‘Less about fundamentals, more about risk management’ ~ podcast with Mark Dow

I follow a couple of macro investors out there and Mark Dow of ‘Behavioral Macro‘ is worth following.

Dow was an economist with various stints in Wall Street institutions and even the International Monetary Fund (IMF). He currently manages a family office based out in Southern California.

Futures Radio Show interviewed Dow at the beginning of the year and released their podcast interview with him here.

Here’s some of my takeaways from the interview:

• There are many who are good at reading patterns and understanding market rhythms, but they are not skilled in taking risk when the time calls for it. ‘When it comes to taking risk, one has to be aggressive, and one has to know when exactly to be aggressive and when to lay off’.
• The first level is knowing when not to take bad risk (huge risk at the wrong time), the next level is knowing how to hold on to winners and how to be aggressive.
• Mental capital is key and has to be preserved and maintained well so that an investor can be efficient in capturing opportunities.
• When it comes to debt in a system, it is the distribution of debt that matters rather than the absolute levels. The degree of leverage within financial intermediaries also has to be understood to know how vulnerable a system is.
• The share of price-insensitive buyers/investors of financial assets has risen tremendously over the past three decades, and this heavy buying pressure is weighing on assets such as bond yields.
• Soft commodities are more determined by technology and weather, whereas precious metals are more driven by market sentiment and rates.
• Gold may be getting displaced and in long-term secular decline as it moves further away from the center of the monetary universe.
• Dow uses technical analysis for entry and exit points to obtain asymmetric pay-offs, while following the market’s narrative to look for shifts.
• It’s vital to figure out when the fundamentals matter and when they don’t.
• Dow looks at financial news often as well as Twitter feeds to gauge market sentiment – ‘what are the stories that markets currently believe? How strong are those beliefs? And are the beliefs waning? do I share those beliefs?’
• Dow’s favourite book(s) on trading/investing or financial markets: Reminiscences of A Stock Operator, Thinking Fast & Slow, How to Profit in Bull & Bear Markets.
• Dow’s favourite movies about trading and the markets: Trading Places & The Big Short.
• Risk management is more important than having good ideas.

This is a solid interview with a macro veteran which I highly recommend for anyone interested in global macro investing.

Dow’s twitter handle is @Mark_Dow, and he shares his views on the financial markets, asset classes and the investing process on his blog: ‘Behavioral Macro‘.