The Sentiment Analysis Investing Strategy | The Acquirer's Multiple®

During their latest episode of the VALUE: After Hours Podcast, Taylor, Carlisle, and Dillian discussed The Sentiment Analysis Investing Strategy. Here’s an excerpt from the episode:

Jared: Well, I cover all asset classes, so equities, fixed income, currencies, commodities. I cover everything. Cover crypto. But my B is really sentiment. It’s hard to summarize this in an elevator pitch, but I am sort of dismissive of fundamentals. It’s a bit stale and people are looking at the same information, and the same is true of technical analysis. But the one thing that is true of markets all the time is that, at the extremes, people are, either excessively bullish or excessively bearish.

I am not a trend follower by nature. I’m a mean reversion trader. I try to pick turning points in major asset classes where sentiment has gotten one sided, okay? So that’s really what I do. I do it individual stocks as well, but I don’t do as much in single name equities.

Tobias: How are you assessing sentiment? How do you know whether something’s excessively bullish or bearish–?

Jared: Well, the funny thing about this is that, over the last, I would say, five years, hedge funds have come to realize the value of sentiment. But they approach it very systematically. They’ve built quantitative models around it. I am not a quantitative guy at all. I’m a writer, really a right brain sort of person. So, I do it through anecdotes and tweets and stories and stuff like that. I tell subscribers this all the time, “I’m not the quantitative guy. I’m the qualitative guy.” So ultimately, being a sentiment analyst, really, your success depends on your judgment and your ability to evaluate sentiment. And sometimes I get it wrong, but I believe that my way produces better results than quantitative methods.

Jake: Them’s fighting words, Toby.

[laughter]

Tobias: I’m not necessarily disagreeing. I’m trying to learn. [Jared laughs] Maybe I’m going to join Jared.

Jake: Yeah.

Jared: [laughs]

Tobias: There have been a few interesting turning points recently. So, the 10-year was racing up towards 5% yield. When it hit 5%, I think it could have– I had no idea where it was going to go. I thought maybe it could keep on going higher than that. There’s lots of reasons why it turned around. Not for any investment purpose, really, just as an observation. But did you have a view as that happened?

Jared: Yeah. So, that’s really the trade that I’ve been focused on for the last few months. And to be fair, I was a bit early on it. But really, what developed around the higher rates trade? Keep in mind that bonds, if you look at the AGG, if you look at the AGG, bonds have been in a bear market for 39 months.

Tobias: Yeah. Wow.

Jared: So, if something’s been in a bear market– Or, if you have any trend that has lasted for 39 months. The one thing I say all the time is that, if you could make money by pushing a button, how many times are you going to push the button? You’re going to push the button over and over and over again until it stops working. So if shorting bonds has worked for 39 months, people are going to do it and that trade is going to die hard. But what I saw developing on Twitter was sort of a cult. You have to look out for cults on Twitter. You had a cult around Tesla, you had a cult around Tesla Q, you had a cult around bitcoin, lots of cults on Twitter. There was this minor cult developing around higher rates, and it was the higher for longer cult. They have this little hashtag, #H4L.

[laughter]

Jared: It’s this little club, like these Bridgewater guys started it, and everybody’s in the higher for longer club, and they get to be friends with each other, and it’s like social reinforcement. Whenever you see that developing, it’s time to head the other way. So, it’s nice that we’re doing this podcast on a day when the trend is totally reversed. My view has been proven right. This has been happening for some time.

Jake: And so, for context, if you’re listening not in real time, then the CPI print came out, I guess cooler than was expected, and so rates are coming down somewhat.

You can find out more about the VALUE: After Hours Podcast here – VALUE: After Hours Podcast. You can also listen to the podcast on your favorite podcast platforms here:

Apple Podcasts