Black Swans, Dip Buying, and prepping for a recession - A lesson in theory

Hey there, hope you had a productive and fulfilling weekend!

I’ve got some really, really rough news for you this week, a symphony built on theory that I want to discuss, and hopefully some good news to end this off.

Lets dig in.

Many Americans have recently lost a helping hand.

Money is going to get much tighter for a lot of people, very quickly. On March 1st The US government ended its pandemic era SNAP benefit increases that extended and enlarged the benefits available to lower income Americans. Roughly 30 Million Americans are going to be losing access, to the tune of an average of 95$ per month. Those 30 Million people make up about 11% of the population, for reference. The potential impact to the economy and stock market is hard to quantify, but the second order effects of this is that there will be less money for everything else that people spend money on.

Remember that “Soft Landing” the Fed is trying to aim for?

Hard landing. Lets talk about how we might handle that from a strategic angle.

I’d like to share with you a simple strategy to play with going forward.

This one is a relatively simple concept. When we’re in a bull market, buy leveraged assets during any dips in the major indexes. Sit in bonds when not buying a dip.

In a bear market, it shorts any major spikes but otherwise just sit in low volatility, stable assets that may or may not return dividends.

The reason I’m sharing this is actually the top level of the strategy, a Black Swan Catcher recently posted by Garen.

Long Story short, it does a very good job of catching Volatility Events and moving in to assets that either profit from or aren’t affected by those volatility events. To tie this all together, this block sets us up for when a volatility event like, I don’t know, the market realizing that the US economy is heading for a hard landing and “higher for longer” interest rates, finally happens. If history rhymes and this looks like 2020, I’m prepped to come out of it looking like Michael Burry with 2 eyes.

There was supposed to be a lesson here?

Well yes, the lesson is to not base your strategy entirely on a backtest. There is a key place in the design process for theory and research. A thesis or plan is the basis for a strategy. This can be debated (I’ve gone back and forth for hours with various community members,) but in every debate one always has to admit that “Line goes up and to the right” has a reason. Turns out, its much more reliable when the rubber meets the road to start from the “why” rather than “line goes up.”

TLDR; Thesis > Backtest

I promised you good news, didn’t I?

Well, the good news is that the coders are plugging along, organizing and working on tools for the wider community. The overarching goal is building systems that allow everyone to identify and build around robust logic. That is a… massive oversimplification, but I’m not the person to try and explain code, you’ll just have to stop by the weekly Coders Collab to learn more!

That’s it for now, see you next time!

Please note that the information provided is for general informational purposes only and is not intended to be financial advice. The information provided is not a substitute for professional advice and should not be relied upon as such. Always consult a financial advisor before making any financial decisions. Additionally, The Hard Road staff and contributors may have a stake in the Securities, Cryptocurrencies, Platforms, and other assets that are mentioned in this article and others.