Here's why "going against the grain" is good for your investment portfolio…

Wednesday: The Independent Investor From the desk of Miles Everson: Happy midweek! Welcome to today’s “The Independent Investor!” I’m excited to talk to you about another investment insight. In these articles, my goal is to help you apply these strategies so you can experience financial freedom and achieve financial stability in the long run. Are you ready for today’s topic? Keep reading below! CEO, MBO Partners

Here's why "going against the grain" is good for your investment portfolio… Have you ever experienced an instance where you felt like the whole universe was against you? If you have, don’t worry. You’re not alone. We’ve also experienced feeling that way. In fact, people in the finance and investment worlds also have their fair share of similar instances. Though the reality is that the market isn’t really out to get anyone in particular, many investors would tell you that it could sometimes feel that way. There’s an old Wall Street adage that states the market will inflict the most pain it can on the most people it can. The science behind that adage is that investors tend to follow the pack, a.k.a. “herd mentality”… so when the consensus goes wrong, the carnage spreads fast. Even professional hedge funds fall victim to such a mentality. For several months in 2023, hedge funds have amassed their largest short on U.S. Treasurys in history. [Short: This involves borrowing a security whose price you think is going to fall and selling it on the open market. You then buy the same stock later, hopefully for a lower price than you initially sold it for, return the borrowed stock to your broker, and pocket the difference.] According to Professor Joel Litman, in 2023, big names like PIMCO’s Bill Gross and Pershing Square’s Bill Ackman started shorting U.S. Treasurys earlier in the year. They expected yields to rise and therefore, prices to fall. It wasn’t long before shorting Treasurys became one of the most popular trades on Wall Street. For a while, it was a self-fulfilling prophecy. After all, the more hedge funds piled in, the lower prices seemed to go. The fun couldn’t last forever, though… The market started punishing hedge funds. Treasury prices and yields reversed courses. Many hedge funds, Ackman’s included, rushed to close their short positions in the near term. … but not everybody let themselves get burned. In today’s article, we’ll discuss one fund manager with a history of going against the grain… and what his current outlook means for you and other investors’ portfolios. Warnings from a Consensus-Bet Bloodbath Survivor American investor and philanthropist Stanley Druckenmiller founded Duquesne Capital in the 1980s. Since then, his moves have been among the first warning signs for coming recessions. Take a look at these… During the dot-com bubble of the late 1990s, Druckenmiller saw that the huge interest in tech stocks wasn’t going to last. So, he ordered his fund to short tech. Many thought the bet was a bit early. However, it was the exact right thing to do at that time considering how far the tech industry fell. Leading up to the 2008 financial crisis, Druckenmiller saw how dangerous the housing market had become. So, he started shorting stocks. His fund returned 11% while the average hedge fund lost 19%. In October 2023, Druckenmiller bought two-year Treasurys. Almost every hedge fund seemed to agree that interest rates will stay high in the long term. With so much of the market in consensus, Druckenmiller knew Treasurys couldn’t keep falling forever. So, he flipped his trade. According to Professor Litman, it’s a good thing that Druckenmiller did what he did in 2023. After all, Treasurys have rallied hard since then. The 10-year yield is back below 4.4%. Druckenmiller won this bet at the expense of other managers like Ackman and Gross. Both of them have closed their short positions for now. What else? Druckenmiller thought company profits could fall by 20% to 30% and commercial property values would plunge. Besides, consumers were running out of cash. For him, this could be the first shoe to drop. Simply said, Druckenmiller is geared up for a recession. He has a long track record of calling downturns right before they hit. Impressive, right? Professor Litman says this is another reason for investors like you to be cautious. When it comes to owning stocks, he states you should heed the warning signs and learn from the playbook of various investing greats like Druckenmiller. Hope you’ve found this week’s insights interesting and helpful. EXCITING NEWS AHEAD The world of work has shifted, and there’s no going back. The barriers to entry have never been lower for talented professionals to work independently, and today’s massive external workforce is hardly a pandemic-produced fad. Business owners can only survive in the new work landscape by partnering with this deep talent pool. With decades of experience in both small-business entrepreneurship and executive management at PwC, I truly believe that the future of work is independent. With that, I’m happy to share with you that my book, co-authored with Walter Scott Lamb, is now available for pre-order on Amazon! 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