A Fond Farewell to DTL

By now most of you are probably aware that this is the last week that Dow Theory Letters will be published. If you haven’t had a chance to read the message that was sent out this morning, you can read it here (link no longer active), on the announcements section of the website.

Since this is the last time that you’ll hear from me via DTL, I thought I would take a moment to say some goodbyes, reminisce a bit, and let you know what I’ll be up to in case you’d like to continue following my work.

The first thing I would like to say is that it has been a true honor to work for Dow Theory Letters. When Richard and Daria brought me onboard some six years ago, I had no idea where all this would lead. Little did I realize the opportunity that lay ahead.

Studying beneath Richard will go down as one of the most unique and cherished experiences of my life. For decades many people fought to get within an arm’s distance of Richard, to ask him questions and glean some of his wisdom. And somehow, by luck or by fate, I ended up being able to sit next to him, alone, talking markets for hours on end …

One of my favorite memories occurred in the basement of Richard’s old home in La Jolla, which he used as his study. The walls were lined with books about everything from markets to politics to the economy and much more. Chart books and other reference material lay strewn across a variety of desks, and the hum of an old computer could be heard in the background.

After slowly walking across the room, Richard picked up an old book with a blank red cover on it and slowly dusted it off. Turning to me he said, “Here, this is a collection of letters written by E. George Shaefer that you won’t find anywhere else. This book is worth a million dollars to me. Take good care of it.”

I read through that book as delicately as if it were one of the Dead Sea Scrolls. As promised, it was filled with great wisdom, and the mere fact that Richard lent me one of his most prized possessions made me feel as though he was truly investing in me. In my mind it was a vote of confidence, and it’s something I don’t think I’ll ever forget.

Moving on, as you know, your existing Dow Theory Letters subscription will now become part of The Aden Forecast. I’ve had a chance to work with the Aden sisters for a couple of years now and I must say, they are both brilliant analysts, and absolutely wonderful people. In my mind there was no one better suited to take over Richard’s legacy than the Aden sisters. They have done it justice, and will continue to do so through their service.

The Adens have asked if both Jon and I would continue to write for them, in some capacity, via The Aden Forecast. While the cadence is somewhat up in the air (it will be much less frequent), I have told them that I am more than happy to contribute in any way that I can. So unfortunately, you haven’t gotten completely rid of me just yet, and will still have to read my ramblings from time to time …

That being said, I want to bring you up to speed on some projects that I’ve been working on, as well as what my plans are now that my commitment to Dow Theory Letters is coming to an end.

As most of you know, I’m a huge proponent of data-driven investing, and my background in psychology makes me incredibly aware of the tricks and distortions our minds play on us. As a result, a couple of years ago I joined forces with a few colleagues to see if there was a way that we could incorporate many of the economic and market indicators that we use to make subjective decisions about the market, into a much more objective approach.

You can think of it like trying to encapsulate the essence of Dow Theory, or other reliable market indicators, into a series of calculations and algorithms that can be applied indiscriminately, without emotion or the influence of behavioral biases.

The net result of these efforts has been the creation of an investment service called Model Investing (modelinvesting.com). Basically what we did was scour through decades of academic research that has been done on the topic of investing, cherry pick the key indicators that have been the most reliable in identifying key turning points in both the economy and market, and build these into a series of investment models that clients can follow in their own accounts.

In my opinion, this approach represents the cornerstone of how investing will evolve over the next few decades. The race towards AI and the sheer amount of data that we now have available to us is quickly overwhelming our feeble human minds. I believe that algorithmic investing is truly the next leap forward.

That said, over the last few years I have also realized that I have a strong passion for writing about the economy and markets (I think I caught Richard’s bug!). While there’s a good chance that an algorithmic approach to investing will outperform even my own subjective decision making over time (even with everything I’ve learned over the years), I still find enjoyment in writing, and believe it’s valuable for other investors to keep tabs on what’s going on in the economy and markets.

Therefore, my plan is to continue writing on a weekly basis in the same spirit that I have been here at DTL. The new home for my market analysis will be a freshly formed company called Sigma Point Capital (sigmapointcapital.com). In case you’re wondering about the name, sigma is the symbol for standard deviation, which is how risk is measured across the financial markets.

Sigma Point reflects my emphasis on minimizing risk (sigma) while still achieving excess returns. As you know from my rambling over the years, that results in higher risk-adjusted returns, which is the Holy Grail of investing, characterized by a high Sharpe ratio.

The plan with Sigma Point is for it to be the outlet for my market analysis while I and a couple of colleagues form an official RIA and begin to offer managed accounts. The managed accounts will use an algorithmic approach to investing in the same light that Model Investing operates, but will be geared towards a more institutional client base.

So, if you have enjoyed and benefited from my work over the years, I would encourage you to make your way over to sigmapointcapital.com and sign up. You can use the promo code “dowtheory” to get a nice discount.

The next thing I would like to say is a big Thank You to all the subscribers of DTL. Richard cultivated an extremely smart group of readers, and by allowing me into his “family,” I was able to communicate with, and learn a lot from, the collective subscriber base.

Whenever I said something wrong, or questionable, a handful of subscribers were quick to point that out, allowing me to course correct, or perhaps see a different side of an issue that I had not considered before. That real-time feedback has been incredibly beneficial to my development over the years, and it’s one of the reasons I’ve always felt so at home here at DTL.

Rather than a one-way dissemination of information, Richard cultivated a group of highly like-minded and savvy individuals who in a sense worked as a team. And once again, I was blessed to benefit from that … so thank you from the bottom of my heart.

I think I’m starting to run a bit long so I had better wrap this up …

I don’t know what the future holds, but I know it will be great, in large part because of the roots I’ve been able to establish here at DTL. This has been an incredible ride and I’m so thankful to Mary Anne, Pam, Daria, Jon, Chuck, Richard (of course), and the rest of the DTL team for my experience over the past few years. You guys are truly wonderful people and great partners.

As for the markets, I guess I should leave you with something to chew on …

We still may be in the midst of a strong bull market, but in many ways this is because we are pulling forward demand from the future. All great economic expansions and bull markets are characterized by excess, and this one will be no different.

Many of you may be under the impression that I’m a perma-bull, because I’ve been bullish for nearly the entire time I’ve been writing for DTL (It has been a bull market, after all), but I can assure you that’s not the case. What I am is a realist, not an idealist.

Eventually (and it could be sooner rather than later, especially with things like an inversion of the yield curve approaching), this economic cycle will come to an end and the market will top out. The extent of the subsequent recession is anyone’s guess, but there will be a recession. So make sure that you don’t get complacent as the market surges to new highs.

In the wise words of Warren Buffett, “Be fearful when others are greedy. Be greedy when others are fearful.” The market is starting to get greedy, which means it’s time for us to tread cautiously …

It’s truly been an honor. Thank you for reading, and I will see you on the next adventure!


Again, if you’re interested in continuing to follow my work, please check out Model Investing (for algorithmic based portfolio management) or Sigma Point Capital (to continue reading my weekly remarks about the economy and markets).

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