASDAQ risk, looking at gold miners (6:00) and real life examples of portfolio allocation (12:15).
Transcript
Rob Isbitts: Hey, this is Seeking Alpha's Investing Experts Podcast. I'm Rob Isbitts, Seeking Alpha contributor under the profile Sungarden Investment Publishing. My friend Matthew Tuttle of Tuttle Capital Management is with me again. He is a fellow Seeking Alpha contributor, a highly experienced trader and an ETF innovator. So we hope you can learn from our experience by listening to this podcast and following us on Seeking Alpha.
Now, Matthew, the working theme for today is this, the key to investing success is being wrong a lot.
Matthew Tuttle: So, yeah, Richard Dennis and Bill Eckhardt, real quickly, were extremely successful traders in the 70s, and they made a bet about whether trading can be taught or whether it's innate.
And not unlike the movie Trading Places, they went out and hired a bunch of people, gave them their system and tried to figure out whether these people could be profitable with their system. I think the results were somewhat mixed, but the idea I'm getting at is that the Turtle system was extremely profitable for a bunch of these traders.
The win ratio on their trades was about 30%. So they only won about a third of their trades. But what they did is they cut their losses and let their profits run. So they made extraordinary amounts of money because occasionally they would hook a monster and they would let that run and then they'd have a lot of small losses.
RI: I don't want to invest $100 and see it go to $50 on the way to going to $200 because first of all, it's a long road. And secondly, that is what they call dead money for a long time.
I pointed out in one of my articles recently that we're going on two years of flat. So as great as this year has been, even for an S&P investor, you still haven't made up for last year.
MT: Well, and you brought up an important point that the dead money point from the standpoint of lost opportunity cost is huge.
So, you look at like 2000 to 2010, the last decade, and a buy and hold time in the market versus not timing the market guy would argue, well, okay, yeah, you didn't make money for 10 years, but if you held that entire period, you didn't lose either. Great.
But if we assume that our investing life cycle is, let's say 60 years, you lose 10 of those, that’s a big chunk. Those are 10 years you never get back. To me, that's a huge deal.
RI: I'm 59. Okay. I cannot afford to give away the next decade. Nor can anybody my age, nor can anybody your age or a few years younger. And unfortunately, I think that that is what gets lost with the passage of time because that's exactly what happened.
Shout out to Ben Carlson, and his broadcast partner, Michael Batnick. They do something called Animal Spirits. Ben mentioned me and a little conversation we were having on Twitter/X whatever last week. I tuned into his podcast, latest podcast episode yesterday, and I was like, he's talking about our conversation.
But here's one of the things I mentioned in that, the debate was over sort of 60:40 portfolios. But I think the key point related to what you were just saying is this, from 1969 to 1979 the return of the S&P 500 total, total 4%, not 4% a year, 4%. 10 years.
From 1999 to 2009, you and I both lived through this, I actually managed a mutual fund through part of it. And certainly managed private client accounts for all of it, just about all of it. 1999 to 2009, the S&P's return cumulative minus 24%. I think it was 12 or 13 years before you finally made it back to even at least on the price based S&P 500.
Is that kind of what you're talking about when it is like and yeah, maybe bonds will bail you out, maybe they won't, but let's face it. Today's investor culture on Seeking Alpha and everywhere else is an equity culture.
MT: Yeah. And that's exactly what I'm talking about. And that also assumes that you can hold the entire time. It's one thing to look at a chart and say like, hey, yeah, all right, from 2000 to 2010, we didn't make any money. But I would have held.
It's another thing to have a million dollars and be right near retirement in October ‘07 and then be sitting there in March ‘09 with $400,000 and being nowhere near retirement and having years of your savings wiped out. So, yeah, you know, hey, it'll come back. But when, how much further is it going to go down.
At some point, you’ve just got to stop the bleeding. You can't assume that people are just automatically going to hold through these epic drawdowns.
RI: Taking big shots with small amounts of money. The S&P 500 and the NASDAQ, there's a lot of risk in those right now. Yeah. How is that informing what you're doing, what you're following? Let's start to get into naming some names here.
MT: Yeah. And we're taping this on the last day of the month, Friday, we've got the payroll numbers which I think are going to be an important number as far as the market. Then we, I believe we're off Monday and then September starts and you've seen a lot of -- you've seen low volume for a lot of this month, especially this week.
You've seen a decline this month, which is either, markets got over bought and just needed to correct a bit, or the beginning of something. Why are rates -- 10 year rates, which we've talked about, over 4%. So, I am really waiting until September. Let's see what happens. Jobs number tomorrow, everybody comes back from vacation and now we've got the last part of the year. You know what's going to happen.
So, I am like I've said before, T-Bill and cash heavy, waiting to see how all of that plays out and then I'll decide, do I want long, do I want short, where do I want to go?
My favorite area at the moment is the precious metals miners, more of the golds than the silvers at the moment. To me those are a play on rates in the dollar coming down where I think the short treasuries, long dollar trade probably got overcrowded.
The past couple of days, we’re seeing that start to come down. If that does, I think the safer way to kind of play things is with the gold miners, potentially the silver miners, you get a little bit of flight to safety in there where theoretically if regional banks really tank, which I think is a possibility, you may have some people moving towards gold.
So I like the gold miners better than, say the AI stocks or the ARKKish names or trying to buy a Magnificent Seven stock that's up a ridiculous amount this year. And you could do all of that, but I really like to play them with the gold miners better than some of those other things.
RI: You mentioned gold. Okay. And here's a perfect example of to me, what today's market is. Okay. So I have owned, symbol is (DUST). Okay. It's double short the gold mining stocks.
All right. And look, I've been a chartist for 43 years. You've been a chartist for decades and the charts don't even work the way they used to. But more than that, just don't move with any sort of level of permanence. So great. I’ve made money. It is having a nice move today, but I'm still down 10%. It's a teeny tiny position because levered and the whole thing. But almost like an experiment.
You have to make the decision that, hey, there's not enough clarity here. And so I better rent a lot of stuff and not seek to own.
MT: So, I mean, one thing you said, which I think is very important about charts. And I would agree that charts don't work like they used to from the standpoint of, I think most people who look at charts, what they learned about charts came from like, the Bill O'Neil school.
RI: Or more recently, the TikTok School.
MT: Then you've got the Mark Minervinis and people like that who kind of followed in Bill O'Neil’s footsteps. And the idea is buying things that break out. And I think that has become very problematic. Markets work differently than they did back in Bill O'Neil's time.
So one thing I would put out there as my two cents on charts and the way I read charts is I look for countertrend signals. I am not looking to buy breakouts. I think if you're watching something and it breaks out, then you are too late. You should have been buying that when that was pulling back into some sort of support, undercutting and an important area and then moving back above, not breaking out to new highs.
And remember, market dynamics are constantly changing. You can have the best methodology in the world and the market can make it obsolete the next day. And I think that's the one benefit you and I get from experience where -- and I interact with people on Twitter a lot and you've got a lot of people whose investing life cycle is, you know, post-COVID to now, and you and I have been around.
I mean, I've had the holy grail. I've had methodologies that were a license to print money that then stopped working because market dynamics change.
RI: Timeframe. I mention this to a lot of people in the comments and say, wait a minute. But I understand what you're saying, but what you're missing is that I didn't buy everything to hold until the same end date. Okay.
So as an example, I own (XLG) and (PSQ). XLG is the top 50 stocks and granted these are all tactical positions they could change quickly - they could change by the next recording.
But XLG is the top 50 stocks by weight. And PSQ is short the NASDAQ, they are fairly similar. The XLG position is quite a bit bigger than the PSQ inverse NASDAQ. I also wrote a Seeking Alpha article, saying it was a strong buy on PSQ, but it's in the context of a larger portfolio.
And so pairing those two up, my goal is that one of them is going to make me money sooner, and one of them is going to make me money later. In other words, is the market going to go up or down over the next several months and weeks? The answer is, yes. It's probably going to do both. And I will have exit points for each one.
Quickly the others, our smaller positions, I mean (FNGS), MicroSectors FANG Index. Supplement that position a little bit. Okay. So again, I have some things that they're not identical, but they do kind of rhyme with each other because I'm kind of playing both sides against the middle if you will.
I am short the REITs through (REK), another little known ETF. I see a possible pocket of opportunity temporarily in mortgage REITs. They also pay very high dividend yields, but I'm not sure if I'll stick around for that, the symbol is REM, I own that. Also greatest band in history R.E.M. but that’s a side note.
I own (EMTY). I don't know if you're familiar with that one. But basically what it does is, it tries to profit from a decline in the brick and mortar retail economy at the expense of the digital realty economy.
I own (VIXM), small position. That's intermediate term VIX call options. In other words, if we have an Armageddon event one day or one week or one month, that thing will fly out of nowhere. So I'd rather kind of like you say, you have to be there before it happens. That's sort of my little example. That I mentioned DUST. It's a very slight short Bitcoin after that huge runoff, that's exactly what you were talking about looking for reversals.
I have a very small inverse NVIDIA (NVDA), again on the idea that maybe it can't go up forever, but I wouldn't be putting even 3% of my portfolio in that. Same with Tesla (TSLA) on the short side.
And here's the last one, okay, the symbol is (URA). And that is the Global X Uranium ETF. It’s uranium stocks and you're right, it has gone up. However, I bought it fairly recently because I finally had enough cojones to say, you know what, this looks like it’s as close as I've seen to what I would call confirmed breakout going to old high as I have seen. So I'm looking to kind of get, let's call it the last part of the meat of the move, even though I have missed some of the meat of the move.
Again, these are all about as permanent as baseball fans will remember, as permanent as Billy Martin was when George Steinbrenner hired him to be the Yankees manager. These are tactical positions and they're all intended to work together as a portfolio.
But I have to tell you that URA, the uranium position. Again, just based on the chart work, this is the way the setups occur and how you make money as a tactical investor? Or it's going to be the 29th time this year, where I've said to myself, boy, charts don't work the way they used to because this thing seems to have a lot of good momentum.
MT: One of the drawbacks of rotating around your watch list is a name, you typically watch falling off and missing it. So (CCJ) is a uranium name, that…
RI: Biggest holding in URA.
MT: It’s one of my favorite names to watch. This latest move, I wasn't watching it. I missed it. To me at the moment it's extended. So from my methodology, I would not be buying it, but CCJ is a name I love. If it dips back down into support, then it may be something that I would buy and I'd probably buy CCJ over URA just because I prefer individual names.
RI: And I went through the same thing, I was thinking about it and I own some call options on URA too, but they're almost interchangeable because CCJ is, I can't remember, it’s like 20 something percent of URA. So, okay, good. Well, we'll definitely come back to that one and see how it did.
And guess what Matthew Tuttle, if I was totally wrong on it, okay, fine, it's part of the business. Most baseball players are pretty happy if they hit .300 and get on base 35%, 40% of the time. You were saying before about how ultimately at the end of the day, it's not, let's say the wins and losses. It's kind of the weighted wins over the small losses, right?
MT: Well, and also I would just argue, you can't be wrong if you follow your rules. I mean, the only times -- to me, the only time I'm wrong is if I don't follow my rules.
If I follow my rules and I lose money, I mean, that's part of investing. You can't -- you're not going to make money every single time, every single day, every single month, every single year.
You have to risk money to make money. And when you risk money to make money, you're going to buy a stock, you're going to buy an ETF that's going to lose. But as long as you follow your methodology, as long as it's not a stupid methodology, then you cannot be wrong.
RI: So thank you for listening to the Investing Experts Podcast. Nothing on this podcast should be taken as investment advice of any sort. At times myself, Rob Isbitts, and my co-pilot Matthew Tuttle or any guests may own positions in the securities mentioned. You can follow me on Seeking Alpha under the profile name, Sungarden Investment Publishing. Matthew Tuttle, Seeking Alpha profile name is Tuttle Capital Management.
We also invite you to join thousands of people who follow the Investing Experts Podcast on Seeking Alpha where you will find full transcripts for all episodes. Take full advantage of Seeking Alpha, become a premium subscriber, learn more at Seeking Alpha Subscription Plan Pricing.
Thank you, Matthew Tuttle. See you next time.
