Investing Primer

You can make life changing money in the stock market. The fact that the 'best' investors of all time (Warren Buffet, Stanley Druckenmiller, etc.) averaged 20-30% per year does not mean that there aren't opportunities for you to make orders of magnitude greater returns than this.

These hedge fund managers simply have a much different mandate- "hedge" funds by definition exist to provide downside protection to their clients. This is something that is not commonly understood and is worth repeating- the goal ('mandate') of most hedge funds is to match market returns with downside protection. The main goal is not to beat the market.

For the clients of hedge funds (which are primarily institutions, not individuals), this makes sense- a huge pension fund does not care about doubling its money. The allocators simply care about making 'sufficient' returns (call it 8%) while minimizing volatility as much as possible.

To your average investor, however, this goal is not relevant. If you have the discretionary money available, risking 50% to make 20x returns may be a completely rational choice, whereas for large institutions it is legally not an option.

The truth is that the market will provide you with opportunities to make life changing money, and the likelihood of doing so is much higher in the market than it is sports gambling / investing in cryptocurrencies etc. One of the primary goals of the Square One platform is to give people the tools to understand and capitalize on these opportunities.

It must be stressed though that there is no "cheat sheet" or trading systems that you can use to "crack the code" of the market. You should not trust anyone that offers these gimmicks. With Square One, we are simply trying to improve our understanding of the financial system so that we can identify opportunities and improve probabilities, not ascertain certainties.

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Here’s a taste of what we will be building up to:

a) Note the drop in “SOFR” rates coming to a crescendo on September 27th, 2023:

And the collapse in oil prices immediately following this:

b) The spike in “Repo Fails” at the end of 2017

And the dramatic collapse of stock markets following this

c) The activity in the Federal Funds market from 2014-2018

And the performance of stock markets during this time period

d) Monetary stress building up in June 2022 (this indicator is for subscribers only)

And the collapse of oil markets on June 13th

e) Monetary stress leading up to the collapse of Silicon Valley Bank, the largest banking crisis since the GFC (I'll describe why this is a stress indicator in future posts)

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For subscribers, I will detail why these relationships exist and how we can use these types of signals to trade effectively. There is no one indicator that provides a crystal ball, but rather by understanding how the monetary system operates, we can use a combination of indicators to infer the likelihood of outcomes.

Candidly, I have held discussions with some of the most prominent hedge fund managers in the world and can state confidently that almost nobody understands this material. There is much history behind why this is (economists stopped studying the monetary system decades ago), but this ignorance is the best advantage that we as investors have.

For example, note that “FX swaps” are the foundation of the monetary system; now appreciate that 99.9% of economists and financial professionals have no idea what a FX swap is or how they affect the financial system:

A $65 trillion “blind spot” in global finance!

There is much to unpack, but for now I just wanted to briefly outline the type of material that we will be analyzing.