Co-Founders' Monthly Note For Financial Advisors

July 2024:

Surf’s Up! Why We’re Paddling Into the Waves

We are frequently asked whether we are optimistic or pessimistic about the markets, the economy, the state of the U.S. in general, etc. These are reasonable questions, but they miss the essence of our approach. At Blueprint Investment Partners, our investing process, which is predicated on trend following, doesn’t hinge on whether we view the market with optimism or pessimism. Instead, it is rooted in discipline and consistency.

In fact, we believe an emotional attachment to markets — whether via optimism, pessimism, predictions, or any other judgments — is counterproductive and can lead to subjective, ego-driven decisions. Trend following is not about making bold predictions or riding the waves of market sentiment. It’s about having a clear, adaptable plan that can be applied regardless of market conditions. This systematic approach allows us to manage both the highs and the lows without being swayed by emotional impulses.

In June, for example, we saw the persistence of certain outliers that could cause an investor to make rash decisions if they don’t follow a systematic plan:

• The S&P 500 and artificial intelligence stocks reached new highs
• The Japanese Yen hit 30-year lows,
• Large cap versus small cap divergences were pronounced

Despite various forecasts and sentiments, by following price, a trend following approach inherently ignores the emotional charges of these movements.

Trend following is not about predicting outcomes but about maintaining a disciplined process. By adhering to a disciplined strategy, we can take decisive action without second-guessing ourselves or trying to parse someone else’s motivations or judgments. Yes, it can be boring, and we don’t always have a keep-you-on-the-edge-of-your-seats “story.” We’re focused far more on consistency and repeatability than narrative.

In this month’s Co-Founders’ Note, we discuss in greater detail the active outliers occurring in today’s market environment. We compare a traditional portfolio management approach to our systematic trend following strategy in terms of capturing these outliers. As part of our comparison, we talk about how, to catch the big waves, you sometimes have to paddle for the smaller ones that look promising but don’t always swell up.

But first, here’s a summary of our take on what transpired in the markets in June.