Anything You Do is Everything You Do.

Or: What Tom Waits said.

Absorbing Hedgeye Risk Management’s content and refining my use of their investment process is a big part of my everyday routine, which I established in part one of this series.

In this segment, I explore my healthy obsession with Hedgeye, three key things to deploy the process successfully, the significance of OODA Loops, and the reason anything you do matters.

Daily Routine 

My routine starts around 7 a.m. reading Keith McCullough’s early morning tweets (he puts “two feet on the floor” every weekday morning at 4:30 a.m.), in which Hedgeye’s founder, CEO, and Head of Macro details the global market numbers he considers relevant at that hour. Everything from Chinese economic data, South African stocks, currency moves, to the gold price.

Early morning tweet from Keith McCullough on September 12.

I then listen to and/or watch The Call at 7:45 a.m. - the live, behind the scenes, hour long discussion featuring Hedgeye analysts with McCullough steering the conversation starting at his home in Connecticut, then driving on the Merritt Parkway, and ending at Hedgeye headquarters in Stamford. 

Keith McCullough on The Call.

Then I watch and/or listen to The Macro Show at 9 a.m. - the live, 30-minute show that gets Hedgeye’s institutional clients and do-it-yourself subscribers ready for their investing day.

McCullough runs through the top three things in his voluminous notebook, references a relevant quote from a book he’s reading (he tries to read a book every 10 days on math, history or behavior), scours the investment landscape from Indian stocks to soybeans, and takes some questions from viewers.

McCullough on The Macro Show.

During the show, McCullough, usually accompanied by Daryl Jones, Hedgeye’s Director of Research, is an outsized, exaggerated version of himself. He’s always informative, educational and entertaining. 

In and around those shows, I read The Early Look, which McCullough writes by starting with a quote from a book that applies to a point or two related to the current market setup, or a certain component of the process, or to pound home a reminder on investor behavior to emulate or get rid of. McCullough skillfully integrates the quotes throughout Hedgeye’s daily content.

Before the market opens, I analyze the Risk Range Signals, a mix of 37 bonds, global stock indices, currencies, commodities, major tech stocks, and Bitcoin, which show the low end and top end of their risk ranges and whether they’re bullish or bearish trend within McCullough’s volatility adjusted signalling process (VASP).

A snap shot of Hedgeye’s Risk Range Signals as of the morning of September 11.

Trading Day Starts 

When the trading session starts and “macro tourists” have left the “kiddie pool” around 9:50 a.m., Real-Time Alerts (RTAs) often start hitting my in-box.

McCullough is buying SOME of a certain stock, for example, because it’s red and at the low end of its Risk Range within a bullish signal. Or selling SOME of an exchange-traded fund (ETF) because it’s green and near the top end of its Risk Range.  

A few coaching notes from McCullough accompany these RTAs on why he’s making the move within the “Mucker Family Office” or “MOFO” portfolio, a long-only ETF account. He also sends out RTAs before the market close.

RTAs can also include individual stocks McCullough may own in a personal long-short account. He’s restricted for compliance reasons from owning any stock that Hedgeye’s analysts cover.  

An example of a Real-Time Alert from September 11.

Later in the morning, I receive the Portfolio Solutions: Daily ETF Re-Rank, a summation of the trades McCullough has made so far that day. The update on September 11 looked like this: 

• Keith's Commentary: "In the PA today, I bought 100bps FXB. Bought 50bps IAK, XLP. Sold 50bps PINK, FKU."

On Monday mornings, there’s a troika of invaluable emails that Hedgeye sends out. Two, I get through my Macro Pro subscription, and one is a new product, Signal Strength Stocks, that requires a separate subscription because it’s a Holy Grail of sorts of the Hedgeye process. (More on that below.)

The Investing Ideas - Levels list, made up of 15 longs and 10 shorts (as of September 9), updates Risk Ranges for longer-term equity ideas that are highly ranked by Hedgeye analysts and are bullish or bearish trend.

(Note: McCullough is the only person on the planet with access to these signals. He’s mentioned that his teenage son may have access, as well.) 

Six of the 15 longs are real estate investment trusts (REITs). One of them is Ventas Inc. (VTR), a company that specializes in research, medicine and healthcare facilities. It’s been up 45 percent since late April. Around that time, Rob Simone, Sector Head of REITs, identified several companies seeing a positive inflection in their businesses.

A glimpse of the Investing Ideas - Levels list as of September 9.

Another product delivered on Mondays is the ETF Pro Plus - Levels list and Risk Range levels. This is a replica of the Mucker Family Office account showing 26 longs (as of September 9), including big winner iShares MSCI India Small-Cap ETF (SMIN), up 30 percent in the last year, and 12 shorts. (I don’t short individual stocks but will use various short ETFs.) 

A peek at the ETF Pro Plus - Levels list as of September 9.

The most recent Signal Strength Stocks list (September 9) showed 52 stocks that are bullish trade and trend ranked by how long the stock has been on the list, gains or losses over that time, which analyst covers the company and where it ranks among the analysts’ Best Ideas.  

Of the 45 stocks that have been on the list for more than 10 days, 38 of them are higher by between one percent and 74 percent for Tenet Healthcare (THC), which has been on the list the longest at 213 days.

Three Signal Strength Stocks as of September 9.

Mountain of Data and Information 

The sheer amount data and information provided by Hedgeye over the course of a week is staggering. What I’ve mentioned doesn’t even account for weekend content and special shows such as Macro Themes updates.

McCullough delivers those presentations eight times a year, showcasing a massive slide deck that provides a detailed overview of Hedgeye’s macro-economic data. Visually rich charts accompany the deck, exploring potential outcomes based on rates of change, two-year base effects, and various other factors.  

Real Conversations, which McCullough conducts with the likes of Marc Cohodes, also provide invaluable information. Cohodes flagged the FTX fraud a month before the story blew up in the mainstream financial media, saying in November 2022,

“Everything reads like this thing is a complete scam…I think this thing is dirty and rotten to the core.”

Short-seller Marc Cohodes on Hedgeye TV.

The appearance by Cohodes was riveting and powerful television. As was the conversation this past week with Judy Shelton, author of the new book Good As Gold, which McCullough called, “One of the better Real Conversations of all-time.”

Healthy Obsession 

My healthy obsession with Hedgeye grew when I became preoccupied with trying to understand and master what can be, at first, a daunting process with its use of fractal math and unfamiliar terminology: GIP, Quads, Bayesian Inference, Flip Line, and many other terms and acronyms. 

As the Hedgeye method became clearer, more ingrained and understandable, I realized it is brilliant in its simplicity. 

The primary goal of the Hedgeye process is helping investors risk manage, preserve, protect and compound their capital. The Hedgeye way is far different from traditional 60/40 investing, which relies on buy-and-hold strategies, valuations and technical analysis, which McCullough often boils down to people following “50-day moving monkeys.” 

Three Key Things

Hedgeye suggests an investor needs to do three key things every day to successfully manage their investments as a full cycle investor. (An example of a full investing cycle is the peak in November 2021, to the trough in October 2022, to the peak in July 2024.)

1. A proven and repeatable process 

2. Fading your feelings 

3. Discipline and execution 

OODA Loops

That means when I’m sitting at my computer screen before I buy or sell a stock or ETF, my process should always be the same and automatic to ensure I’m thinking practically for better results.

Ideally, I’m executing an OODA Loop - observe, orient, decide, act. It’s a decision-making model developed by John Boyd, the late U.S. fighter pilot and military strategist.

With making a trade, my OODA loop should include observing and orienting to whether the stock/ETF in question is bullish trade and trend, where it’s sitting in the Risk Range, whether volume is accelerating or decelerating and, depending on the security and whether the data is available to me, its implied and realized volatility levels.

The Hedgeye process takes emotions and uncertainty out of decision-making. How many times has an investor vacillated on a stock and not taken profit on a winning trade, for example, because they didn’t want to miss out on more upside only to see the stock fall back to where it came from?  

Or, instead of taking a minor loss in a stock that isn’t working, they convince themselves to wait until it gets back to at least break even only to see a five percent loss turn in to a 20, 30 or 40 per cent loss or worse.  

Those are just two examples of mistakes my former investing self made many times because emotions ruled me, even though I thought I was acting rationally. I make those kinds of mistakes far less now, but my former investing self still sometimes intervenes.

The Hard Work

That’s why mastering the Hedgeye process is hard. McCullough admits as much. The advice is always: don’t whine, learn from it, get better and move on to the next play. It’s hard work. But that’s the point. If you’re willing to do the work, then the Hedgeye investing process can be profitable.  

By the way, doing ALL the hard work in executing the Hedgeye process means waking up when McCullough does (I get up at 7 a.m.), measuring, mapping and marking in a notebook, with multiple coloured pens, the closing market numbers from 50 countries, along with prices of currencies, bonds, equities and ETFs over various time periods. 

If you fight the process or lapse into your former investing self by chasing a stock or hanging on to losers, then get better, as McCullough likes to say. 

Anything You Do is Everything You Do 

The word journey has become overused these days. But it’s a proper way to describe my path using the Hedgeye process. I am trying every day to become a better investor. That goal extends to most aspects of my life. 

There’s a quote from one of the many books McCullough has recommended:

“Anything you do is everything you do.” Or, put a different way, “How you do anything is how you do everything.” 

Martha Beck, an author, life coach, speaker and sociologist, has popularized the maxim. The origin of the phrase is unknown. Many believe it was first said by a Zen Buddhist.  

The crux of the phrase is whatever you’re doing, be it washing the dishes, hitting a golf ball, or working on a project, do it while being present, with energy and focus and do it as well as you can. When you falter, acknowledge your failure, learn from it, forgive yourself, and refocus on the next task. 

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Next Saturday: Reinventing My Former Investing Self

Disclaimer: I do not have a financial arrangement with Hedgeye. This series is not to be construed as investment advice, instructional nor promotional. Dan Holland, Hedgeye’s Head of Media and Public Relations, has been gracious in making my writing available on Hedgeye’s website.