E14 - January's Volatility - Whoa! [PODCAST]

Jordi Visser

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In this week’s episode of In Search of Green Marbles, G3 sits down with Jordi to discuss how the firm is applying a Bayesian approach to the market during these volatile times. Jordi also discusses how he believes investors should be repositioning their portfolios for the rest of the year given the uncertainty and fear that roared to life in January. 

 

 

So what is a Bayesian approach? In a nutshell, it is an approach based on Bayes’ Theorem, which is the probability of an event based on prior knowledge of conditions, also known as conditional probability. Since markets are in large part a reflection of human beings’ predictions of the future, as new information is presented, the beliefs we have on future events should change as well. As such, Jordi does not recommend reading research from people that are too anchored to their thoughts. Instead, people should let the mosaic of the market, the “green marbles”, pop out.

As mentioned in his most recent webinar, Jordi predicts that the S&P 500 will end the year at all-time highs and that high volatility will persist in the equity markets for the next 3-5 years. As a result, there will likely be multiple 6-10% corrections throughout the course of the year and the path to higher highs will never be as smooth as it was from 2010-2020. 

Jordi also opens up about how he is managing the market’s increased volatility internally here at Weiss. Firstly, the typical two-a-day meetings are going longer than usual with topics ranging from policy to the Fed to the White House. Second, he is spending a lot more time with risk managers trying to spot any weaknesses in the portfolio that have resulted from the sudden shift in the markets. 

Although Jordi views the recent market volatility as a rotation ripe with opportunity, he suggests it is still important to keep an eye on rising oil prices and increasing credit spreads. Although he believes that the markets are not showing signs of significant stress, the firm will continually monitor these and other trends that could pose a systemic threat to the economy. 

Resources:

  1. Rotation or Systemic Webinar
  2. Bayes' Theorem
  3. NDX
  4. The S&P 500 Earnings Yield