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mYCharts - November 12, 2020

Risk On, Risk Off with Michael Gayed



Q: In your social media posts and articles that you author across industry publications, you’re often discussing a “risk on, risk off” strategy. Can you share your investment philosophy and how that filters through to your research at The Lead-Lag Report?

A: My approach to the financial markets is that it’s all about identifying conditions. A lot of folks are out there trying to pick winners and losers. I don’t do that. I use intermarket analysis and asset price movements to identify the situations which have historically favored investors who are either adding or removing risk from their portfolios. I often compare my approach to driving a car down a highway. If it’s raining, I can tell you that the chances are greater that you’ll get in an accident. Therefore, you should slow down. If it’s a sunny day, you can probably get away with driving faster. It doesn’t mean you can’t crash your car on a clear day or arrive safely on a rainy day, but the conditions increase the likelihood of a specific outcome occurring.

Q: Compared to historical averages, the market has experienced enormous amounts of volatility this year. What’s your advice for both professionals and individuals who are managing portfolios during times of uncertainty?

A: It’s all about risk management, and investors should consider the positioning of their portfolios with this in mind. Like I said earlier, if you can use historical precedent to identify the conditions which favor adding or reducing risk in your portfolio, you can enhance upside potential while reducing drawdown risk, just by paying attention to the signals. Returns can be just as impacted by avoiding losses as by capturing gains. It’s not always about looking to hit a home run. Sometimes you can score just as many runs by hitting a bunch of singles and doubles.

Q: In the chart above, you showed major price movements in “work from home” and leisure stocks that occurred after Pfizer (PFE) announced encouraging results from its COVID-19 vaccine trials. What’s your take on how investors should be thinking about the impact of a vaccine on their portfolios?  

A: In the short-term, it’s very exciting. People are anxious to put the social distancing, school and business closings and activity limits behind them. We have to remember, though, that this is just one successful trial for a vaccine that’s still not approved for widespread use, and the study is interpreting results from less than 100 positive cases. I believe there’s probably a little over-exuberance taking hold. The risk signals that I publish every week for Lead-Lag subscribers don’t necessarily take into account “events”, such as the announcement of a vaccine, so they may be a little slower in turning the ship. Currently, the signals are mostly suggesting risk-off positioning in the short-term, so a bit of caution may be appropriate.

Q: You’ve been a long-time YCharts client. Tell us how YCharts helps you in your research process. Which features enable your success most?

A: The Fundamental Charts are certainly a nifty feature, and I rely on the Timeseries Analysis tool for deep dives on data. As you can imagine, there’s a lot of data that gets used for measuring, backtesting. and performance tracking for nearly dozen different strategies based on the signals. It’s been the most useful tool for me.

Q: We love seeing your insights on social media every day. What’s your advice for investment professionals who want to build out their communications strategy and grow their following on social platforms?   

A: Always provide useful information to your followers, but make sure you’re relatable and engaging. If you’re just posting article links all day, you’re not developing a personal connection with people that come across your feed. That’s why I occasionally post videos and memes that aren’t even investment-related. It keeps things fun and helps start conversations. The investment insight will always be the core of what I do, but it doesn’t have to be the only thing.

Michael Gayed

Founder of The Lead-Lag Report


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