The Volatility Tax and 100 Baggers

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Now for your latest Macro Musings…

As always, if you come across something cool during the week, shoot us an email at and I’ll share it with the group.

Latest Articles/Videos —

A Macro Update and My Stock Shopping List for 2019 — Alex takes a high-level view at the macro markets and debuts his favorite stocks for 2019.

Full Capitulation In US Stocks Not Here Yet — Our explanation for why the S&P might be due for another leg down.

Articles I’m reading —

Our friend Adam Collins over at Movement Capital put out a great short read on the “Volatility Tax”. The volatility tax refers to the hidden tax on investment returns caused by the negative compounding effects of large drawdowns.

High volatility in an asset can lead to large differences in that asset’s annual average return and its compound returns. If you buy and hold an asset it’s the compound returns (CAGR) that matter. Here’s a chart from the piece that shows the differences between the two per asset class.

Adam gives the following example of how the vol tax plays out in reality. He writes, “Emerging market stocks had an average annual return of 10.6% from 1992 to 2018, at first glance outpacing the 10.5% average return of US stocks. Yet the compound return of emerging market stocks was only 4.6%, meaning they actually underperformed less risky assets like government bonds.”

That’s quite a difference.

Here’s the link to the piece, it’s certainly worth a read. And he cites a paper by Mark Spitznagel on the subject, which you can find here.

Next, give this post by Chris Mayer a quick read. It’s a good write-up on hundred baggers and ‘coffee can’ stocks. Here’s the link.

Lastly, if you want to read an ultra-bearish, yet still thoughtful, take on the markets then give this report a read. It’s by James Montier of GMO and serves as some good food for thought.

Charts —

@Robbinwigg (editor of US markets for the FT) put out a chart storm on the twitter yesterday. There are some really interesting charts in there, definitely worth checking out (here’s the link). Here’s just one of them showing that the ‘Goldilocks’ period of moderate growth and slow inflation has come to an end.

Book I’m reading —

This last week I’ve been reading the following three books (I like to read books in different subjects at the same time so I don’t get bored). I’m about a quarter of the way through Diffusion of Innovations and thoroughly enjoying it so far (I may be writing about it some in this month’s MIR).

I’m about halfway through The Upside of Stress and I already consider it a must-read for those interested in performance, personal growth, and all-around mental health. Essentially, the book, which is based on the latest scientific research on stress, flips the old way of thinking about stress on its head. The reality is that stress is neither good nor bad. Rather, it’s all in how you think about it that makes it so…

And finally, there’s The Big Money by Frederick Kobrick. This is an older book on fundamental value investing and Kobrick is a former long-time value fund manager who put up some good numbers, so he knows what he’s talking about.

He lays out in the book, in very practical terms, his process (which he gives the acronym of BASM) for selecting great companies to buy and hold for a long time; along with his rules for when to buy and when to sell. It’s one of the better books I’ve read on value investing in a long time. Definitely worth a read if you’re interested in that type of approach.

Video I’m watching —

The newest addition to our team, Chris D, shared this video in our CC the other day. It’s Vice’s documentary on the Great Financial Crisis. This is a must watch for those of you who weren’t involved in markets back then. And even if you were, it’s a great reminder of just how crazy things were at the time. The world seemed to be teetering on the brink — many would argue that it was — and this documentary does a fantastic job of relating the level of panic that was going on.

Quote I’m pondering —

The really best traders don’t think twice about how many hours they’re working or whether
they come in on a weekend. There’s no substitute for that level of commitment.


So many people want the positive rewards of being a successful trader without being
willing to go through the commitment and pain. And there’s a lot of pain.

~ Bill Lipschutz

Most people want the success without the work. Not only is that impossible but even more importantly it completely misses the point. The hard work is the success… “Success” without work is empty and meaningless. Seek out a challenging endeavor, pour your heart into it, and get after it.

If you’re not already, be sure to follow me on Twitter: @MacroOps and on Stocktwits: @MacroOps. I post my mindless drivel there daily.

And if you’d like to discuss macro with the rest of the Operator community, check out our Global Macro Facebook group by clicking here.

Have a great weekend.



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Brandon Beylo

Value Investor

Brandon has been a professional investor focusing on value for over 13 years, spending his time in small to micro-cap companies, spin-offs, SPACs, and deep value liquidation situations. Over time, he’s developed a deeper understanding for what deep-value investing actually means, and refined his philosophy to include any business trading at a wild discount to what he thinks its worth in 3-5 years.

Brandon has a tenacious passion for investing, broad-based learning, and business. He previously worked for several leading investment firms before joining the team at Macro Ops. He lives by the famous Munger mantra of trying to get a little smarter each day.


Investing & Personal Finance

AK is the founder of Macro Ops and the host of Fallible.

He started out in corporate economics for a Fortune 50 company before moving to a long/short equity investment firm.

With Macro Ops focused primarily on institutional clients, AK moved to servicing new investors just starting their journey. He takes the professional research and education produced at Macro Ops and breaks it down for beginners. The goal is to help clients find the best solution for their investing needs through effective education.

Tyler Kling

Volatility & Options Trader

Former trade desk manager at $100+ million family office where he oversaw multiple traders and helped develop cutting edge quantitative strategies in the derivatives market.

He worked as a consultant to the family office’s in-house fund of funds in the areas of portfolio manager evaluation and capital allocation.

Certified in Quantitative Finance from the Fitch Learning Center in London, England where he studied under famous quants such as Paul Wilmott.

Alex Barrow

Macro Trader

Founder and head macro trader at Macro Ops. Alex joined the US Marine Corps on his 18th birthday just one month after the 9/11 terrorist attacks. He subsequently spent a decade in the military. Serving in various capacities from scout sniper to interrogator and counterintelligence specialist. Following his military service, he worked as a contract intelligence professional for a number of US agencies (from the DIA to FBI) with a focus on counterintelligence and terrorist financing. He also spent time consulting for a tech company that specialized in building analytic software for finance and intelligence analysis.

After leaving the field of intelligence he went to work at a global macro hedge fund. He’s been professionally involved in markets since 2005, has consulted with a number of the leading names in the hedge fund space, and now manages his own family office while running Macro Ops. He’s published over 300 white papers on complex financial and macroeconomic topics, writes regularly about investment/market trends, and frequently speaks at conferences on trading and investing.

Macro Ops is a market research firm geared toward professional and experienced retail traders and investors. Macro Ops’ research has been featured in Forbes, Marketwatch, Business Insider, and Real Vision as well as a number of other leading publications.

You can find out more about Alex on his LinkedIn account here and also find him on Twitter where he frequently shares his market research.