IABATO

It's All Bollocks And That's Official

Having spent 44 years in the investment industry, on both the buy and sell side, as a discretionary portfolio manager, CIO of a fund of funds, consultant as the hair became silver, and being friends with many of the great and good (and a few not so good!), I reckoned I had seen it all; until today.

The message we have all received throughout our careers is that market timing is for the birds and buy and hold is the way to go.

My message to you today is IABATO. It’s All Bollocks And That’s Official.

Much of my career was spent interrogating fund managers about their processes and to find out if they had an edge. Very few of them did and today it’s even less likely with the rise and rise of passive. The only thing you need to know about the market mechanism is to watch the flows into (and one day) out of BlackRock and Vanguard. When the flows reverse active managers will make a comeback, if there are any left!

We have all read volumes of research and listened to an endless stream of pundits talking their book, backed up by their opinions. And now we have constant twittering and algo frenzies from which to make a head or a tail.

Opinions are frankly useless when it comes to investing; and in pretty much every other field of existence!. And you are quite welcome to say, “Well that’s your opinion!” Indeed, but not about how markets operate.

Markets are fractal. They have memory at all degrees of trend. Two books for the uninitiated about fractals. The Fractals of Finance, a primer on fractals, by Richard Brennan and by the master himself, Benoit Mandelbrot, The MisBehaviour of Markets which is a must read.

Price tells you a lot. And rate of change of price tells you the most. The same can be said for GDP and inflation. Get the trend in both right and you will be way in front of the talking heads, and your own opinions! There are 4 combinations of GDP and inflation, and as I have learned from Hedgeye, markets behave differently in each one.

In a benign environment of rising GDP and falling inflation (in rate of change terms) equities (tech, consumer discretionary, industrials, materials and REITS) credit and commodities are the areas to concentrate upon, avoiding defensives and value. One day value will have a day or two in the sun; won’t it?!

In a reflationary environment, with GDP rising alongside inflation, the condition we are in now, commodities go to the fore, notably energy as well as tech. Both these sectors were on the buy list back in Q1 well before the AI rocket ship launched and the Orange One took a disliking to Iran. Precious metals don’t tend to do well here as rising rates are not helpful to an asset class that generates no income; again, as we are seeing currently.

In a stagflationary environment, which we are currently transition into, with GDP slowing and inflation rising, gold shines, as happened in the early months of 2026. Commodities also perform well along with Utilities, Energy, Consumer Staples and Healthcare.

In a deflationary environment with both GDP and inflation falling, bonds, gold and the USD are the top performers. Energy, Tech, Industrials, Consumer Discretionary and Financials are to be avoided.

This is a US centric view of the world and elsewhere GDP and inflation may well be following different paths. So, crank up your Bloomberg screens and see what is happening in rate of change terms around the world. This is a go anywhere approach.

This data can and will change monthly and paraphrasing the Keynes dictum, if the data changes so does the portfolio. This is not what buy and hold tells you to do, which is mostly based on opinions about the unknowable future. Why do we do think we can predict the future? Why do we do that?

Rate of Change data gets you a lot closer to market timing, the other sacred cow in the sense of “it doesn’t work.” If the RoC data say this is the time to buy or sell, then do it. This process is not infallible, but has a significantly positive hit rate. Holding on to losers is an absolute no no. Bitcoin hodlers please note.

As Keith McCullough, the rabid Canadian from Hedgeye, puts it regarding “bubbles” in which US markets find themselves right now.

Don’t overthink it, “turn off your mind”, and let the machine - the fractal math - and flows do the work for you. The market, in its infinite wisdom, will tell you when this is over.

The data doesn’t have an opinion, so let go of yours.😎