Size Does Matter

Estimated read time: 3 minutes 15 seconds

In this week’s market recap email

1. Market recap

2. Skills/methods I used this week

3. What's in and what's out of my portfolio

What Happened This Week

This week finally kicked off one of my favorite stretches for financial markets - EARNINGS SEASON.

Recall that most companies will be reporting earnings in comparison to this time last year.

Recall that this time last year most major indices were making ATHs (all-time-highs).

Recall the face-ripping inflation, fed tightening plans, and sequential growth slowdown our economy is headed towards.

Buckle up, this earnings season is going to be nasty.

Oh, and one more thing on that whole Fed tightening part - when the Fed hikes rates they influence the short end of the curve (2 year) whereas the long end of the curve (10 yr) reacts to economic indicators such as growth slowing.

Voila, you have the 10s-2s spread (10 YR rate minus 2 YR rate).

I don't need to be a chart expert to understand that when this curve is inverted (i.e. negative) that bad things are to come shortly after...

An let's be honest, this curve is more inverted than Pete "Maverick" Mitchell.

Teaching Moment

Size does matter.

Position sizing that is - do you have limits on how much you are willing to invest in something? Whether it be a single stock, currency, commodity, or fixed income position, defining your MAX will ensure your portfolio is structured to handle risk.

I have certain rules and guidelines I will follow within my portfolio. Specifically, I never go above my pre-determined maximum size for a single security:

All of these percentages are viewed as "% of total capital":

• These are examples and NOT current holdings

Currency: 12-13% - Dollar, Gold, Euro

Fixed Income: 10% - Bonds

Equity: 6-7% - Stonks

Commodities: 4% - Oil, Natty Gas, Copper

The best part about investing is that you get to pick and choose how all of these % add up to 100 - but setting a limit on each individual security will allow you to manage risk a little easier. Essentially, you're avoiding the scenario of "having all of your eggs in one basket"

And if you've had the unfortunate pleasure of having said eggs in said basket (i.e. everyone's 401k invested in large-cap Tech) welp now you understand. 

In The Account | my top holdings 

1. Cold. Hard. Cash.

   1. My top position hasn't changed in months and likely will not change for the remainder of the year as the economy starts to display slowing growth. It's best to keep the chips off the table in these environments

2. $UUP

   1. Not gonna lie, this position made me laugh this week. Talk about an absolute piss missile as people light their hair on fire. This one, along with physical cash, will remain beefed up for quite some time (currently at 9% of my capital, down from 12% as I took some gains from this latest rally).

   2. Heading into Friday, $UUP is +1.54% whereas the S&P 500 is -2.85%. ALPHA.

3. CHINA

   1. We had a HUGE buying opportunity in all things Chy-na this week - I've beefed up a lot of my longs from previous posts but my top holdings currently are: KBA, FXI, CHIQ

On The Radar | positions I want to build / sizing up

1. $YUMC

   1. Ok stay with me for a second - think crunchwrap supreme. Now think Chinese crunchwrap supreme. Because that's literally what $YUMC is, the Chinese version of owning and operating Taco Bells, KFCs, Pizza Huts, etc. If you've been locked down in Shanghai for months I bet nothing hits harder than a CWS right about now...oh, and also the signal is starting to look tasty on this one (because numbers>narratives)

2. $SJB

   1. This ETF is considered an "inverse-ETF", meaning it's going to trade as if you are short the underlying security. Specifically this is betting against high yield, which historically will get slaughtered in tough economic outlooks. Ripping puts on $HYG and $JNK is another way to play this.

Off The Grid | removed positions / short selling opportunities

1. $UNG (Natty Gas)

   1. Commodities had a nice run over the past year, but if the CRB Index is telling us anything (an index that tracks commodities as a whole) it's that inflation across this asset is coming off the highs. Natty gas has bounced considerably, but is still signaling bearish trend. That means I'm ripping $UNG puts here.

2. $FXI, $BILI, $KWEB (CHINA)

   1. But but...China is heading into a period of sequential growth increase?? Cool, good for them - all I know is that the signal does not like these two stocks so I will have the discipline to cut them loose. Rest assured I will be back...

3. $GLD (GOLD)

   1. This position has flat out sucked recently - remember to put the narratives away and focus on the signal that the market gives you. Right now it's signaling to cut your losses, just like FXI/BILI/KWEB, but rest assured I will be back...

   2. Fun Fact: Gold has a -0.97 correlation to the Dollar over the past 3 weeks. So Dollar up = Gold down. And we all know how much we LOVE those Benjamins....

Until next week....

-BW

DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.