Eliminating Emotional Investment Mistakes with Process

McAlvany Weekly Commentary

This week, we’re joined by Keith McCullough, founder and CEO of Hedgeye Risk Management. Keith is a former hedge fund manager and a leading voice on building data-driven investment processes that take emotion out of decision making. In this conversation, we discuss: How top hedge fund managers approach risk and opportunity Thinking about money through a "four quadrants" framework Common mistakes investors make when emotions drive their choices Special Offer: Hedgeye is offering McAlvany listeners a free, no-strings-attached month of access to some of their top research tools through the Elite Macro bundle. No credit card required. Learn more and sign up here: hedgeye.com/mcalvany Thanks for listening! "What the companies couldn't tell you was when GDP growth was going to slow and/or inflation was going to slow at the same time, or if inflation was going to accelerate and we end up with stagflation because growth is slowing in the face of inflation, accelerating too quickly. So I kept asking myself, why the hell these guys don't know how to answer this question? And then I understood why, because they don't have a process for them. So that's where I came to the quads. Quads—so substitute for revenue growth, pod one, I substituted the rate of change of real GDP growth for countries, and for pod two, cash flows, I inserted inflation, the rate of change of year over year inflation." —Keith McCullough * * * Kevin: Welcome to the McAlvany Weekly Commentary. I'm Kevin Orrick, along with David McAlvany. Our guest today, Dave, basically tries to look at the world the way it is, not the way he wishes it to be. David: Keith McCullough joins us from Hedgeye where he's the CEO, and investors have had the opportunity to ride a roller coaster of volatility in recent weeks. From Truth Social posts to unending economic statistics and the occasional Fed official taking the mic. There are new and unpredictable inputs for investors to consider, which makes a standard efficient market hypothesis application of collective wisdom hard to benefit from. We've often explored our frameworks and indicators for credit markets and liquidity dynamics which directly affect the financial markets. We have our own processes and frameworks and disciplines, and we're constantly exploring complementary frameworks like the social and political analysis we frequently refer to from a return guest on the commentary, Neil Howe. His fourth turning framework has for many years provided an interpretive lens for generational change and volatility of a non-financial nature. So we have models, we have frameworks, we have interpretive grids. None are perfect, some are incredibly helpful—some more so than others. That's my introduction to today's conversation with Keith McCullough, CEO at Hedgeye. Imagine my surprise to learn that Neil Howe and Keith have worked together for years. Not a surprise. Another aha moment was learning that Hedgeye cartoonist Bob Rich is a part of Keith's team. I've been laughing at Bob's daily cartoons for the better part of a decade, not knowing the organization he was a part of. I mean, yeah, every one of them says Hedgeye on it. It's probably a measure of density that I didn't connect the wit and wisdom from Bob to Keith's group. It's a little like Gary Larson got an MBA, became a professional trader, and then with gallows humor peeled back the Wall Street layers of opacity. So whether it's the cartoons or Keith's approach to risk management, I keep saying to myself, that is so good. So today, we'll get to know the organization a lot better, why we have so much compatibility. We'll cover that as we go, and of course we'll look at the subscription services that Keith offers, which are invaluable for the investor rolling up their sleeves on a daily basis. We'll cover that as well. All right, Keith, let's get started. We need backstory to appreciate what you do and why you do it.