The Compound and Friends
00:14:04 · Josh Brown, Alex Altmann
[00:14:04] S0: Can you go back to what you said about the order? How how you get to narrative? It start... Like, it starts with it starts with what... Because I agree with the the premise. I just... I sort of think, like, whatever Price is doing, that becomes the story that everybody accepts. It just takes a little while for that to be transmitted around the street. And then it's it's funny. Like, you hear you hear people saying something on Thursday. Like, five people will say the same thing, and they arrive there because of whatever price just told them. It almost never works the other way where somebody is going against price and and people accept that narrative. Does that make sense, like, I'm trying to ask you? [00:14:48] S1: It it it does. And and that's, I would mostly... For the most part, I would think... I think of that as noise. It is because people will use price to justify Yeah. Narrative, or they'll explain something x post because a price moved a certain way rather than necessarily providing real intelligence behind it and go actually... You know, challenging the view. Does does that make actual sense? [00:15:15] S0: Right?
00:15:15 · Josh Brown, Alex Altmann, Michael Batnick
[00:15:15] S0: Right? [00:15:15] S1: And so, again, that's not always the case, but there's oftentimes in the market where things just move because maybe there's a big print someone had to put through a certain trade, and it was it was done in a sloppy fashion. Moves price, everyone said, oh, what just happened? That's particularly prone, like, in the oil market at the moment. You know, oil will move around by a dollar or 2, and then everyone jumps to a conclusion that some random headline from someone you've never heard of. [00:15:43] S0: The reason. [00:15:43] S1: Yeah. That's the reason. It's like, okay. Maybe there was an algo that responds to a certain headline that's obviously the world we live in, but more often than not, it's just noise. [00:15:51] S2: Do you do you take every qualitative signal... Our quantitative signal? And the reason I ask is if you say it's just data and everybody has the data, then there's got to be something else. You need some sort of, I don't know, situational awareness for lack of a better phrase here. So for example, the analytics in football might say go for it on fourth and one every time, but there could be... Well, it's like, yeah, but we have the momentum. Our defense is strong. This offense sucks. Just punt it away and live to see another day. So how much of the qualitative overlay dictates it? Or do you just... It's just a 100% quantitative. 82% chance we go no matter what.
00:16:22 · Alex Altmann
[00:16:22] S1: No. No. No. The the quantitative aspect is really important. That... That's what I was referring to before and where there's art rather than just just science. There are plenty of strategies in the marketplace that are just literally, you know, inputs and outputs. And if it's good quality inputs, you get good quality outputs and vice versa. But I... I'm a big believer that the discretionary overlay is really powerful. It's really important. And, you know, I kind of experienced that firsthand when I was running money as well in insofar that if you just rely on a quantitative process and you inside your own bubble, I think it can work. Clearly, there's guys who have had phenomenally successful careers running those kind of strategies. But for me, personally, I believe there's real power in in talking to the community and getting a really good qualitative assessment of what that... The zeitgeist is, and then building the quantitative framework alongside that to see if they match up or if there's a discord. Right? And if there's some kind of dissonance between the two, then that's to me is usually where there's a real opportunity. Because I'm a big believer personally that... And today, in this environment, is a perfect example of that, where you've got this so called prevailing narrative that suddenly everyone is bearish on AI, right, because of what happened in the financing space or or whatever it may be. And, I conduct surveys. We just sent out a survey just today, which we conducted yesterday. Had 200 investors that came, which is a pretty good sample size from from the Wall Street community. And it's a high quality survey, and the and the feedback was overwhelmingly not bearish on on AI. Right? Only 60% of people that responded thought that we had a financing problem. I'm like, how can that be? We have a financing problem because we've just gone through one over the past two weeks, so that number should have been a 100%.
00:18:03 · Michael Batnick
[00:18:03] S2: So what does that tell you?
00:18:04 · Alex Altmann
[00:18:04] S1: Well, it tells me... So that... That's the start of a of a story. Right? Because you've got dissonance now. You've already got... Okay. Customer feedback is everyone's bearish AI. Survey says you're wrong. Okay. Let's check the positioning data. So traditional hedge fund PB positioning data from some of my competitors will say hedge fund nets are super low, therefore, everyone's bearish, and they've all sold tech. What they may not necessarily tell you, and this is in no way we... No way me sort of, like, poo pooing the the quality of work from competitors, but what that data probably doesn't show necessarily or people overlook is that the range of net exposure changes by hedge funds is minimal. It'll go to... From 48% to 55% back to 48%. Right? Why? Of course. Because a lot of these guys are RV pod shops, and so they're just running market neutral neutral strategies. So in reality, they they have no or little market sensitivity beyond their beaters within the portfolio. So I don't care what they're up to. And we get... We... We've run stats around this. So the point being is is that we'll use the positioning data where we think it's valid. So what are retail positioned in? Huge vertical. I mean, the largest owner of stocks is the retail community. Next largest owner, re... Mutual funds. Right, and levered ETFs. What are they up to? Right? So these are the verticals. What are vol control funds are up to? Those guys have significant equity length. QIS strategies, Ditto, CTA, Ditto. So you build up, like, a a quantitative picture across your framework, and you say, okay. What does the positioning metrics actually look like? Now let's compare that to what the prevailing narrative is, and now let's compare it to what our customers are saying.
00:19:41 · Michael Batnick, Alex Altmann, Josh Brown
[00:19:41] S2: What do you see in retail? Is it... Was it... Is it dumb money as people say, or have they been... I feel like they've been pretty damn right the past this this cycle with buying dips. [00:19:48] S1: Vast majority of retail would... Our portfolios would have outperformed institutional portfolios. [00:19:52] S2: What does that tell you? [00:19:54] S1: It tells us a few things. First and foremost is they have more holding power. Right? So a lot of the hedge fund community are operating on much tighter drawdown limits because their mandate on... You know, they're [00:20:06] S0: They're being observed. Correct. The retail account is not being observed by anyone other than the holder and the holder's wife. [00:20:12] S1: Yes. And and and and and it's something they wanna brag about to their their friends at at dinner parties. [00:20:19] S2: I bought the dip. [00:20:19] S1: I bought [00:20:20] S0: the answering to a committee about why they're overweight semiconductors. They're just overweight semiconductors because they wanna be [00:20:27] S2: And why they draw down 400 basis points? [00:20:29] S1: Right. Right. And the only thing that will basically cause them to stop out is either their brokerage account basically margin calls them or they lose their job. That's it. Yeah. Right? That... It really is all about... People always ask me, oh, what gets retail to sell? I'm like, lose your job or when your neighbor loses their job.