By Gary Brode, Deep Knowledge Investing
I’ve worked for and run a variety of different hedge funds with multiple strategies: concentrated longonly, long-short equity, long-term value, special situations, growth investing, options-based hedging, and even risk arbitrage (betting on the results of an announced but not completed merger or acquisition). The best investors have a clear understanding of what makes a good investment for their strategy AND are flexible when market conditions change. That might sound contradictory, but certain kinds of investments can fall out of favor for years. Adapting to a new environment while maintaining strategic discipline makes a lot more sense than doing the same thing and having a “good” reason why you have poor performance for five years in a row.
We wrote a piece at mid-year titled, “First Half Headlines Are All Terrible Unless You’re a DKI Subscriber“. We noted that many professional investors and financial publications were talking about how terrible the first half of 2022 was; however, they ignored the opportunity to shift their focus and exposure. As of Friday’s close, this is what the S&P 500 has looked like year-to-date: